Should You Write Down Your Inventory?

Don’t bother writing your inventory down. Unless of course, you’re going to commit to some serious changes. It’s not unusual at this time of the year for dealers to write their used car inventory down, take a big hit and a deep breath, and say “OK, done, let’s move forward.”

Many dealers lack the discipline to steer away from what got them there in the first place. Therefore, in six months or so, the owners are staring at the same hot mess they tried to fix back in December.

Used car managers and dealers fall back into the same old rut because of the fear of losses they will have by taking aged units to the auctions and dumping them.

It hurts me to say this, and I know it’s going to cause a few of you to unsubscribe from my newsletters but taking units to the auction and dumping them is just plain dumb.

If you thought enough of that 60-day old unit to bring it into your inventory as a retail piece, you should have been able to find a retail buyer for it at some number. There’s a number that every unit can be retailed at.

Therein lies the problem. You won’t retail it for what it’s actually worth, yet you’re willing to wholesale it for what it’s actually worth.

Hey Einstein, which way do you think you have the greatest opportunity to recover from a unit that was probably a bad decision from jump-street? Insanity.

The instances where you have to dump a previously assigned retail piece in the wholesale market should be very few. If you’re in the retail automobile business, then retail your units.

Yes, the grosses on all that aged stuff are going to hurt you for a while. Dumping in the wholesale market will hurt you worse. If you have a lick of discipline and stay with it, you will be fine and never, ever have another unit over 60.

My Life-Cycle management process gives you the disciplines and strategies that will keep you from saying, “More write-downs, here we go again.”

I’ve never met a dealer who has figured out the 60-day concept that said, “Geez, I’d like to go back to those days when we had units over 60.” I’ve met plenty of dealers that are disgusted that they have to deal with aged units and write-downs every year.

Enjoy your write-downs. That’s all I’m gonna say, Tommy Gibbs

P.S. If you are going to write-down your inventory let me coach you through it. It costs you nothing for me to help you.

If you’ve been paying attention, you may have heard some rumblings in the vAuto world about a paradigm shift in their thinking on used vehicles.

The shift taking place is about changing your thinking of a unit’s age from pure days, which they refer to as “Calendar Time,” into a tool called “ProfitTime,” which is more focused on a unit’s overall investment potential.

To understand this idea a little bit more and how it relates to UpYourGross’ Life Cycle Management, let’s consider Velocity principles and the problem ProfitTime is trying to solve.

The Problem

Velocity principles would teach us that turning and burning units can boost ROI and allow grosses to accumulate. For many years, total gross vs. average gross has been something many of us have been focused on.

But what if there are some vehicles that we could have made more money on had we allowed ourselves to hold them a little longer and price them with a little extra gross built-in?

Strictly following the Velocity principles would leave these grosses on the table. As a general statement, holding a trade-in a little longer than something you acquired at an auction should make good sense to you.

The Solution

Rather than applying the exact same turn and burn strategy to every unit, what if we intelligently managed how we priced units based on their investment potential? This would allow us to strike a balance between applying a turn and burn mentality to the vehicles that require it, and seeking more gross for our great investment units.

This is exactly what vAuto has tried to capture with ProfitTime. They give each unit in your inventory an investment score each day. These scores range from 1-12 and segment into precious metal buckets. This allows you to understand each vehicle’s investment potential and execute a strategy that attempts to strike a balance between turn and burn units and hold out on good deal units.

So This Means Days Don’t Matter, Right?

Well sort of, but not so fast. Let’s step back a bit and take a closer look at the factors that drive a vehicle’s investment potential. Once you have a unit in your inventory, its investment potential is based on the gross the vehicle can generate.

Essentially, how well you bought the vehicle (odometer-adjusted cost-to-market) and the market conditions for that particular unit (Like-Mine Day Supply and Market Sales Volume). ProfitTime wraps these data elements together to determine the vehicle’s investment potential.

I’d envision using ProfitTime to understand a unit’s profit potential so that you can price your cars more optimally on day one and so that you can keep them priced right as their profit potential changes. This should allow you to strike a better balance between turn and burn units and staying firm on good deals.

It’s important to note that this investment potential doesn’t care if the unit is one day old or 40 days old. Therefore, from the ProfitTime perspective, how long you’ve owned the car simply does not matter.

However, I would be careful to not generalize and make a blanket statement that days don’t matter at all. If you just sit on a vehicle that was deemed to be Platinum on day one, it won’t look too rosy on day 100. In fact, as the days pass, the unit’s investment score will worsen, as would be expected with any depreciating asset.

