Talk to almost any used car manager and they will tell you one of their biggest challenges is dealing with the high recon cost, especially on the cheaper vehicles. It’s hard to justify spending $1500 on a $6000 unit.

Used car managers will conclude they can’t make any gross on that type of unit and wholesale it. They still need inventory, so they go to the auction and buy late model used cars that they don’t have to spend much money on.

In many dealerships this is going on, but it’s not at the top of the radar screen. It’s sorta like we look past it, ignore it and conclude that it is what it is. We don’t see the “big picture” problem or don’t see a need to actually fix the problem.

There’s a lot of service revenue being lost and a lot of retail sales being missed because we don’t have a solution to the problem. Every time we pass on one of those units we’re missing a bunch of business that one new customer can potentially bring to the door.

Maybe it’s time to consider a two tier pricing system from your parts and service department? You can make the cutoff ACV price point anything you want. I’d suggest $10,000, but you can make it whatever floats your boat.

Your issue quickly becomes the profit margins in parts and service. Your parts and service managers will probably start screaming. Maybe you should stop looking at margin percentages and start looking how much more total gross you’re putting on the books.

Isn’t a half a loaf better than no loaf? That’s all I’m gonna ask, Tommy Gibbs

I like a good argument once in a while. Maybe argument is too strong of a word. How about a good old fashioned, get down in the mud debate?

I would venture to say that 50% of all dealers have units over 60 days old with little or no discipline regarding keeping units past 60 days old.

I would further guess that there’s another 25% of dealers who say they are on 60 days, but really aren’t. They say they are, but they have units over 60 days old.

There’s another group of dealers, about 25%, who have amazing discipline and never have any units over 60 days old. They have been where that other 75% currently are. Yep, they have been there and done that and won’t ever go back to having units over 60 days old.

Let me remind you that when you hear me say 60 days old that it’s never about dumping units at 60. It’s about finding a retail buyer. So here’s the argument I’m looking for.

Why do you have units over 60 days old?

What’s your reason and justification for doing so?

If you’re a believer in doing so, can you prove to me it’s making you money?

I like a good argument. Bring it on. That’s all I’m gonna say, Tommy Gibbs

As we all know, there are as many pay plans as there are dealerships. If you’ve ever heard me speak, you know I’m not a big fan of having buyers out on the streets running around buying cars and trucks.

My evidence is most of the time the units that end up aging on you are those that you purchased from the auctions. Those are always your biggest wholesale losses. The odds of you being successful with auction purchases would go way up if you used my life cycle management process. But, that’s not the subject of today’s article.

The subject today is that if you’re going to have outside buyers, what’s the best way to pay them?

Most outside buyers are paid based on so much per unit purchased. If you are of that mindset, here’s my suggestion:

The buyer only gets paid when you retail it at a profit or breakeven. They get nothing for buying the unit. They only get paid when you retail it.

Trust me, here’s what’s going to happen:

A. At first your buyer isn’t going to like the new plan. To make it a little easier to swallow, up the ante on what you’re now paying your buyer. If you’re paying $200 a unit, make it $300.

B. Your buyer is going to take an even more serious interest in every unit that’s on the lot that’s in his/her inventory.

If it’s tied up in service, your buyer is going to be pushing it through.

If it’s dirty, they are going to be getting out the washrags.

If it doesn’t have fuel, they are going to get fuel in it.

If its photos are lousy, they are going to start taking pictures.

If the pricing isn’t getting changed, they are going to be having a conversation with the price changing person.

I would further suggest that you add the fee to the cost of each unit that’s purchased. Thus when you retail it and pay your buyer, you’ve already expensed your acquisition cost.

If you’re gonna have a buyer, turn them into a retail buyer. That’s all I’m gonna say, Tommy Gibbs