AutoCanada's Q1 2024 earnings call was, by most accounts, a somber affair. The company reported a 7.7% revenue decline and a 51.2% adjusted EBITDA decline, painting a picture of macroeconomic headwinds and a cautious approach to the immediate future. But amidst the gloom, buried deep within the call transcript, lies a revelation that could signal a seismic shift in AutoCanada's operational efficiency and future profitability.

Executive Chairman, Paul Antony, casually revealed that AutoCanada has slashed its average used car reconditioning time from a staggering 63 days to a mere 8.3 days. This isn't just an incremental improvement, it's a complete overhaul of a process that has traditionally been a major drag on used car profitability for the entire industry.

Why is this 8.3-day turnaround such a big deal?

Because it directly attacks the Achilles' heel of used car sales: inventory carrying costs and diminishing returns on older inventory.

Imagine a used car sitting on a dealer's lot. Every day it remains unsold, its value depreciates. Add to that the cost of financing the inventory, storage, and ongoing maintenance, and the picture becomes bleak. Industry studies have shown that the longer a used car sits unsold, the lower the profit margin, often dipping into negative territory after 90 days.

"AutoCanada, by reducing its reconditioning time to a mere fraction of the industry average, is effectively flipping this dynamic on its head. Cars are prepped and ready for sale within days of acquisition, maximizing their value and minimizing carrying costs. This translates to a significant boost to gross profit per unit (GPU), even in the face of normalizing used car prices."

Potential Financial Impact

The company hasn't yet quantified the financial impact of this turnaround, but the potential is staggering. Let's consider a hypothetical scenario:

Market Rebalancing and Future Growth

This silent revolution in operational efficiency isn't receiving the attention it deserves, overshadowed by the current market uncertainty. But make no mistake, this is a game changer. As new car inventories normalize and used car prices moderate, AutoCanada's streamlined reconditioning process positions them to capture a disproportionate share of used car profits.

Here's where the intrigue deepens. AutoCanada acknowledges being 1,000 used vehicles below its optimal inventory level. They attribute this to high prices and consumer reluctance to buy expensive cars in a high-interest rate environment. But imagine the impact once the market rebalances. AutoCanada, with its hyper-efficient reconditioning process, would be able to rapidly acquire and turn around used vehicles, capitalizing on the pent-up consumer demand for affordable vehicles.

Their upcoming partnership with Kijiji to offer instant cash offers and financing further amplifies this potential. By tapping into Kijiji's vast user base, AutoCanada can access a significantly larger pool of affordable used vehicles, fueling their reconditioning machine and driving even greater profitability.

Charting the Future

While the immediate future remains uncertain, AutoCanada's 8.3-day turnaround is a powerful indicator of the company's long-term potential. It's a testament to their focus on operational efficiency and their ability to adapt to changing market dynamics.

Analysts might be focused on the short-term challenges, but the silent revolution within AutoCanada's used car operations could be the key to unlocking a much brighter future.

"Fun Fact: AutoCanada sold enough used cars in 2023 to stretch bumper-to-bumper from Edmonton to Toronto! And with their new reconditioning process, those cars would be ready for sale before you even finished planning the road trip."