Where Do Days Come Into Play Then?

Days still come into play when you are looking at your ROI. This is because ROI is not only based on the gross you’ve made, but also on how long it took you to make that gross. This all starts to come together when you see the bigger picture.

Vehicles with low-profit potential from the get-go will see their ROIs start substantially lower than vehicles with a higher profit potential. This gives you less time to move these units from day one if you expect an investment return. You can think of this as buying a green banana versus a brown banana. The green banana has more time to be useful on day one, while the brown banana is already running out of time.

You can still make money on brown bananas, but you must sell them fast and understand all the pluses that go along with cranking up the volume with brown bananas.

Additionally, vehicles with factors that lead to quicker depreciating market values will see their profit potential decline at a faster rate than vehicles with steadier market conditions.

These units will have pressure to be moved quickly too.
In nearly all cases, each day that ticks off the calendar lowers the vehicle’s ROI, even if its gross doesn’t go down. However, the starting ROI and rate at which the ROI deteriorates each day will vary for different vehicles.

How does ProfitTime fit Into UpYourGross’s Life Cycle Management Philosophy?

At UpYourGross we’ve been preaching a lot about a life cycle management philosophy that is built on the concept of having a unique strategy for every unit. The reason we do this is we recognize that not all vehicles are created equal. When we talk about a concept like setting an auction purchase unit to a shorter life cycle, we are essentially saying this vehicle has less gross potential, therefore, it’s ROI will automatically start lower than that of, say, a customer acquisition unit. Therefore, we need to get rid of it faster.

You can strike similarities between the concept of ProfitTime and Life Cycle as follows. Calendar Time is simply the vehicle’s true time or age in inventory. Intelligently setting a unique Life Cycle to a vehicle means that its expiration date is no longer tied to Calendar Time; rather, it’s tied to its investment potential. An auction purchase might expire at day 45 while a customer acquisition expires at day 60. This philosophy operates on the same fundamentals as ProfitTime.

So if Profit Time and Life Cycle are Similar Why do I need Both?

The truth is each tool offers you a distinct benefit and those benefits increase in value when used together. While you don’t have to have ProfitTime to use the Life Cycle management tool we’ve built with UpYourGross, knowing a vehicles ProfitTime score makes “intelligently” setting the Life Cycle for each unit a bit more analytical rather than purely experience-based.

This isn’t to say that there’s no place for experience, but as many of us know making decisions backed by data is a good foundation for establishing consistent and repeatable processes.

And, you don’t need UpYourGross to use ProfitTime. But when you pair the two together, they put you in the driver’s seat of driving more gross to your bottom line.

Think of it this way, the ProfitTime score will help you select and updated a unit’s life cycle and UpYourGross will help you manage your inventory when you end up with many different units all following distinct life cycles. With UpYourGross, you’ll be able to easily see which units are about to expire and know what units you should be focusing on.

I guess you could build a massive spreadsheet and hire someone to punch data into it all day to help you keep track of it all.

However, we recognized that establishing and managing a unique strategy for every unit could be a daunting task to manage in spreadsheets-the exact reason we created UpYourGross in the first place.

What if I’m not Ready for ProfitTime?

If you’re not ready to make the jump to ProfitTime, I’d still encourage you to stop treating all vehicles the same. Not all vehicles deserve a generic 60 or 90 days just because you find that process and inventory age timeline simple to implement.

Try following a process that sets a unique strategy for every unit and see how easy it is to manage that process with UpYourGross.

You might just be surprised at how your bottom line starts to look when you combine ProfitTime and UpYourGross.

Tommy Gibbs & Jarrod Tanton

When I’m in town I work out at a small 24-hour gym on Treasure Island in a little strip mall. Three doors down from the gym is a real barbershop. Looks and feels like one from yesteryear compete with the barber’s pole that can be traced back to the Middle Ages.

The other morning, I couldn’t help but notice the barber was sitting in his barber’s chair staring at the front door. Immediately it flashed through my mind that’s what I often see in dealerships today.
I see two types of people staring at the door.

1. Salespeople staring at the door waiting for that special up that the dealership has been so kind to advertise for. (Will we ever fix this?)

2. Management staring at two doors. The old school door and the you might fail door.

The might fail door can be pretty scary. Every once in a while, you walk over, crack the door, and take a peek. Your body starts shaking with fear because of what you’re seeing.

