Sometimes it’s simplest processes that are the most effective. Pressing your cost down may be the easiest and fastest way to improve your used car business. Most new car dealers are not in the used car business. Most are in the NEWSCAR business.

That’s when the average cost per unit in your inventory keeps creeping up and up and before you know it you are too close in price points to your new car inventory. I have an easy experiment for you to do.

Take out your financial statement and go to the used car page. To do this correctly you will need to chart each month for the entire year. On that page you will see a column that has used car sales dollars in it. Simply put, that’s as if you sold one car for $10,000 and one for $20,000, thus you had $30,000 in Sales Dollars.

That in and of itself doesn’t mean much to you. Now, subtract your total gross profit from that sales dollar number for each month. That will give you your cost of sales.

Divide the cost of sales by the number of units sold each month. That will give you the average cost per unit sold for each of the twelve months. I know, I know, pretty simple stuff.

Hang on… When we do this little experiment here is what we generally find: the month in which you had your best retail sales is the month in which your average cost per unit sold was the lowest for the entire year. And, the month in which you had your worst retail sales, your cost per unit sold was the highest for the entire year.

The bottom line is that the more you press your average cost down, the more used you will sell and the better off you will be. You end up getting in the used car business and out of the NEWSCAR business.

You end up selling more units with fewer dollars tied up. Oddly enough, most of your problem cars go away. Your ability to get on a 45 to 60 day aged inventory goes way up.

So, what’s the magic number to get to? There is no magic number. Every dealer’s number will be different. If you are at $14,500 today, your mindset should be “How do I get to $14,000,” then $13,500, then $13,000 and so on.

The more you press your average cost down, the better off you will be. I find it interesting that when I’m speaking to a group, they think they are hearing me say go out and buy cheaper cars.

No, that’s not what I’m saying. I fully realize how hard it is to buy cheap cars. What I am saying is that it’s not so much about what you buy, but what you don’t buy. If you are buying a high dollar car you have to buy it with great caution. You need to either have it sold, or have data to back up that it’s going to move fast.

I’m often asked two questions:

1. What should my target goal be? There is no target, just try to get it lower than the day before.

2. Can I press my average cost too low. The answer is no.

Pressing your average cost down is a no brainer. That’s all I’m gonna say, Tommy Gibbs

Let me share with you some personal history. When I first started selling cars in the early ’70s, I worked 12 hour days, 6 days a week, as did many of my coworkers. We didn’t work Sundays because dealerships weren’t open on Sundays.

In 1980 I became a partner in my first dealership with my good friend, mentor and long time business partner Ashton Lewis from Chesapeake, VA. Even back in 1980 we were trying to solve the recruiting and hiring problem and to this day it’s not changed very much.

The dilemma has always been that if a new sales person is going to earn a decent living they need to work bell to bell.

But, if they do so they lose their family and social life because they don’t have the time and energy. If they work only their shift they eventually quit or lose their job because they aren’t earning any money.

From the 70s, 80s, 90s and up to today, it’s the same problem. Hours and money. With the Internet and the amount of online selling that continues to grow we have to think differently about the type of people we hire, the skill sets, the type of selling processes we utilize, the hours we require them to work and the way we compensate them.

Many dealers are still trying to hire people with skills that do not fit today’s buyer. Today’s buyer and today’s seller are the same people. Think on that one for a minute. Dealers are still having some success doing it the old fashioned way.

But you have to ask yourself, as fast as the world is changing how much longer can you keep doing it the same old way?

Ask yourself these simple questions:

1. Is it time we stopped paying on gross profit?
2. Is it time we structured the duties of the sale person differently?
3. Is it time we stopped or reduced the negotiating process?
4. Is it time we allowed managers to manage people and processes instead of “working deals?”
5. Is it time to consider hiring more part time sales people? Then couldn’t you reduce the hours of the full time sales people?
6. Is it time to reduce the amount of time it takes to sell a car? 7. Is it time to have the sales person handle the F&I part of the transaction?
8. Is it time to spend more time training and less time talking about it?
9. Is it time to stop trying to steal or hire people from other dealerships?
10. Is it time to take stock of what we do, how we do it and how can we do it better?

Change is coming. Would you rather be the force of change or be forced to change? That’s all I’m gonna ask, Tommy Gibbs

Rory is a young dynamic speaker whose theme is “Take The Stairs.”

His concept simply means taking the harder way. Human nature is to go the easy route. Many people fall into the category of the route of least resistance.

It’s so much easier to stay with what they’ve got. So they “Don’t dare take the stairs.”

Here are five examples:

1. Can’t shake the addiction of packs and paying on gross profit? Ask yourself, how many times do you have customers who come to your dealership that have a legitmate quote from another dealer that’s at cost, below cost or into the holdback? So, tell me how the sales person or sales manager has much control over gross? It’s so much easier to stay the course and not change it isn’t it? “Don’t dare take the stairs.”

2. You’re reluctant to go to an “up system.” You know it’s the only way to go, but you won’t do it because of the “fear factor.” The fear that all your “Superstars” will quit. If you think through all the elements of an up system it makes total sense. “Don’t dare take the stairs.”

3. Keeping used cars in your inventory past your timeline, whatever that line might be. “Fear factor” bites you again. It’s the fear of upsetting your used car manager by holding him/her to a discipline that, again, you know makes total sense.

There are many elements to managing your used car inventory. It is not about losing a lot of money at the end of the timeline. It’s about daily disciplines and processes that you need to enforce. It’s easier to allow yourself to be sold on all those stupid reasons to keep those aged units in your inventory. “Don’t dare take the stairs.”

