by Mary Wisniewski

Looks are important, so much so that even the brutal economy hasn’t squashed the amount of money lenders spend on reconditioning — so far.

In fact, putting a financial emphasis on reconditioning in advance of remarketing is even more crucial in this economic environment, say many lenders, with special attention going toward cosmetic repairs.

Consider Manheim’s auctions. Lenders are spending more on reconditioning to get used cars as frontline-ready as possible, with most bucks going toward exterior repair, says Kelly Conger, group vice president of Frontline Services. Think paint and body, wheels and glass as top fix-up spots.

“This approach has increased this year as sellers are trying to make their vehicles stand out, compared to the rest, in the hopes of selling more of their vehicles in a shorter timeframe,” Conger says. Although Adesa is not seeing lenders spend any more or less on reconditioning, this fact alone is still meaningful.

“This signifies an importance,” says Don Davis, director of operations and strategic improvements at Adesa. “[They] could cut but choose not to. The economy hasn’t changed the mindset.”

When it comes to reconditioning, Davis says safety items, like cracked windshields and brakes, are always crucial to fix. Cosmetic repairs are a top reconditioning trend, too.

“Detailing is always a steady piece of presale reconditioning,” he says. GM, for one, is spending more on reconditioning for its closed auctions. GM dealers want to purchase vehicles at auctions that are retail salable, Dan Kennedy, national sales manager at GM Remarketing, says. If a dealer purchases a vehicle that needs bodywork, it ties up their capital, he says.

“We have to make the decision on what we repair and what we don’t,” Kennedy says. “One of the issues is to make a decision on where do you stop or start on vehicles.” GM has an inspection staff to determine this.

GM is not the only one putting a greater focus on reconditioning. Bank of America is doing the same.

Steven Piccinati, senior vice president of remarketing at Bank of America, specializes in the repossession market and is a believer in reconditioning. The average amount spent on reconditioning has spiked, he says.

“Our audience wants to sell at retail,” says Piccinati. “We try to get assets reasonably close to it. We do light cosmetic work.”

Although Bank of America has always believed in reconditioning, Piccinati says the bank is smarter about it now because of technology. He cites AutoIMS, a Web-based vehicle recovery and remarketing inventory management systems provider, as a particularly valuable resource.

Not all lenders are spending more money on reconditioning services, however. Take private loan servicing provider Peak5. Jody Hall, vice president of remarketing, primarily deals with subprime repossessions and is spending less on reconditioning. Hall pointed to the volatility in the market as one reason for that.

“Dealers aren’t looking to buy vehicles with high prices,” she says. Spending less on reconditioning is nothing new for Hall, noting this has been the case for the company for the last couple of years.

Peak5 typically spends somewhere from $350 to $425 on reconditioning a vehicle; five years ago, it spent $150 to $250. Hall says this is about the same amount of money, given inflation. She does not anticipate spending any more on reconditioning, unless dealers’ purchasing habits change.

“We readjust reconditioning to make them happy,” says Hall. “Right now, I don’t see it changing. This is such a volatile market place.”

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by Mary Wisniewski

Shaheen Chevrolet has known for quite some time that the key to remaining profitable lies in its ability to slash overhead. The Lansing, Mich.-based dealership has been tightening its budget for the last few years, compliments of Michigan’s early-stage economic downturn, says Jason Cords,general manager.Some more recent savings methods include cutting back on marketing expenses roughly 35 percent from 2008, reducing staff by approximately 13 employees over a six- month period, and requesting that all vendors cut the dealer’s costs by about 15 percent.

As a way to save on training expenses, the dealership started hiring only staff with previous experience. “It costs so much money to get someone up to speed,” Cords says, estimating the total training fee to equal as much as $15,000. But once hired, most employees are there to stay.

“No one is leaving here unless they are completely getting out of the business or becoming a manager or going to another state,” Cords says.

As the economy tanks, the Big Three struggle, and financing dries up, Shaheen Chevrolet isn’t the only dealership looking for ways to save money and ultimately stay afloat.

St. Paul, Minn.-based White Bear Lincoln Mercury is scaling back on frills, making serious slices on advertisement and extracurricular activity budgets. “We used to do picnics every Saturday. We won’t do that this year,” says Travis Peterson, used car manager.

The dealership also renegotiated its pricing with vendors to slim down costs, reducing fees 15 percent to 20 percent, Peterson says.

