The reason you have to get serious about used cars is because of the letters many dealers received in 2009 that terminated their new car franchises. Dealers have allowed themselves to be at the mercy of the new car manufacturer in good times and bad.

Think about it: We don’t get to make decisions on what’s being produced by the factory. How did we let the viability of the family business become dependent on the new car franchises? We should have learned our lesson over the past years. All franchises go up and down. We know that, because in many cases we collect new car franchises to hedge our bets.

Many of the dealers who received those letters of termination in 2009 decided to turn those beautiful vacant facilities they were stuck with into a used car operation. Most of them have failed miserably. Why? It’s pretty simple. It’s because they had always treated their used car franchise like the red-headed stepchild and didn’t take the time to learn the used car business.

They had become so dependent on their new car franchises all those years that they just couldn’t make the switch. They tried and tried but most have failed. Now they are stuck with properties they will either lose in foreclosure or sell at a bargain basement price in order to unload the debt and taxes.

Dealers should never allow themselves to be put in that position again. Take care of the new car franchise but don’t allow your survival to be dependent on that alone.

The upside to “getting it” as in getting in the used car business is it makes you stronger in all departments. When the used car business is rocking it feeds all the other departments. If you are strong in used cars you can step up on new car trades. The more new cars you sell the more parts and service business you generate. If used cars are turning and burning you are running more internal tickets through the service department.

Used cars are the biggest no brainer since the invention of the wheel. So, you have a choice either to develop it as your best franchise or risk your entire investment on one day getting that letter that says, “Sorry, we’ve decided to terminate your franchise, thanks for all the new cars you’ve sold for us over the years, but we don’t need you anymore.”

That’s all I’m gonna say, Tommy Gibbs

Often times dealers and managers are baffled when a certain used car just can’t seem to find a retail buyer. In the "Life Cycle Management Section" of my workshop I go into great detail as to why some vehicles have not sold and the correct strategy to get them sold without loss of income and brain damage.

The easiest thing to get your head around should be the fact that there’s something about certain vehicles that just isn’t right. It wasn’t right on day one, now it’s day 70 and it’s still not right. There’s a whole list of items that are factors in it not being right. Four of the simplest are color, miles, equipment and most importantly, price point, which leads me into today’s discussion involving a recent email conversation.

A dealer had a 2011 Kia Sorrento with 25,000 miles on it ranked number 4 in the market on price and could not understand why it had not sold. According to the dealer it is a really nice vehicle, great color, etc. (Has 25,000 miles on it, hmmm.) All the data lined up really well including the positioning on Auto Trader.

For whatever reason the dealer actually raised the price on the vehicle to an even $20,000 around day 70. Which put him 4 of 20 in his immediate market. The dealer further stated that since he had raised the price he wanted to wait a bit longer before reducing it and moving it to the number 1 position.

I’m trying to rationalize the strategy of raising the price in the first place. I’m guessing the dealer felt that if the vehicle had not sold at a lower price that it would sell faster if he raised the price? Really?

Like many of you reading this I’m pretty strong on my opinions, especially on certain things. I have a really strong opinion on this one. Let me add as a disclaimer that I don’t really know all the details of this particular unit. I would really love to know if it was a trade or purchase, but given the facts on the surface here’s my take:

There isn’t much of a market for a 2011 used vehicle with 25,000 on it. Pure and simple, there just isn’t. As always the law of supply and demand comes into play. There may not be that many used 2011 Kia Sorrentos in the marketplace to compete against in terms of pricing, however, there are lots and lots of new 2011s, 2012s of many brands and makes, which really clouds the issue.

I just pulled up on Edmonds.com incentives for new 2011 Kia Sorrentos and it shows up to $1000 rebate and as low as 0.9 % APR. If I can pull that information up, the average consumer is doing it.

Clearly understand that any consumer with half a brain knows they can get better terms on a new car than a used. If they don’t know that piece of information the first sales person they run into is going to tell them.

It’s a given that over 80% of people who buy a used car shop the Internet, so what in the world would attract someone to buy this 25,000 mile, 2011 Kia Sorrento for $20,000? Nothing, absolutely nothing!

