By Dennis McGinn

Jaws dropped, mine included, as Don Flow, Chairman, and CEO of Flow Automotive Companies addressed several hundred dealers and industry affiliates at a recent Automotive News’ Retail Forum.

“A brutal reality is in front of us,” Flow said. Flow Automotive Companies is 36 franchises in Virginia and North Carolina. He called for the industry to create “value equation models” that deliver the guest experience and shopping enjoyment consumers find through Amazon and Apple. The goal is that all dollars spent on that VIN in your marketplace need to be spent with you,” he said.

He called for dealers to apply lean process management practices to their operations – called Kaizen, discussed in my new my recent book, “RECON T2L – the starting line for reversing margin compression” - to eliminate waste, bottlenecks, and processes that add no value to customers or the bottom line.

Dale Pollak also addressed the gathering. He called dealers to embrace transparency and increase efficiencies throughout their operations to push back at margin compression and other “profit evaporating” factors.

“The clarion call is efficiency – we can see no other way to survive and thrive in this business,” Pollak said, noting dealers’ inefficiency in human capital utilization, with a turnover of 64% in sales and 40% overall.

He also cited process inefficiency that leads to aging inventory and capital depreciation, promotional inefficiencies, and technology inefficiencies that can be difficult to use, and are frequently incompatible so they don’t share data with one another.

“We’re not able to pull out of the industry what we used to, so we must be more efficient,” Pollak said. “We cannot expect to meet the challenge of the future if we cannot get these challenges resolved.”

Consolidation will continue as stand-alone family dealerships find it increasingly difficult to stay in business.

Dealers rightly are concerned about how new trends and technologies such as subscription car services, ride-share, electric and self-driving cars will trouble their business model. The product in showrooms in the next 10 to 15 years will be radically different from what we’ve known before.

Yes, the disruptors and disruptive transportation models are upon us. But while we will see these new models flow into the business and onto our streets, traditional car-ownership will continue.

From McKinsey & Company report, Automotive revolution – perspective towards 2030¹:

• Despite a shift towards shared mobility, vehicle unit sales will continue to grow, but the annual growth rate is expected to drop from the 3.6% of the last five years to ~2% annually by 2030. This drop will be driven mainly by macroeconomic factors and the rise of new mobility services such as car sharing and e-hailing [Uber, Lyft, and others].
• Changes in mobility behavior, leading up to one out of 10 cars sold in 2030, potentially being a shared vehicle and the later rise of a market for fit-forpurpose mobility solutions.

Yes, brutal reality is before us, as Don Flow points out.

Moreover, this change, I might add, whatever its nature and duration, will be painful for those who have yet to get their arms around the measurement and management of T2L, for what they sell today and tomorrow.

Cox Automotive recently projected 39.5 million used-car retail sales in 2018 – each requiring some level of reconditioning. NADA forecasts new-car sales of 16.7 million.

Dealers will be selling, servicing and reconditioning traditional vehicles for years yet to come – and ride-share, subscription, and other modalities will need serviced and detailed before they can be sold again through dealerships.

All this to say that while the industry wrestles with new delivery systems -- how to further improve customer experience, and make the buying process more transparent and streamlined to add value -- reconditioning vehicles will remain mostly unfazed.

Here are my thoughts: Keep eliminating uncertainty in core processes. They too will need to evolve at an even faster pace. The top four are:

1. sell cars
2. make a respectable profit
3. keep CSI high
4. know your reconditioning time to line or T2L

As part of reversing margin compression and keeping your dealership fit for the future, practicing a T2L recon workflow:

• Quickly identifies car location in your workflow – whether on the backlot or in process through reconditioning
• Accounts for and tracks each step in the reconditioning process and the employees responsible for those actions and their progress through their phase of the workflow
• Provides 40,000-foot and micro perspectives of reconditioning workflow performance for the store or across a group and the stores within the group
• Determines how fast cars flow from acquisition (or your chosen start point) to the front line, ready for sale
• Helps dealers reduce time to line by days that translates into additional vehicle turn
• Reduces the erosion of vehicle holding costs on sales margin; this cost is $40 per day per vehicle that accumulates against gross for each day you own it until sold.
• Makes fixed ops, reconditioning, and the entire used car operation quicker, more efficient and profitable.

Develop and hone these practices now so you can deal with whatever the future throws at you next.