You’re seeing grosses and in some cases volume heading south. You’re seeing today’s pay plans not working, and you’re seeing today’s new hires leaving as fast as Superman and a speeding bullet.

They aren’t buying into your hours and your selling processes which aren’t much different than they were 25 years ago. And, they hate your pay plan.

Aside from being prettier, the physical work environment is about the same. You still have desks and you’ve fancied them up by putting computers on them. It’s sort of the lipstick on a pig theory. When the customer walks in, they still see a pig.

You’re also seeing the approach of some of the public
companies and bigger dealer groups by changing their hiring practices and hours, and adding iPads, sofas, and kiosks in the showroom.

You’re starting to wonder if you’ll still be around 10 years from now.

But you’re making a profit so why change? You need to change while you can afford to change.

You’re sort of like that barbershop. The only thing that’s changed for the owner is the chair is a little different and there’s no strap to sharpen the straight razor with.

That’s a really nice chair you’re sitting in. Enjoy your seat. That’s all I’m gonna say, Tommy Gibbs

It’s Thanksgiving and time to give thanks. If you’re like me for sure you have a lot to be thankful for. Among many things I’m thankful for are your friendship and support.

Thanksgiving also starts the closeout of the year. It centers around Black Friday and rolls through the last week of the year. Like it or not, 2019 is already here.

I’ve listed some very basic ideas you need to take into consideration that will help you finish strong and get ready for your best year ever.

A. Re-commit yourself- and your thinking towards being the very best you can be. Take stock of all those great ideas running around in your head. Write them down and make a commitment to get them done by certain dates. Post it on the wall in several places that you will see frequently. If you have a private restroom, put it on the mirror.

The dealers and GMs with the most successful used car operations are those who have taken ownership of the used car department. The more involved you get, the more success your dealership will have. If you’re not committed to the used car business, it’s a safe bet your team isn’t either.

B. Re-evaluate-the appearance of your inventory. Let’s do a little checklist:

1. Look at your inventory online. Are they all there? Actual photos & prices posted?
2. Take a lot walk. Are the vehicles in straight lines?
3. When was the last time the entire lot was rotated?
4. Are you using angles to display your inventory?
5. Do you have hang tags? If so, do they all have hang tags?
6. Are they nasty, dirty on the outside?

C. Refocus Your Disciplines-To be successful in the used car business you have to have daily/weekly/monthly disciplines that you live and breathe by.

One of those disciplines might be to do a weekly lot walk. Every car in your inventory must be touched. If it’s in service, touch it. If it’s in prep, touch it. If it’s in the budget center, touch it. Everybody touches it. Even if you think you have your disciplines well defined inside your head, you’d be well served to make a written list and check them off from time to time.

D. Re-Recon-Take every unit over 30 days old back through a recon process. (You’ve already missed your best window of opportunity to make gross; that would be the first 20 days.)

E. Re-Invest-in yourself and your management team. Do something to gain some knowledge. Hire me, visit CarMax, or visit a dealer friend in another state that does a good job in used. Attend a workshop. Join a Twenty Group. Join a Used Car Twenty Group. Do something besides sitting there and waiting for something to happen.

F. Re-think- your management team. Do you have the right person running your used car operation? Yes, that person may have been with you for years. Loyalty sometimes equals mediocrity. Maybe they have some great skills, but the fact is that you may not be making the best use of their talents.

I’m thankful for lots of things this holiday season and I’m especially thankful that you’ve taken the time to read my little Zingers. That’s all I’m gonna say, Tommy Gibbs

By now you’ve closed out October, twisted over the numbers and gone back to work.

Not so fast.

October is the perfect month. “Perfect for what?” you ask. Perfect for figuring out where you’ve been and where you want to go.

I can’t say that math was one of my best subjects, but I can divide by 10 real easy. At a glance, I know what the averages are for any line item expenses, sales volume, and gross profit.

What also makes October a perfect time is it sets the stage for the next year. Now is the time to start planning for 2019. Waiting until the last week in December to get your plan together is a really bad strategy.

This is the perfect time to dig in and firm up your fundamentals in all departments. This is the time to get back to basics. This is not the time to cut back on your training.

This is when you need to amp up your thinking, stretch your organization and stretch your imagination. If you don’t have a solid foundation of basic processes you will never maximize your success.

This is the time to take control of the evaporation factor that’s been occurring all year long. This is the time to stop the process bleeding.

Your long-term plan should include joining a Twenty Group and attending the NADA convention.