It’s doesn’t matter if your price rank on this vehicle is number 1 or number 10 they ain’t showing up. Price rank has nothing to do with this vehicle getting sold today. (Ok, the higher your rank the worse your odds do get.) If this vehicle was a trade in, it should have been aggressively priced on day one. If it was a purchased vehicle someone needs to re-examine their purchasing policy.

The only way this unit will get sold with its current pricing is if Lady Luck shows up. The reality is that this unit is going to get sold when the price is so attractive that someone can look past the miles and go, "WOW, I’m all in."

I have a bad habit of repeating myself. But this bears repeating. This unit will only get sold when one of two things happens:

1. Lady Luck shows up.
2. It’s priced so darn low that someone falls in love with the price.

Lady Luck or price. It’s your choice. That’s all I’m gonna say. Tommy Gibbs

This may be the simplest and easiest way to get out of the NEWSCAR business and into the used car business. Most new car dealers are not in the used car business. Most are in the NEWSCAR business. That’s when the average cost per unit in your inventory keeps creeping up and up and before you know it you are too close in price points to your new car inventory.

That’s not to say there is not a market for program cars or certified cars.  There certainly is, but those segments of your inventory really have to be controlled. What happens is when the average cost of your inventory moves up and up and the factory comes out with rebates, incentives, low interest rates, employee purchase plans, or if the government comes out with programs like Cash for Clunkers you get crushed because you are sitting there with all that high dollar inventory.

If you don’t believe what I’m saying is true I have two easy experiments for you to do. Take out your financial statement and go to the used car page. To do this correctly you will need to chart out each month for the entire year. On that page you will see a column that has used car sales dollars in it. Simply put that’s as if you sold one car for $10,000 and one for $20,000, thus you had $30,000 in Sales Dollars. That in and of itself doesn’t mean much to you. Now, subtract your total gross profit from that sales dollar number for each month. That will give you your cost of sales. Divide the cost of sales by the number of units each month. That will give you the average cost per unit sold for each of the twelve months. I know, I know pretty simple stuff. Hang on…

When we do this little experiment here is what we generally find: the month in which you had your greatest retail sales is the month in which your average cost per unit sold was the lowest for the entire year. And, the month in which you had your worst retail sales your cost per unit was the highest for the entire year.  So, the bottom line is the more you press your average cost down, the more used you will sell and the better off you will be. You end up getting in the used car business and out of the NEWSCAR business. You end up selling more units with fewer dollars tied up. Oddly enough most of your problem cars go away. Your ability to get on a 45 to 60 day aged inventory goes way up.

The easiest way to manage this from the Dealer’s standpoint is to drive your used car manager nuts about what their average cost per unit is in stock each day. Surely you have some way of pulling what your average cost is per unit every day? There is no set of circumstances you can lay out that negates this concept. So, if you were to say any of the following, you would be wrong:

1. We do a great job with highline cars. (Irrelevant.)
2. We do a great job with high dollar pick-up trucks (Irrelevant.)
3. We do a great job with high dollar SUVs (Irrelevant.)
4. We don’t have software that can separate our inventory by Cars, Trucks, SUVs and Wholesale Pieces (Irrelevant.)

None of this matters. It’s like your “up log.” It’s consistently inconsistent. It’s ok as long as you are always using the same measuring tool. So how do you drive your used car manager nuts about this number and make it work for you?

First, require that your used car manager print the report every morning, circle today’s average cost, and put his/her initials inside the circle and lay it on your desk. I like to take this page and tape it and the previous day’s page to the wall in my office. What happens is anytime someone walks in my office they look at the number to see where we are today. It creates peer pressure and accountability of the used car department and especially the used car manager.

Every time I see the used car manager in the hallway I will ask them “what’s your average cost?” If I see him 10 times, I’ll ask him10 times. The more you aggravate your used car manager about this number the better off you will be. For me in the past it’s gotten to the point where all I had to do was just wink at them and they will spit it out.

So, what’s the magic number to get to? There is no magic number. Every dealer’s number will be different. If you are at $14,500 today your mindset should be how do you get to $14,000, then $13,500, then $13,000 and so on. The more you press your average cost down the better off you will be. I find it interesting that when I’m speaking to a group, they think they are hearing me say go out and buy cheaper cars. No, that’s not what I’m saying. I fully realize how hard it is to buy cheap cars. But, what I am saying is it’s not so much about what you buy, but what you don’t buy. If you are buying a high dollar car you have to buy it with great caution. You need to either have it sold, or have data to back up that it’s going to move fast. 

