Margin Compression Solution: Cut Holding Costs
In auto retail, time is money. The faster you sell cars, the faster you bring in money and more inventory. Rinse, repeat, and reap the rewards of your efficiency. In today’s margin compression environment, it’s more important than ever to find increases in other areas of your business. And, one of the best ways to combat shrinking profits is to cut holding costs by improving your inventory turnaround time.
Pass on Holding Costs
The effects of margin compression can be devastating. Not only are product costs rising at a rate that‘s outpacing the prices received from the sale of cars, but costs are increasing across the board, driving some dealerships out of business. And, it isn’t difficult to see why. On average, a dealership incurs a cost of $32 per day for every vehicle it has on the lot. So, if it takes 50 days to sell a vehicle, your dealership will spend $1,600 just to have a single car on your lot prior to sale. Now, multiply that by the number of cars in your inventory and you can see why so many are struggling.
Dennis McGinn, CEO for Rapid Recon, a reconditioning service software for dealerships, challenges dealerships to rethink the recon process to improve speeds. He says that most dealerships have a standard 10-day timeframe for reconditioning. However, if dealers can cut the reconditioning timeframe to 3-5 days through process improvements, reconditioning can become a competitive advantage for your dealership.
When it comes to fighting margin compression, efficiency is the name of the game. And, getting cars frontline ready more quickly means eliminating unnecessary steps between acquisition and sale, including the over-reconditioning of vehicles.
By eliminating inefficiencies in the reconditioning process, your dealership can increase gross profit per vehicle sold and turn an unwanted expense into an advantage over other dealerships in your market.
If you’d like to learn more about decreasing holding costs, and other ways to combat margin compression, download our free guide, 7 Solutions to Margin Compression, Strategies for Preserving Dealership Profit Margin.
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