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The Impact of Holding Costs on a GM's Success
New analytics solutions now give dealership general managers much deeper insight into how much gross is being lost through their used car reconditioning processes. By using reconditioning software that creates daily reports on fundamental reconditioning benchmarks, GMs have at hand the data at the same actionable level they use for other decisions for controlling costs and improving gross. The benchmark metrics this reporting provides are vital if GMs are to effectively manage reconditioning holding costs. Understanding holding cost and knowing how to minimize this expense propels the manager's ability to manage dealership cash liquidity. Managing liquidity is important because cash is the fuel that runs the dealership engine — and when times are hard, liquidity is the safety net keeps the doors open.
GMs, Don't Miss This
Holding cost that is not managed well will drain profitability and liquidity away. It is an accumulating daily expense charged to every new and used car acquired by the dealership until retailed or otherwise sold. We'll focus here on used car holding cost as applied to used-car operations. GMs able to drive down this cost will see cars retail for higher gross margins, becoming more valuable assets themselves to their employers. Let's take holding cost apart so we are clear and in agreement about what it is, how it can be lowered and maintained, and why we need to manage this recurring cost for cash liquidity. Read more
Time-to-Recon
Leave the car out back for two days before it's pulled into the recon process and you've already kissed $64 of potential margin away. Then, if it takes 12 days to get that vehicle mechanically reconditioned, detailed and photographed for online marketing, the car hits the front line with a $448 holding cost burden on it. If you're reconditioning 100 cars a month, this 14-day time-to-recon cycle means $44,800 of potential lost margin a month. Drop time-to-recon to five days, and total recon-time holding cost expense drops to $160 per car from $448, or $16,000. That's $28,800 less in margin erosion across those 100 cars. Read More Read more