One of the most important things you can do is to quit letting “Bubba and the gang” have your cheaper cars. There is absolutely no reason to not retail any vehicle that has a piece of life left in it. You can present all the excuses you want, and they are just like the rear anatomy that we all have. Don’t say well, we don’t want to be in that business because it creates customer issues. That’s all a bunch of bull. Don’t say it’s because we spend too much money on them in service. That’s a bunch of bull.

There is no question that if you just pay closer attention to what you are buying and what you are keeping to retail that your average cost will go down. Only good things end up happening. As you monitor your average cost it is going to bump up from time to time. There are two reasons for this. First, it’s because you traded in some high dollar stuff, which you will naturally have to do and second it’s because you got goofy and went to the auction and bought some high dollar cars. In both cases it’s a matter of paying attention to it daily and getting back on track.

I’m often asked two questions:

1. What should my target goal be? There is no target, just try to get it lower than the day before.

2. Can I press my average cost too low. The answer is no. Don’t be concerned with that. If you do a good job with $25,000 SUVs, you will still sell $25,000 SUVs, but by pressing your average cost down it just makes you that much better.

The other thing you should look at each month is what your average cost in stock is today, vs. your average cost of what you sold last month. Nine times out of 10, what you are actually selling is not reflected in your inventory. You might find that your average cost in stock is $14,500, but your average cost per units sold last month was $12,500. What’s happening is you are selling the cheaper stuff and the more expensive stuff is sticking around and you have too much of it. Imagine that?

That’s all I’m gonna say, Tommy Gibbs

I’m not sure if you’re a football fan or not, but it really doesn’t matter. There are some real lessons to be learned with the recent loss by the Indianapolis Colts to the New York Jets. This past Sunday, December 27, 2009 the Colts lost to the New York Jets by a score of 29 to 15 and blew a chance for a perfect season.

Peyton Manning, the colts MVP quarterback had been told by head coach Jim Cardwell prior to the game that he might pull Peyton and some of the starters out. Let’s set the record straight, the Colts were on the verge of history. The history of overcoming the Miami Dolphins record of perfection in 1972 when the Dolphins achieved an undefeated season of 17 wins and 0 losses.

Cardwell’s logic is he wanted to rest his key players in order to be ready to make a run at the Super Bowl. You’ve got to be kidding! You have a chance to be the best ever and you’re going to rest your best players?  That would be like saying we have a chance to set an all time record in our sales department, but we want everyone to be rested for next month so let’s take a couple of days off to get ready. 

Please tell me who out there would do that? If you said you would then you should be booed out of the dealership just like the Colts fans booed the Colts on Sunday.

If you have a chance to win, why would you not do everything in your power to make it happen?

You’re sitting there agreeing with me on the Colts laying down this past Sunday, but yet you just kind of plod along thinking let’s take a few days off it will be better next month. Next month comes and you’ve still done nothing. Next year will soon be here and you’ve done nothing. You’re playing with second string players or a lousy game plan and think it’s going to get better.

Look Einstein it’s not. It’s really not. It’s not going to get better until you develop that killer instinct of take no prisoners, pay the price to win, study the game and kick some butt each and every day.

It’s really very simple. The New Year is upon us. It’s that time when we make resolutions to change and be better.  A small percentage of people will make resolutions and achieve their goals. They will see the finish line in front of them, go for it and make it.

Most will be like the Colts. They will start out with a goal, get off track and the next thing you know the chance for history (for a great bottom line) has escaped them. The only thing you have control over is what you do today. Today is the first day of your quest for historical greatness. You can choose to be a winner…or you can choose to be a loser. You can swim like a Dolphin or you can buck along like a Colt. If you take the Colt approach you’re going to get bucked off, hit your head and come this time next year wonder what happened. Enjoy the ride.

That’s all I’m gonna say. Tommy Gibbs

There are two ways to sell more cars.

