An inherent tension exists at most franchised dealerships between fixed operations and used-car sales. They fight regularly over which cars to fix and which to wholesale, how much to spend on repairs and who should foot the bill when something goes wrong.
But at one large North Carolina dealership, that long-standing and bitter conflict has been amicably resolved -- by the accountant.
At Kernersville Chrysler-Dodge-Jeep-Ram, interdepartmental peace has brought with it a huge jump in gross profits for fixed ops and for used cars. And for the dealership, it added almost $600,000 in gross profits through October.
The reason: a fixed internal per-vehicle reconditioning fee based on the vehicle's mileage and engine type.
The fee -- $1,150 for a vehicle with fewer than 50,000 miles, $1,650 for a gasoline vehicle with more than 50,000 miles, and $2,850 for a diesel vehicle with more than 50,000 miles -- is automatically included in the cost basis of the vehicle.
That lets the used-car manager factor in the fee when buying the vehicle or setting its price, and lets fixed ops -- which includes the store's service, parts and collision departments -- know the budget to get the vehicle in shape to sell.
For fixed ops, the fee includes minor dent and body work and all repairs, but doesn't include major known items such as a missing exhaust system or easily identified engine or transmission problems.
"We figured that we ought to be able to do [a single fee] if we're already doing it as a maintenance package" offered to customers, said Scott Clements, the dealership's CFO who developed the single-fee system.
Clements implemented the system in July 2015 after analyzing the store's used-vehicle reconditioning work over three years. The dealership averages about 235 new and 320 used-vehicle sales per month. He said that it took some time for the store's fixed ops staff to adjust.
"Before we implemented this, [fixed ops] would always complain that they were pricing all of these fixes out [for the used-car department], and then [used cars] never wanted to do the work," Clements said. If a vehicle taken in on trade was marginally too costly to repair, it would be wholesaled, often at a loss.
Fixed ops staffers "had to adjust, to understand that it was about volume," Clements said, adding that the change in mindset took about three months. "They had to realize that they're going to win on some tickets and lose on some tickets. And [fixed ops] knows that if something goes wrong, it's on them to fix it."
Financially, the impact has been staggering. Compared with 2014, when working under a more traditional system, Kernersville's fixed ops is on pace this year to increase gross profits 61 percent. On the used side, the single-fee system has reduced the number of vehicles wholesaled each month by 15 percent, cut the dealership's average loss per wholesaled vehicle by 60 percent, and increased average retail gross per used vehicle by almost $160.
"I thought Scott's idea was so simple, I was surprised nobody had thought of it before," said Tim Watts, CEO of Victorville Motors, a Chrysler-Dodge-Jeep-Ram dealership in Victorville, Calif. Clements and Watts are in the same 20 group, and after hearing Clements detail the results, Watts said he returned to California and immediately began implementing the system.
Clements said the single fee has affected every part of the used-vehicle chain positively. Kernersville's auction buyers know the repair cost before they bid; fixed ops knows the repair budget and can adjust accordingly, and fewer vehicles are being wholesaled at a loss as a result.
"That's 15 more cars that are going to the lot instead of to the auction, and that's really big," Clements said. "Anybody in this business will tell you they'd rather retail a car any day than wholesale it."
Benjy Brasington, the dealership's fixed ops director, said: "What it did was cut down my people bickering and arguing with people in the [used-car] sales tower. It eliminated us waiting for somebody to come back and make a decision" on whether to repair or wholesale a vehicle.
Brasington said most used vehicles that come through fixed ops for reconditioning have 75,000 to 100,000 miles, and the average repair order for each is between 6.5 and 7 hours.
"More than anything, it's about time and time saved," he said. "A used car depreciates every minute of every hour of every day, so if we can get them out of here faster and retailed faster, that's money."