If you have been reading my newsletters and emails then you know I totally believe we have to change the way we have always done this business.
I frequently rave about CarMax because more often than not they outsell everybody in whatever market they are located. And, they don’t do it the old fashioned way.
One of the things that sets them apart is they show reconditioning as a line item on the financial statement. For most of you that’s way over the top when it comes to making changes so I’m not even going to get into it. I know you don’t want to hear it.
It’s a safe bet that expenses are going up, gross is going down and the fastest way to generate a substantial bottom line is to do volume.
In order to do volume in used cars you need to have a “costing advantage.” By “costing advantage” I mean what’s added to the car once you own it, which includes packs and reconditioning.
To have a costing average you have to re-think your packs (which usually gets down to pay plans) and most important what you charge the used car department from your shop.
If you review history you know that the reason dealers added packs and charged full retail from the service department to the used car department was because sales managers worked from cost up.
In the good old days, sales managers had control over gross so you could nail them with high charges all you wanted. They still got the gross you needed and you could put the money from Parts, Service and Packs in your other pocket.
This is no longer true, as your sales managers no longer have control over gross as they once did. That’s why dealers are more and more becoming one-price dealers and saying “no” when the customer shows up and wants a discount.
If you’ve already dropped your pants on the Internet with a price designed to get them to show up then you have nowhere else to go. So, without saying they are a one-price dealer, many dealers are taking a tougher stand as well as changing sales people’s pay plans to match their newfound pricing and marketing.
The only way you will win is to increase your volume. The only way to increase your volume is to acquire more cars.
In order to acquire more cars you have to have a costing advantage when you go to the block or your front door. The dealers that can figure a way to reduce the cost to the cars once they acquire them will win.
They will win because they have more of the right cars to sell and because they will have a pricing advantage over the competition.
As a dealer’s used car volume goes up there will be more used cars going through the shop. As the shop profits go up they can sell their cars for even less gross due to the overall volume they are doing.
That last sentence isn’t a stretch at all. When you’re making money all over the place you can sell for less.
Somebody is going to figure out a better way. You can be Uber or you can be a yellow cab. You get to pick. That’s all I’m gonna say, Tommy Gibbs