4. You swear you won’t go to a one price-selling concept. The reality is you know it’s coming. The fear of losing people keeps you on the path you’re on, which is old, tired and worn out.

The customers don’t like it and your forward thinking sales people don’t like it. You know there’s a better way, but it’s easier to stay where you are. “Don’t dare take the stairs.”

5. Bubba still works for you or you have “Bubba thinking.” Bubba did a great job 20, 15, 10 or even 5 years ago. But, Bubba just won’t accept the role of technology in our business.

Oh, Bubba says he’s on board, but you keep getting the same old stupid results and he keeps on selling you on the fact that he “gets it.” Bubba wants you to believe that using technology is a race to the bottom. Not true. Using technology is a tool to position you in the best place to maximize gross, turn and volume.

Being sold is far easier than using your own brain to think it through and to replace Bubba’s butt. “Don’t dare take the stairs.”

Taking the stairs requires pain and discipline. Change is never easy and you know you need to change. Maybe you should just run up the stairs and see what happens? If you fall down you can dust yourself off and ride the escalator…just like everyone else.

I hate being like everyone else. That’s all I’m gonna say. Tommy Gibbs

The summer is over. It has been a pretty good year for most of you. It’s easy to become complacent when times are good.

Dealers make the most money when they are coming off tough times. When things are tough, dealers get back to the basics and grinding it out. As business gets better they are in a great position to make a lot of money because they have cut out all the fat.

But as business gets better, dealers tend to add this and that to the expense line and get further away from the basics. From where I sit, I’m seeing dealers making good money, but many have started to get lax with spending, processes and their daily disciplines.

The standard in the business has been that we should make at least 2% net profit to sales dollars generated. If you are only making 2% right now while business is good you may be in trouble when business goes south.

Right now you should be making 4 to 6% net to sales. It stands to reason that if you can get the percentage up during the good times then in the worst of times you can still maintain the 2% plus number.

If you’re in the 2% bracket or less, then you are missing something somewhere and need to re-evaluate your operation and do what you have to do to get it fixed.

For example, if you are keeping used vehicles past 60 days, the odds are pretty good that you have a lot of water sitting out there. If you were to liquidate today, your bottom line wouldn’t look so hot. It would be a safe bet to say your net profit to sales percentage is misleading.

Here are some things to think about as we go into the fall and winter:

1. Refine and stick to your basics
2. Don’t get stupid with your expenses
3. Keep the inventory turning
4. Evaluate the inventory on hand vs. anticipated selling rate
5. Get your profits into the 4 to 6% net to sales range
6. Don’t think you have it figured out because you don’t

“We never get it right. There’s always more to do and something to fix.” That’s all I’m gonna say, Tommy Gibbs

Every week several people contact me about volume and gross. No one will disagree that we need to be focused on inventory turn, and no one will disagree that we still have to generate X dollars in total gross to pay the bills.

There is often a disconnect between the desired goals and the skill level of those who have been put in charge of obtaining the volume and the gross.

I could go on and on about this skill level, but let me give you just one key point that goes into play when trying to determine what’s what. Are you ready? Are you really ready?

It’s “knowing what you deserve” for any given car or truck on your lot. It’s part understanding the data and part common sense. It’s really that simple.

Knowing what you deserve means having a true understanding of the market and the unit you’re staring at. It’s having the “cojones” to ask what you deserve for a given unit. And, it’s also knowing what not to ask and when to fish or cut bait.

Here are 5 more thoughts to help you:

1. Redundant Training- It ain’t redundant until you’re perfect. You ain’t perfect. If your sales staff isn’t polished enough to be able to justify the price then you are not going to get the desired gross. It’s just that simple. Get busy training and you’ll get more gross. (If you have a bunch of knuckleheads working with you then all the training in the world isn’t going to make a difference.) At the very least, you should have a lot walk once a week with all managers and all sales people. The more your people know about your inventory, the more your gross goes up.

2. Ask For More On The Right Units– There are some that you need to start way high. Some very low. Once in a while you gotta “ask for it all.” Since the beginning of this business, high average gross profit has been achieved by hitting a home run once in a while. You can’t hit it if you don’t take a full swing. If it’s a low mileage, really nice car you deserve more money for it. You don’t deserve more money for an edgy one and you have to be smart enough to know which is which. And without a doubt you have every right to ask more money for a certified car. But that doesn’t mean you sit on the “more money” pricing forever. Change the pricing daily.

3. Not selling in Today’s Market-Your most profitable car is a 20-day car. If you are retailing a lot of cars at the 30, 45, 60 plus day mark, you don’t have a chance. Speed wins; the lack of speed kills. Why don’t you try charting those units that you sell at 45 days and beyond to see what they are doing to your average gross profit? In the movie “A Few Good Men,” Jack Nicholson might have been talking about you. You can’t handle the truth.

4. Lack of quantity and quality of photos -stop reading this. Go look at the used cars on your website. Now go look at texasdirectauto.com. If yours don’t look as good as theirs then you don’t have a chance. Don’t have a photo booth? Want your cars to look really cool. Check this out.

5. No Early Warning Radar-You’re asleep at the wheel. You have to be able to spot a problem child on day one, not day 44 or day 59. Every one of your aged units has a story to go with it. That story started back on day one. You have to be smart enough to have an “Early Warning Radar” system in your arsenal. Fix your Radar system and your grosses will improve. I invented “Early Warning Radar.” You should steal it and use it.

You get what you deserve, when you do the work to deserve what you get. That’s all I’m gonna say, Tommy Gibbs