Recondition Effectively
ERIC A. KAUK Ward's Dealer Business, May 1, 2006 12:00 PM

For dealers who administer their own extended service contract programs, proper reconditioning of used-car inventory is critical. Doing it can boost profits. Not doing it can create losses.

Effective reconditioning does not mean spending a ton of money reconditioning your used-car inventory. It means allocating money to the right repairs prior to retailing the vehicle.

How can you tell if used-car managers are reconditioning used cars effectively?

Ask them to explain how they decide to spend reconditioning dollars. It's a simple question. You might be surprised with the answer you get.

Here is a simple way to determine what you need to do at your dealership to more effectively manage your reconditioning budget for optimal underwriting results:

1. Implement a 30-day service contract on every used-vehicle retailed.

   a. If you are not reconditioning your cars effectively, you will see the majority of your claims within the first few weeks after the sale. During the first few weeks, customers are ultra-sensitive about failed or under-performing components, and are usually intolerant of even the smallest flaws.

   b. An abbreviated term will condense the data and magnify your perspective. It will also allow you to closely track claims during the customer's initial period of ownership — the period when problems are most likely to occur due to improper reconditioning.

2. Bill the short-term plan to your used-car department, and give a bonus to your used-car manager if loss ratios are low.

   a. By billing the fee for this short-term service contract to your used-car department, you will move commissionable dollars from the front end of the sale and therefore reduce your total sales commissions paid.

   b. It is important to keep the short-term plan in force even when your finance department sells a long-term extended plan. The short-term plan picks up any repairs in the first 30 days so that you can get an accurate underwriting perspective on claims.

   c. By providing an incentive to the used-car manager for low loss ratios, you will create a partnership that will keep balance in the reconditioning process. Your manager will focus on spending the right money on reconditioning, not spending the least money.

3. Take full advantage of your short-term plan from a marketing perspective

a. Using a plan like this will give you another marketing and sales tool to use with customers on your lot, on the Internet and in advertising.

b. Advertise your short-term plan to your own people. Let them know that you stand behind every vehicle. Make this a point of pride in your store. You will cultivate sales-force confidence in the inventory and the dealer.

c. When you have claims in those first few weeks, take that opportunity to “WOW” your customer with fast, helpful service. Give these claims priority scheduling, transportation service and other VIP perks. Show customers that you will take care of them, then have their sales people follow up two days after the repair is completed to make sure the customers are completely happy and to ask for a referral.

In a surprisingly short period, you will be able to evaluate the claims on your 30-day plan and determine which category and type of parts are failing.

You can then more effectively allocate your reconditioning dollars. This simple tool will help you reduce non-essential reconditioning expenses while lowering loss ratios and increasing customer satisfaction, repeat buyers and referrals.

Eric A. Kauk is vice president of industry relations for PrimeSource Solutions Inc. He can be reached at 1-877-333-5800 ext. 703 and ekauk@primesourcesolutions.com.