Rethinking Reconditioning Expenses

 

A question and my response below comes from Chad Tessman, who earlier this year, opened his own used car dealership. We’d both like to hear any thoughts on the subject of reconditioning as a line item.

Dale

I signed up for Vauto, I know about time, and I am enjoying being a Vauto dealer again. I purchased your book today and can’t wait to dig in. I was wondering if you could give me some insight, I have heard you and others like Tommie Gibbs mention reconditioning as a line item expense. Is this advocating not adding the cost of recon to the vehicle cost? Are there some best practices for this that you know of? It seems to me that this is essentially what I am doing anyway because I buy vehicles with a floor plan and when I sell them I pay off the floor plan and put the difference in the bank to pay the bills. I am beginning to think that I am playing mind games with the old school processes I learned in the new car store. Any tips or advice would be appreciated.

Thanks – Chad

Chad,

Thanks so much for your note, and for giving us an opportunity to work with you. Also, please let me know how you like the book once you’ve read it. Regarding line item expense for reconditioning, I don’t think I’m ready to recommend it because I just don’t know enough to be sure one way or another. What I do know is that proper reconditioning, which means doing the right things and doing it on a cost-effective basis, is an imperative for success. Doing the right thing is a matter of art and requires good judgment. Charging yourself or paying someone the right amount is simply a matter of discipline. These are the two areas that I would focus on, with lesser concern as to the accounting methodology. Let me know if this makes sense to you.

Dale