The first is to crank up the advertising. TV, Radio, Print, Billboards, Internet and Social Media. There is no doubt that if you spend enough money, traffic will eventually show up. Even if you have a lousy sales department, you will still sell cars because the odds are that lots of potential customers will show up and some of those "ups" are going to make you sell them a car.

Another way to sell more cars is to invest money in developing your organization. Investing in your staff and the culture of your business has the potential to give you long term results. This is a slower process, but one that allows you to build a solid organization that will not only take you well into the future, but will make your daily life a lot easier to deal with.

If your advertising budget exceeds your sales then just because you sold a bunch of cars doesn’t mean you made any money. Loading up on advertising gives you short term results, which isn’t always a bad thing, but when you begin to rely on short term results you may be jeopardizing your long term successes.

Advertising is short term spending. Think about how many times in your career that you have started an advertising campaign only to pull the plug after a week or two because you didn’t see immediate results. You end up with a knee jerk mentality.

Why is it easier to spend short term money than long term money? The spending of long term money requires greater discipline and planning, which is much harder to do. Spending long term money requires strategic planning, which is something that most people do not have a lot of experience with.

Many successful people in the car business have succeeded in part because of their ability to make something happen right now. They are action people. It’s a big part of who they are and how they got to where they are today.

The automotive business, like all businesses, is becoming much more complex than it was 10, 15, or 20 years ago. Just because you’ve achieved success in the past doing it "your way" doesn’t guarantee you will be successful in the future.

Strategic planning is an organization’s process of defining its strategy, or direction, and making decisions on allocating its resources to pursue this strategy, including the allocation of capital and people.

Of course advertising is big part of any strategic plan, but when you allocate more of your resources to advertising than you are allocating toward developing your staff and the culture of your organization then you end up fighting with the same old problems from month to month, year to year.

Developing a strategic plan requires time and resources. Don’t wait until your December planning meeting to get it going. Do it now, start it today, right this minute, don’t hesitate. 

Confucius says "He who hesitates gets run over by a truck." I made that up, that’s all I’m gonna say. Tommy Gibbs

On January 5, 2010 there was an article in USA Today on University of Texas’s football coach Mack Brown. He’s had tremendous success since taking over there 12 years ago. In that article it talks about a young man who spoke to the team prior to their big game against Oklahoma. The young man was 16 year old Corey Borner who was paralyzed from the neck down after he was injured while making a tackle last spring in a scrimmage at Desoto High School.

He told the Longhorns he was going to find a way to walk again, just like they were going to find a way to beat Oklahoma. After trailing at halftime, Texas won 16-13. Borner gave Coach Brown a black wrist band that reads “find a way.”  Brown wears it during all games and states, “You hear our kids say all the time ‘find a way’. Corey’s moving his arms now.  He has some feeling in his legs. We got it pretty good, and if he’s finding a way, we can find a way.”

You have to find a way to improve your bottom line and improve your business for 2010. There is a way. It doesn’t matter if you’re in a big market or a small market. It doesn’t matter if your economy is more depressed than other areas of the country. There is a way. Maybe the pie has gotten smaller, but you have to figure a way to get a bigger piece of the pie.

You won’t find a way by looking at the four walls in your office. You will find a way by seeking information on how to make it happen from those who are making it happen. I can’t think of any business where owners are so willing to share their success stories with others like they do in the automobile business; be it from a phone call, a 20 Group or from dealers at the NADA convention. There is a ton of information available that will help you if you would only seek it.

The most successful dealers in the country are always looking for a way to improve what they are doing. They are never satisfied. So if their motto is always “Let’s Find a Better Way” then why don’t all dealers do the same? It’s simple. They’ve lost their way because they are convinced there is no way…and that’s all I’m gonna say.  Tommy Gibbs

I wasn’t a very good history student. I couldn’t rationalize why I needed to know what had happened a hundred years ago. I could not have cared less. Actually, I hated history.

As an adult I have come to appreciate history and wish I had paid more attention in my history classes as I now find it amazingly interesting.

George Santayana, a Spanish-born philosopher wrote in his book, The Life of Reason, "Those who cannot remember the past are condemned to repeat it."

