Automotive News Canada - September 2020 - 16

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* S E P T E M B E R 2 020

The goal: To turn inventory quickly
One reconditioning
centre helps dealership
group streamline
operations to cut the
average time a used
vehicle is on the lot
By KELLY TAYLOR

WINNIPEG CORRESPONDENT

EIGHT YEARS AGO, WINNIPEGbased Birchwood Automotive Group
identified a problem within the usedcar departments of its dealerships.
The managers were juggling the
duties of acquiring and preparing
vehicles for sale with the demands
of trying to sell the cars already on
their lots.
Cars were running out of profit
before they could be sold.
The result, after some extensive
analysis, was the opening in 2015 of a
40,000-square-foot (3,700-square-metre)
centralized used-vehicle reconditioning centre on the
outskirts of the city.
The move has boosted profit margins
while cutting the
amount of time it
takes to sell a vehicle, said Scott Greer,
director of used-vehicle services for
Pollak: Used
the 21-dealership
vehicles in
group.
metropolitan
"In 2012 we realmarkets must
be sold within ly saw a need to
improve efficienthe first 30
days to remain cies in selling used
cars. [They're] an
profitable.
extreme strain on
PHOTO: COX
cash flow, and this
facility allows us to sell as many or
more cars with much less investment in inventory."
Greer estimated the carrying
costs of a used car are as much as $75
per day, so the less time a car spends
on a lot, the greater the profit margin. Previously, cars could be on the
books for as long as 15 days before
they were ready for sale. Today, it
takes three to four days, on average.
The net effect is that cars spend

"Most people who buy an
EV stick with EVs. They don't
go back to gas very often,"
Clairman said, adding that
used EVs are "a great way to
build the market and to make
it a more equitable market,
because you can have people
come in at $8,000 to $10,000 at
the bottom end."
But dealer Shahin
Alizadeh, CEO of the
Downtown Automotive
Group in Toronto, is skeptical
that the used-EV market will
become viable anytime soon.
Alizadeh echoed Murphy's
comments that EVs have generally not held their values
well because of consumers'
concerns over charging and
range.
"I think the EV used market is terrible," he said.

Akshay Gupta does an initial triage of a Ford F-150 entering the Birchwood
Automotive Group reconditioning centre, cataloguing needed repairs.
P H O T O : K E L LY TAY L O R

far less time in inventory, Greer
said, which allows Birchwood's dealers to sell as many or more cars
while carrying $7 million to $8 million less
in inventory.
"Previously, to meet
those numbers, we'd
have to carry about $20
million at any point in
time. Today, we're at $12 million to
$13 million at any point in time."

ing costs Greer mentioned can erase
profits within a month, Pollak said.
Birchwood "is very smart," he
said. "But it's important to point out the idea
of a centralized reconditioning centre doesn't
work if you don't recognize the need to not
stock more than you
can sell."
That represents a reversal in oldschool dealer thinking, Pollak said.
"You need to stock 50 cars to sell 50
cars," he said, "not 70 cars to sell 50."
Dealers must sell 50 per cent to 55
per cent of their used vehicles within
the first 30 days to remain profitable,
Pollak said. Birchwood is selling on
average 63 per cent in 30 days.
"That's very, very strong."

BEST PRACTICES

SPOTLIGHT

HOW IT PAYS
According to Greer: The centre
achieves Birchwood's objectives in
four ways:
Reduced processing time.
It gives used-car managers confidence that a car they're adding to the
system is high quality.
Managers can concentrate on selling to and servicing customers.
Less-than-ideal vehicles are more
easily identified for auction.
Birchwood is on the right track,
said Dale Pollak, executive vice-president of Cox Automotive and founder of vAuto, a supplier of inventory optimization software. For starters, the auto group recognizes that
used vehicles in metropolitan markets must be sold within the first 30
days to remain profitable. The carry-

tem - trade-ins, rental-fleet purchases and imports from the United
States - are first triaged to determine whether the car proceeds
through the system or the company
cuts its losses and sends it to auction.
Vehicles that survive the first cut
then have dings and minor paint and
body repairs completed, and mechanical repairs made. The centre takes
care of arranging with appropriate
dealers - even for brands not sold
by the Birchwood group - for any
necessary warranty repairs.
The goal is to have Birchwood's
used cars approach or surpass the
quality of vehicles in the automakers' certified-pre-owned (CPO) programs, Greer said.
Finally, the completed vehicle is
detailed extensively.
"It should be that the only time
this car was cleaner was when it
came off the assembly line."
The last stop after detailing is the
photo booth, complete with a turntable, where a computer spins each
vehicle and takes 80 high-resolution
photographs. Those get woven into
a 360-degree-view presentation for
dealers to market the vehicles on
their websites.
"We have some cars that are
sold before they are even completed
detailing," Greer said. - ANC

'30-DAY WINDOW'
"Once you recognize that 30-day
window, then you start to look at
areas to save time, and reconditioning is a big one," Pollak said.
"The hidden gem here, where you
get even more benefit, is your dealers are no longer dedicating one or
two service bays to reconditioning,
so you can redeploy those bays to
higher-margin, paid customer work."
Cars entering the Birchwood sys-

Scott Greer, director of used-vehicle
services for Birchwood Automotive
Group, inside the reconditioning
centre's photo booth, which
includes a turntable for taking
360-degree-view photos.
PHOTO: BIRCHWOOD
AUTOMOTIVE GROUP

ment-software company that
tracks battery degradation.

MARKET 'DISTORTIONS'

According to Canadian Black Book, a 2019 Nissan Leaf,
pictured, holds 68 per cent of its list price after 16 months.
However, a 2016 Leaf after 16 months was worth just
41 per cent. P H O T O : N I S S A N

"Hybrid is different. The
hybrid used market on the
Toyota side is on fire. We can
sell any hybrid any day of the
week."
Used-EV valuations
depend in part on the health

of the vehicle's battery.
Factors affecting a battery's
health include its age, use,
high temperatures, extreme
climates and frequent use of
fast charging stations, according to Geotab, a fleet-manage-

Canadian dealers looking to sell used EVs also face
competition from U.S. jurisdictions that offer incentives large enough that some
Canadians are willing to
import them, said Murphy.
"[The incentives] look
after the environment, but
sometimes they can cause distortions in the marketplace
that can create some unique
results when it comes to
used-vehicle values."
Such distortions in supply
can happen within Canada as
well because of EV rebates in
certain provinces.
Quebec, for example,
receives a steady flow of used

EVs because of a program
that offers up to $4,000 in
rebates.
In an email to Automotive
News Canada, Laura Wehunt,
vice-president of automotive
valuations at Black Book,
said Quebec's used-EV incentive program caused "some
oddities" in wholesale values because it incentivized
vehicles that were not previously registered in the province. That was an issue when
Ontario had the nation's most
generous discount for new
EVs, though the province has
since ended that program.
"Now that Quebec leads
in incentives for both new
and used, it is a little different," Wehunt said. "But what
remains is the flow of used
EVs into Quebec." - ANC

Automotive News Canada - September 2020

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