Pre-pandemic, the profitability of used car sales was declining.
But as we all witnessed, the supply and demand challenges in the marketplace during COVID flipped the script. Due to the semiconductor chip shortage and subsequent low stock of new car models, dealers were able to capitalize on used car sales.
Now, going into 2025, we’ve come back full circle. With macroeconomic challenges, rising interest rates, and fewer used cars on the market, dealers have to return to being what I call “brilliant at the basics.”
Here’s what that means for vehicle reconditioning going into the new year.
Focusing on Operational Excellence: Reducing Idle Time Will Be a Priority
We’re well beyond these significant economic shifts due to the pandemic. Now, dealers must focus on their business operations to maximize profitability in the coming year. One of the most untapped areas? You guessed it: car reconditioning.
About half of dealerships today don’t have software to help them manage the reconditioning process. Even those that do use software don’t find it very effective. Why? Because they’re likely measuring the wrong things.
There’s a big opportunity for dealers to improve their existing reconditioning processes through cutting-edge software tools that can manage their operations and track their interactions with third-party vendors. Two metrics these software tools should be tracking are:
- How long it takes to do active reconditioning work
- How long a car sits idly in between steps during reconditioning (i.e., “idle time”)
Measuring these two things can better show the reconditioning process’s current and potential durations. Bridging the gap between them in 2025 could not only save time but also reduce operational costs.
Adopting a Lean Manufacturing Approach May Become the Norm
The other significant component of reconditioning to consider going into 2025 is a lean manufacturing approach. This idea resonates with quite a few dealers across the industry.
Holding a large inventory of parts has many associated costs, including considerable expenses. However, we can reduce that inventory and save money by taking a “just-in-time” approach to parts management.
The idea is to set up a process (with the help of software tools) so that a part is ready—waiting for you in the bay—once you need it rather than sitting on a bunch of extra parts for an extended period.
Understanding Software Will Trump Knowing Mechanics
Most cars on the road today are defined more by software than mechanical components. Modern vehicles don’t have carburetors that you need to fix with wrenches and screwdrivers. Instead, every car you work with likely has an electronic control unit (ECU) — a computer doing all the work behind the scenes.
So, if you’re buying a used car to fix up and resell as a dealer, you need to be able to pick apart what’s going on inside that ECU. And you can’t always take it at face value.
For instance, if the check engine light comes on, does the car need a new, expensive transmission? Or is the gas cap just loose, alerting the system? Are there problems with the vehicle that sensors may not pick up in the first place?
Staying Ahead of the Curve
As the dealer, you need to be aware of these possibilities and know how to get to the heart of the problem—and then the solution. This information will be critical for fine-tuning the costs of reselling that car.
With the rise of EVs, the number (and cost) of electronic components within newer cars will only increase. As a result, the reconditioning process will become even more intricate and expensive. Because of this, dealers need to be tech-savvy and know what’s going on in the market to stay on top of cost assessments and increase profitability in 2025.
Dealers who focus on streamlining operations, take a lean approach to inventory, and get comfortable with software-driven diagnostics will lead the way and boost profits in 2025 and beyond.