Why are those 11 words so hard for us to get our heads around in the car business? Many in the car business keep repeating the same mistakes and don’t understand why they are always fighting with the same issues. If you are not willing to change, what else can you expect?

The two things I hear dealers complain about the most are the mistakes in their used car inventory and how difficult it is to hire people.

The reason you can’t hire people is because of the type of people you keep going after. You’re trying to hire the same type of people that you did back in the 70s and 80s. If you keep going after people who are motivated by being paid on gross profit, how can you expect anything but who you are getting? Paying on gross profit has very little appeal to generation X and Y.

Your selling system and pay plan is fundamentally the same as it has always been. Get an offer, work the customer, make as much gross as you can and repeat the process. Sales people and managers are programmed that the more gross they hold the more they get paid. Yes, we need lots of gross profit, but the historical approach to achieving it is not working.

By and large the way many dealers manage their used car inventory is the same as it was 20 years ago. Dealers buy cars based on a combination of gut instinct and a little pretending that they are using some software to guide them. Their emotions still control what they buy and what they keep.

I often hear comments like "Why should I get rid of that car when I can’t replace it?" I love it when dealers make that statement to me. Really, really…you want some more of that? If it hasn’t sold in 45 days why would you want to go out and buy some more cars that you haven’t been able to sell?

Many dealers want to stay with the "old way of doing things." They price cars at a certain amount of gross and then want to hold the line on those prices as long as possible. History tells us that you are working with a depreciating asset. If the value is going south on a daily basis how can you think that your pricing shouldn’t follow the same formula? But, because you don’t adjust the pricing fast enough (and you’re not using my Life Cycle Management Program) you wake up one day, take those aged units to the auction and lose your shirt. History keeps on repeating itself and you wonder why?

So back to our little history lesson. If through your history you keep finding yourself struggling with these same problems over and over again what’s it going to take for you to change? Yes, change is hard; it’s never easy to go down a different path. To do so you have to clear out a lot of old debris. It takes time, patience and commitment. The alternative is for you to keep repeating history.

You cannot control the past, but you can control your future and you can make your own history by having the guts and courage to change those things you know you need to do. That’s all I’m gonna say. Tommy Gibbs 

What a great quote by Mark Twain. Ask yourself, are you in denial? Are you in denial about what’s really going on in your dealership? Is it really the economy or is it partly you? Are you not looking in the mirror?

I’m probably one of the luckiest people in the world because I get to travel and spend time with some very successful automobile dealers, and some who are not so successful. One thing that separates them is that successful people don’t lie to themselves. They know they have faults and they seek to fix them. In other words they are not in denial. The not so successful ones are usually in total denial. The denial starts with having all the excuses they can come up with as opposed to taking an honest look at themselves and their organization.

Denial is an unrealistic hope that a problem is not really happening, and will go away by itself. It is an attempt to put distance between ourselves and our experience, and protect ourselves from the threat of danger. In its many forms, denial acts like a pain reliever. If we keep pretending it’s not there then eventually it will go away. Not!

Denial can become your worst enemy. It diverts your attention, and decreases your mental efficiency.  As long as you refuse to accept the truth of your situation, you must, of necessity, refuse to give it your attention. Instead you will pay attention to every possible manner of distraction you can employ to support your denial. You keep reading the paper and watching CNN to reinforce your personal denial.

Successful businesses always get down to people and/or processes. Yes, you know these things to be true on the inside but you lie to yourself and your staff on the outside…you zip right into denial mode. I have an old friend by the name of Marvin Barnes. Marvin had a saying, “You can justify anything you want to justify.” Denial allows you to justify how bad the economy is and that’s why your business is so bad rather than face the fact that you either have the wrong people or wrong processes.

That’s all I’m gonna say, Tommy Gibbs

Let’s pretend that you have a million dollars lying around and wanted to invest it in the stock market. Also, let’s pretend you decide you want to be a day trader and manage your own portfolio.

If you were a day trader how close would you watch the market? How hard would you study the various stocks to determine the ones you wanted to risk all or part of your million dollars on?

The odds are pretty good it would be minute by minute. I’m also thinking you would unload those stocks that appeared to be heading south with no real chance of making you any money.

