Fixed Ops Journal - October 2017 - 34

FIXED OPS JOURNAL

Mercedes-Benz
of Arcadia decides
within 24 hours whether
to recondition an off-lease
vehicle for sale.

BACK ON THE LOT

 Rapid reconditioning boosts inventory of high-quality used vehicles
ALYSHA WEBB

foj@autonews.com

s soon as a customer returns a vehicle
with an expiring lease to MercedesBenz of Arcadia, the Southern California dealership sends it to the service department. The clock starts ticking.
Within 24 hours, the department must determine what it needs to do to prepare the offlease car or truck for sale as a used vehicle. If
the vehicle has been in an accident or has a
recurring problem in its warranty history, it's
rejected.
If it gets past the first cut, the service department estimates the cost of necessary replacements of the vehicle's tires, brakes and other
key parts. If the dealership decides the vehicle
can be priced competitively, it is reconditioned.
"Our goal is to have the car go from trade-in
to our front line in five business days or less,"
Anthony Ziemann, the dealership's general
sales manager, told Fixed Ops Journal. "Everything has to go right for that to happen."

Lease appeal
As profit margins for new vehicles shrink,
dealerships are looking to make more money
from selling used cars and trucks. The number
of U.S. vehicles coming off lease --- 3.1 million
this year, Cox Automotive projects --- represents a treasure trove of potential inventory.
That makes reconditioning these off-lease
vehicles as quickly and cost-effectively as possible even more vital, dealers and vendors
agree.
Off-lease cars and trucks are especially attractive to dealers because they are lightly
used compared with other sources of remar-

PAGE 34

OCTOBER 2017

Off the lease
5.0
4.5
4.0

Projected growth in number of
off-lease vehicles in U.S.,
in millions

3.5

Check the board

3.0
2.5
0

stead of measuring them carefully. A slow reconditioning process is expensive: Consulting
firm NCM Associates estimates the average
carrying cost of a vehicle to a dealership is $50
a day.

2016

2017

2018

2019

Source: Cox Automotive

keted inventory, such as auction vehicles.
"We don't go to the auction to buy cars because dealers dispose of cars they don't want
[there]," Ziemann says. "If you buy a car at
auction, the price is higher because the reconditioning costs are higher."
Off-lease vehicles usually can be reconditioned faster than other used cars, says Dale
Pollak, executive senior vice president of Cox
Automotive. That saves money, he notes.
"I am constantly saying to dealers, if you
want to really find an area where there is room
to improve gross margin, examine your reconditioning processes," he says.
Pollak warns, though, that lease customers
may be motivated to fix dents or dings before
they return the vehicle, but delay routine
maintenance.
"The general perception among dealers that
off-lease cars require less reconditioning may
be true on the physical side," Pollak says. "But
it is not necessarily the case with things like
brakes and fluids."
Too many dealers merely estimate their reconditioning times and costs, Pollak says, in-

Mercedes-Benz of Arcadia takes in as many
as 100 off-lease vehicles each month and buys
more than half of them, Ziemann says. Vanessa Ward, the dealership's pre-owned coordinator, uses DealerSocket's InventoryPlus software and a spreadsheet to
track each vehicle in the
reconditioning process.
"The quicker you can
bring a vehicle to the front
line and retail it, the more
profit you can make," Ziemann says.
Ziemann posts a description of an off-lease Ziemann: Goal
vehicle on the dealership's is trade-in to lot
website to build consumer in 5 days
interest as soon as it is designated for reconditioning. Usually, customers start asking about it even before it is ready
to sell, he says.
A whiteboard in Ward's office has magnetized squares that shows each vehicle in the
reconditioning process. If a salesman asks
when a vehicle will be ready to retail, Ward
says she points to the board.
Leasing has been growing in popularity for
years, especially for upscale cars and trucks.
Last year, the lease penetration rate for luxury
vehicles --- the share of new vehicles that are
see RECON, Page 35

Table of Contents for the Digital Edition of Fixed Ops Journal - October 2017