Cutting out the fat has allowed the dealer to maintain all of its employees so far. Reduction isn’t the only answer to staying in business – many dealers are offering new incentives to try to lure in sales. Consider Jim Price Automotive. The Charlottesville,Va.-base dealership offers a job security incentive, modeled after Hyundai’s insurance program: If a cus- tomer loses his or her job, the dealership will make the payments for the customer, up to three months. The deal began Jan. 1, 2009, and will run for the rest of the year. “I hope I will be lucky, and there won’t be a ton of people,” Sandy Fewell, chief operating officer, says.

So far, the dealer, and its staff, is surviving the economic storm. “We have been very fortunate. We have a sales force that has hunkered down, knowing it would be tough period. They have survived it well,” Fewell says.

But it doesn’t make for easy work.

Reductions in staff, for one, create heavier workloads for those left behind, says Ron Reahard, founder of F&I training consultant firm Reahard & Associates. Most employees, including F&I managers, are trying to cope with the burden, realizing it is not the best time to try to find another job, he explains. “It’s not a time to take a chance,”

Reahard says. “It’s time to do a known quality. Most dealers are keeping their good people. The let-go people are struggling to find a job.”

Joe Lescota, chairman of the Automotive Marketing Department at Northwood University, shares Reahard’s sentiments. “The job is getting tougher. There is more disclosure. You can’t hide anymore,”

Lescota says, citing F&I managers as one acutely more challenging position, in part because of fiercer competition from credit unions and financial institutions. “Credit unions offer the same [products] but offer better customer service,” Lescota says. MakinglessmoneycouldleadtoF&Iman- agersleavingandcreatingaddedexpense for dealerships. Lescota estimates a dealer would lose 1.5 percent of a departed employee’s annual salary to fill the void. And if not properly trained, the cost could add up to be even more. “The most litigious department is F&I,” Lescota says. “You hope they [F&I managers] have been trained in law.” Lescota blames some dealers’ turnover troubles to the philosophies they maintain, rather than just the crumbling economic environment.

“We reward sales people and recognize them for highest sales. Do we give them plaques for customer service? No. We reward them for high gross profit. We train and educate them to squeeze every last dollar for short sales as opposed to long-term sales,” Lescota says, emphasizing a dealership’s battle cry should be customer service instead. What dealers are doing right in these chaotic times is maintaining their training programs, say some industry insiders. “Dealers who believed in training, still believe in training,” says Reahard. “This is a direction dealers want to go. Dealers don’t want to stop training.” Especially when the education occurs online.

Reahard’s online training program keeps gaining traction, for one. Although Reahard has only offered online classes for about a year, sales have grown “dramatically” within the last six months. Part of this education includes shooting out a new training module to a dealer once a week. “Training should not be a one-time event but an ongoing process,” Reahard says. The appeal lies with its lower price tag and its easy online commute, he maintains.

For his in-house classes, however, he has noticed a drop in participation. “We aren’t seeing as much as two and three managers from the same dealership,” he says. “They don’t have as many.” Hennessy Auto Group, which boasts 11 dealerships in the greater Atlanta area, uses Reahard’s training offerings and is not skimping back. A newly hired F&I manager is sent out to his program for a three-day course, and continues with his or her education online.

“I really believe the initial training needs to be in the classroom,” Joel McGlamry, vice president of finance operations, says. “Without total immersion upfront, I don’t know if they grasp online training.”

The auto group looks for F&I managers with previous experience, or promotes from within their dealerships, says McGlamry, noting F&I managers would be costly to replace. “Even just the emotional cost is significant,” he says. Luckily, Hennessy Auto Group is not currently facing turnover issues.

Not all dealers are that lucky. To help keep employee retention high, new technology is emerging.

Consider Dealerflow’s employee relationship management solution, which allows dealers and managers to direct, mentor and dialogue with employees via online content management and messaging tools. Founder and President Ed Brown said the tool’s main objective is to help dealers run their businesses more efficiently. As dealers become larger due to consolidation, the rank and file employees become further separated from the dealer, Brown says. The technology helps a dealer “tie the company from top to bottom.”

The technology also assists dealers in running their operations with fewer employees by providing greater efficiency, he says, as well as helps to retain employees.

“Employees are encouraged when they know what is going on,” Brown says.

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