Service departments face renewed pressures to recondition used vehicles

As new-vehicle sales — and profits — slump, franchised dealerships are placing greater emphasis on selling used cars and trucks. Inevitably, that also means a renewed focus among service departments on cutting the time and cost of reconditioning used vehicles for sale, from cosmetic detailing to major repairs.

"Reconditioning is absolutely essential," says Scott Greer, director of used-vehicle services at Birchwood Automotive Group, which operates 16 dealerships from its headquarters in Winnipeg, Manitoba. "Reconditioning cars properly adds to retention, and to people coming back to us and buying the next car."

The process isn't cheap. The estimated annual cost of reconditioning used vehicles for the average U.S. new-vehicle dealership more than doubled from 2009 to 2017, to $635,453, the National Automobile Dealers Association reports.

Part of the reason for that increase, warns Joe Lescota, an industry consultant in the Atlanta area who specializes in remarketing, is that "no one is watching the clock. Where gross is made is in speed."

Nearly two-thirds of the money a dealership invests in reconditioning gets recovered as gross profit, Lescota estimates. Yet reconditioning is a regular source of conflict between service departments, which often prefer to concentrate on lucrative customer-pay work, and used-vehicle managers who want to get inventory prepared and on the lot as quickly as possible.

Lescota told Fixed Ops Journal that three days is the "drop-dead max time" a dealership should take to recondition a vehicle. "Your better-run operations push 48 hours to maximize inventory turn and profitability," he says.

Yet a 2016 Cox Automotive study concludes that dealerships that recondition cars and trucks in-house often take "upward of 10 days." Just the top 20 percent of such dealerships regularly turn vehicles around in fewer than four days, the report says. Dealerships are more than twice as likely to do their own retail reconditioning as to outsource that work, according to the study.

The cost of reconditioning varies by the age and condition of the vehicle, and whether it is brought up to the standards of an automaker's certified pre-owned program. But Lescota cites a common industry estimate that it costs a dealership about $42 a day on average to hold a vehicle until it is ready for resale. So a shorter turnaround time means higher profits.

A new trend Lescota identifies is dealerships sharing reconditioning profits among all departments rather than applying them solely to fixed ops. Making salespeople happier, he says, gives them a greater incentive to serve customers better.

Satisfied customers "spend more money," he says. "And they come back and buy more cars."