We all get lazy and get caught up in our daily routines. Attending these meetings gets you revitalized. It gets you outside of your daily box and opens your eyes up to what the possibilities might be. Seems like a no-brainer.

This is the time to make those plans. Teamwork is critical if you’re going to maximize your bottom line. To keep your team on the same page you have to constantly communicate to them what the expectations are and what processes they are expected to follow.

There is no shake ‘n bake solution. You don’t fix it and walk away. You fix it and re-fix it.

What to do?

1. Ask yourself if you can improve your processes? If you focus on revamping your processes, what effect do you think it will have on your business? It’s just a fact that regardless of how well disciplined you are, over time your processes are going to evaporate.

The best piece of advice I can give you is to lock yourself and your management team in a room and review every detail of your selling processes. Be brutally honest with yourself. Then take the necessary action to get yourself back on track.

2. Can you improve your team? Got the wrong players? Now is the time to make the changes. If you already have the right team in place then it’s time to let them know what your expectations are and show them the plan and the path to achieving those expectations.

3. Don’t think of your planning as you now having
a plan. Think of it as a “mission.” Plans can fall apart. When you’re on a mission you stay after it until you succeed and then you stay after it some more.

I’m on a mission to get you to re-think what you’re doing. I’m on a mission to get you ready. That’s all I’m gonna say, Tommy Gibbs

There are a number of factors that go into achieving a better gross profit than what your store is currently producing.

None are more important than how you price your units and how you pay your staff. We often price units that we have the greatest profit potential too low and price units with a lesser profit potential too high.

There’s no disagreement that pricing plays a role in the equation. There’s another hidden element that’s often ignored and it’s what kind of a deal that you’re willing to take.

And that’s where pay plans have the greatest influence.

I will give you a couple of examples:

You have a nice trade.
It has a wide cost to market in your favor.
It has a low market days’ supply.
It’s 12 days old.
You have it listed with a gross of $2700.
After some negotiating the salesman and you are staring at a $1500 deal.
You take the deal.

How can you not? You’re both being paid on gross. You just gave away $1200 that maybe you shouldn’t have.

Here’s the flip side:

You have an auction purchase unit.
You have a cost to market not in your favor.
High market days’ supply.
It’s 56 days old.
At 56 days of age you still have it listed with a $1500 gross profit.
After some negotiating the salesperson brings you a deal that’s a $500 loser.

You don’t want to take the deal because there’s nothing in it for you or the salesperson. (Actually, there may be for the salesperson because you have a $500 bonus on the unit to make it go away.)

You take the deal and moan all day about how Internet pricing is killing your grosses.

The reality is your pricing was off from jump street.

If you find yourself holding on to some of these low-profit potential cars longer than you’d like, you might find that you’re letting what you paid for vehicles influence what you are listing them for.

You priced it wrong because you wanted a certain margin going in. You may have priced the unit with the same margins as you would with a nice trade.

Both of these examples add to your gross profit woes.

If you want to improve your gross profit you need to change your thinking when it comes to pricing, paying on gross and the deals you’re willing to take. That’s all I’m gonna say, Tommy Gibbs

I’m done playing nice. I’m done being soft spoken. I’m done not telling you like it is. I’m done with you telling me you drank the Kool-aid and all is good.

Unless you drank my super Kool-aid, it’s not all good. Some of you have. Some of you haven’t. If you haven’t, you should.

I’m screaming. Yes, screaming from the rooftop that you need to be using my life-cycle management process. The reason you need to be using it is that it makes good sense. You cannot deny that it makes good sense.

I guess you could, but you’d be wrong.

You could say, “My team and I don’t have the discipline to utilize it,” which would be a shame, but you can’t say, “It doesn’t make good sense.”

For your entire career, you’ve either stated or heard others state, “All units must stand on their own.” Yet, you treat them all the same. What are you thinking? How’s that working out for you?

Life-cycle management requires you to have a unique strategy for every unit on day one. If you have a unique strategy on every unit on day one, none will see day sixty-one.

My software helps you manage it, but I don’t care if you buy my software or not.

What I care about is that you acknowledge the fact that all units don’t deserve the same shelf life.

What I care about is that on day one that you be honest with yourself about what you’ve done to yourself.

What I care about is that you understand you cannot treat a purchase unit the same as you do a trade.

What I care about is your gross going up. Using life-cycle management makes your gross go up.

Maybe you should come up on the roof with me and look down and see the view I see. If you did, you’d be screaming too. You’d be screaming at the person in the mirror. That’s all I’m gonna say, Tommy Gibbs