The odds are pretty good that gross profit from new car sales isn’t going to get any easier. There’s a greater supply of inventory hitting most lots than in recent years. As supplies increase there will be more incentives put on the table and even more pressure to “turn and burn.”

As inventories increase, the greater the heat there will be on dealers to turn the inventory. That pressure will become magnified with the demand from the manufacturers to capture market share.

Dealers will feel the stress of being put on probation by their represented franchises. Maybe it’s not called probation for your brand, but we all know the heat the factory can put on us.

Floor plan interest rates may be headed up, which will add to the angst of many.

Every day the consumer gains an advantage, as technology is added to assist them with their price search of new vehicles.

The stress to turn more new units will cause more and more dealers to put new car prices online. Dealers will compete that much harder via pricing, and grosses will continue to suffer.

Many models will be sold for zero gross with a heavy reliance on F&I, doc fees, trades, etc. Many dealers are already selling new cars at cost or below.

Most dealers are tuned into fixed operations and many are already at full capacity due to facilities and the lack of qualified technicians.

The best bet for many of you is to improve your used car business.

If you don’t believe that to be true all you need to do is look no further than the movement of the public companies such as Sonic, AutoNation and others. You will see that they are ramping up their used car operations by setting up stand alone operations, much along the same model as CarMax.

Improving your used car business has many challenges tied to it; none any greater than improving front gross profit, which isn’t likely to happen given the state of used car pricing online.

Your best opportunity to improve your used car business is to improve your volume. Clearly understand that to improve your volume means your average gross profit is likely to go down.

Keep the following in mind:

You cannot spend average gross profit.
You can spend total gross profit.

That’s all I’m gonna say. Tommy Gibbs

I’m thinking your business has been pretty darn good.

One of the more interesting dynamics of the automobile business is 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.

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.

Here are 11 things to think about as you move forward into the spring and summer:

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. Examine every process from front to back.
6. Eliminate Legacy Thinking.
7. Get out of your little world and join a 20 group.
8. Don’t be afraid to fail; try something different.
9. Study the best of the best.
10. Improve your coaching and leadership skills.
11. Don’t think you have it figured out because you don’t.

Only you can make it great. That’s all I’m gonna say, Tommy Gibbs

The magic bullet for your used car operation is your brain and the software you stare at each day.

It’s that simple. You’re smart and you’ve got a world of information to work with.
One without the other will create frustration, stress and low profits.

I often see one or two things in my travels. I see management that’s still relying on “gut instinct/common sense” or management that “thinks” their software will take them to the promised land.

Either of those by itself is a bad bet.

You increase your odds when you realize that your software is a tool and the combination of using software with critical thinking has the potential to improve your business faster than a speeding bullet.

Having the magic bullet doesn’t do much good if you don’t load the chamber correctly. Let the brain loading begin. That’s all I’m gonna say, Tommy Gibbs

There are a lot of common problems when it comes to the used car operations for new car dealers. But of all the problems and challenges that dealers face, the number one problem is that dealers trade or buy a unit and have a lack of “intent.”

Most would say, “Of course I have intent. I intend to sell this unit and make some money.” That makes total sense, but the problem is, it’s far too general.

That’s like saying you’re going to drive from NY to LA without a plan on how you intend to get there. How many of you have ever heard the saying, “Every used car has to stand on its own?” If you’ve been around long enough you understand the term and can probably agree with the statement.

That being true, how can you give them all the same shelf life? How can you not have a specific intent for each unit? Most managers don’t think, “What’s my intent,” when a unit comes into their inventory. They paint them all with the same broad brush, which doesn’t make a lot of sense.

Intent starts with the appraisal and is finalized during the trade walk, where the “final intent” is determined. If dealership managers would look at each unit and clearly state their intent, they would have fewer inventory problems, turn would improve, and average gross, volume and ROI would go up.

I’m not going to go into the details here in this newsletter, but my life cycle management process gives you the disciplines to determine and carry out your “intent.”

My intent with this article is not to try to sell you something. My intent is to get you to think harder about what your own intent happens to be when you bring units into your inventory.

That’s all I’m gonna say, Tommy Gibbs