It would stand to reason you would cut out those stocks that are losers, study the market really hard to find the winners, and invest your money in stocks that gave you the greatest edge toward making a profit.

Being a day trader requires that you have access to multiple real-time news sources and can make split second decisions. News and rumors can provide large amounts of volatility and high emotion creating great opportunities if traded properly.

To be really successful as a day trader probably will get down to how hard you are willing to study the market and to what degree you will exercise strong discipline.

Let’s say you have a stock heading south and all the research says the company’s earnings are not going to get any better. Why would you keep it? The only reason to keep it would be somewhere back there in the deepest, darkest corner of your brain something keeps telling you, "Hang on to it, don’t you remember 10 years ago, you had that one stock that you kept against your better judgment and it bounced back and made you money." You still believe in miracles.

Day trading can be extremely profitable. The downside is that if done incorrectly, it can also be extremely unprofitable. Due to the high volatility of day trading, some people have labeled Day Traders as gamblers or adrenaline junkies.

It’s probably simpler than you might think. If you buy smart, unload the losers as quickly as possible and reinvest that money into stocks that give you the greatest chance of making a return on your money, then the million dollars you started out with can grow substantially.

Since most of you reading this are in the car business you have probably figured out where this is going.

It is not uncommon at all for dealers to have over a million dollars tied up in their used car inventory. If that’s you, then you must take the same approach with your used car inventory as you would take if you were a day trader.

It’s not about losing money at 60 days. It’s all about turning the right inventory (stocks) as fast as possible. Finding a retail buyer early in the "Life Cycle" is what creates a high return on your investment. A low return on your investment automatically occurs when you hold a car for 60 days. 

It’s not called a "60 Day Trader." It’s called a Day Trader for good reason. That’s all I’m gonna say. Tommy Gibbs

What’s the number one thing that separates your dealership or business from your competitors? Silly question, huh? It’s obviously the people. The leadership of an organization sets the tempo of what the expectations are even if they “state” them or not. If you never announce what your expectations are you have actually done so by remaining silent.

I was thinking this morning when going into my local dry cleaners, why do I go there? Other dry cleaners are just as close and I know for a fact that one of them does a better job. The difference is the people who work there. They know me by name and they are friendly. Pretty simple, huh? As I think about other businesses I frequent it’s the same thing. Be it the post office, restaurant, Office Depot…they all offer the same items and/or services. I select which one I will give my business to based on the attitude of the people who work there.

Attitude does not happen by happenstance. It happens because someone has led that attitude. Attitude is not developed by having a meeting and stating what the new policy is on attitude. It’s done by example and continuous training/coaching of the entire team.

Most people would point to Ritz Carlton Hotels as having the best employees and customer service concepts. Do you think that happens just by hiring nice people, paying them well and having a new employee orientation program? You and I both know that cannot be true. First they are in the same talent pool that you are. They want to hire nice, well spoken, talented people. Second, I doubt very seriously that they pay the most money and third we all know that there is no way to maintain the level of service they do by doing an employee orientation and saying “go get ‘em.”

Most businesses do just that. They hire people and say “go get em” and they wonder why they can never achieve the level of success they would like. It’s really about developing a culture within your organization. In order to do that you need to retrain all the members of your team at least once a quarter in order to coach them on what the “Cultural Expectations” are. This needs to be in a formalized session with the Owner/Operator/GM actually doing the presentation. Do not delegate this to your HR department or other management to handle. It has to come from the top because it is so important to your survival and success.

The message should be very clear. Here is who we are and this is the way you will need to conduct yourself if you expect to continue working here. This is not about threatening them but it’s about making sure there is not an ounce of doubt as to what we expect of our team members. Part of the message for those who “get it” is that they need to make those who don’t “get it” very uncomfortable to the point that they leave on their own accord.

Daily life is very much like the military. When I was in the Marine Corps they often referred to “that 10%.” Meaning there are always 10% of the people who just can’t do “it,” whatever “it” might be. Just as in the Marine Corps, you need to run the misfits off. This doesn’t have to be mean or cruel. Just factual and to the point.

Never forget, you can train and re-train all you want, but you must set the example each and every day. You cannot operate under the theory of “do what I say not what I do.” That’s all I’m gonna say. Tommy Gibbs