I want to ask you about doing a trade walk every day. First, let’s make sure we’re on the same page as to what a trade walk happens to be:

1. All units traded or purchased are parked in a staging area as they come into the inventory.

2. Every morning, all the members of the management team, plus any available sales people, will hold a meeting in front of each unit, discussing how high or low we might be in it, its pros and cons and conclude a disposition and a unique strategy for that unit.

3. Disposition meaning, wholesale or retail.

4. Strategy meaning, using my life cycle management process to determine the allocated shelf life of each unit and how we intend to retail it within the assigned life cycle.

Do you agree that the trade walk is a good idea?

Why aren’t you doing it? That’s all I’m gonna ask, Tommy Gibbs

At this very moment you might not have an aging problem with your used car inventory. But, trust me on this; at some point you’re going to wake up one day and have a real mess on your hands.

Dealers have different definitions for what they consider to be an aged unit. For me, it’s anything around the 45 day mark.

Some things to keep in mind:

1. If you have aging problems, one of the causes is that you haven’t previously been pricing your inventory competitively.

Once you start pricing your cars “to market,” you’re going to see your grosses go down. Do not blame your vAuto pricing tool for the lack of average gross. Do not blame Auto Trader. Blame yourself for not taking action sooner.

2. If you have aged inventory, it’s choking you to death. You will never maximize your new car and used car sales potential as long as you have aged inventory.

Sure, you will get lucky once in a while and have a good month, but you will never be consistently great until you fix the problem.

3. Asking your management team to work you out of your aged inventory isn’t the fix. Some of your managers may have helped put you in this problem, but the reality is your lack of discipline and enforcing a 60 day turn is the root of the issue at hand.

Asking your managers to retail you out of your current mess is only prolonging the agony and hampering your ability to “do business” today.

A Strategy To Consider:

Re-appraise all units. Put them dead on the money. Once you do that then you have to decide how you’re going to eat the excess. There are a number of accounting tricks you can use, but in one way or another you’re going to eat some big bucks.

You could absorb some of it each month in wholesale losses or take the hit on your end of year statement. You’ve been hiding the losses way too long. Time to get on with it.

What you don’t want to do is to take your aged stuff to the auction, dump it and start over.

Let me give you a little math to think about. Let’s say you have $100,000 worth of water on your lot right now. If you take those units to the auction you will lose the $100,000.

If you write them down, they are now on the money and when you retail them you might generate $70,000 in used car gross. In the big picture you lose $30,000 vs. $100,000.

But here’s the problem. You cannot and should not do such a write down and keep running your used car department the old fashioned way or however you’ve been running it. You have got to make some disciplined changes and fix what got you so screwed up in the first place.

Remember the part where I talked about writing your inventory down and putting it on the money? What you need to do at that point is use my “Life Cycle Management” process.

As you re-appraise each unit, you need to assign them the number of days you are going to allow each unit to stay in your inventory. I recommend 20 to 60 days max. As you get better at this you should be shooting for 45 days max.

A 20 day car might be a car you are buried in; bad color, bad miles, bad equipment or a high dollar unit. You and your staff ought to know which units give you the most problems and tend to age.

A 60 day car might be a nice trade-in or something you purchased from one of your customers. You have to set your own criteria.

Remember, when you assign life cycle management, the goal is to price the units attractive enough that you find a retail buyer within the assigned life cycle. If you don’t sell it within the assigned days then the unit has to be wholesaled at the auction.

As you clean your inventory up your average gross profit will improve even though you are retailing some of these units faster at lower grosses. The reason it improves is because the units that you have determined to be problematic and have given a short life cycle, are the very units that in the past have been aging on you and destroying your gross profit.

I realize this is painful and difficult to do, but once you get on a 60 day turn you will never want to go back. Your challenge will be to have the discipline not to let anyone talk you into keeping units past 60 days.

There are always excuses. Your motto should be “talk to the hand.” That’s all I’m gonna say, Tommy Gibbs

I sold my first car off my dad’s clunker lot on Broad St. in Richmond, VA when I was 12 years old. The summer of my junior year in high school I sold cars at Manchester Mercury on Semmes Ave.

Back in those days the customer signed 3 or 4 blank contracts and got roughed up by the dealership personnel. The keys to their trades were thrown on the roof, trades often hidden, and they were told they had to buy a car because their car had already been wholesaled.

Back in 1972, after a couple years of teaching and coaching I, like many of you, got in the car business until something better came along. Obviously nothing better came along.

In those early days, selling systems were the latest and greatest thing to hit since man landed on the moon. Turning the customer over multiple times was the norm and “if I could, would you,” became the closing tool of the day.

The business has changed a lot over the years.

Back them we didn’t have the Internet. We didn’t have third party leads. We didn’t have Google. We didn’t have vAuto. We didn’t have Vin Solutions. We didn’t have Auto Trader. We didn’t have Manheim online auctions. We didn’t have social media.

We didn’t have millennials as customers and employees. We didn’t have customers in their 50s, 60s, 70s and 80s who would rather shop online than spend 3 to 4 hours in a dealership negotiating a deal. We didn’t have 7 year old kids that could figure out your iPhone in a New York second.

What we did have were people in the business who had street savvy and a desire to make a lot of money. They had a strong work ethic and a willingness to grind it out 12 hours a day. And, we still had some questionable business practices. Truth in lending was right around the corner.

For many years, managers have worked deals from cost up and have been able to achieve a desired gross profit regardless of paying full retail in parts and service and/or having packs added to the cost of the cars. The skill level of those passing through the business back then was extraordinary.

No doubt a lot of things have changed over my many years in this business.

But, guess what hasn’t changed? Pay plans!

Most dealers are still paying sales people and sales management on gross profit with volume bonuses thrown in here and there.

With so many customers shopping the Internet, does it still make sense to pay on gross profit?

With a different breed of team members coming into the business, does it still make sense to pay on gross profit?

With prices being established well before the customer gets to the dealership, does it still make sense to pay on gross profit?

With customer’s expectations changing so much, does it still make sense to pay on gross profit?

With 90% of the dealerships using a pricing tool, does it still make sense to pay on gross profit?

With 90% of the public walking around with a personal device that can pull up pricing in a heartbeat, does it still make sense to pay on gross profit?

With the factory having so much control on how you price your cars and such low margins, does it still make sense to pay on gross profit?

With you paying so many flats and minimums, does it still make sense to pay on gross profit?

I’m just asking, does it still make sense? That’s all I’m gonna ask. Tommy Gibbs