Every human holds certain prejudices. We’d like to think we don’t, but we’re only human.

The type of prejudice I’m talking about is how you treat certain customers. Yes, I know this is pretty deep, but it’s something you should be very concerned about.

On the one hand, you have some customers that you roll out the red carpet for. You treat them like gold (which you should do for all) and you even give them special discounts or coupons from time to time when it’s not even necessary.

Sometimes the ones that you treat the best are the ones that only come to see you once every 6 months or so. With this un-loyal customer you do everything in your power to get them in and out of your shop as soon as possible and often give them a free car wash. In the end, these customers are not all that loyal to you and will drop you in a heartbeat for a cheaper deal down the street.

Then there’s another customer, a very loyal one that you don’t treat quite as well. It pains you to give them a discount and you will often send them to the back of the service line.

No free car wash for these customers. If anything, you look for a way to charge them more, let alone serve them up discount coupons. The hours per RO with these customers is more than twice what it is with the others. What’s funny about this customer is they wouldn’t think of doing business with anyone but you. They are loyal to you beyond belief, but you treat them like crap.

Let me introduce you to these two customers that you show prejudices to every day.

Meet your retail customer and your used car department. That’s all I’m gonna say, Tommy Gibbs

There are a lot of challenges in today’s automobile world.

Most of us are always looking for answers.

Could It Be?

1. Could it be that the consumer is using the Internet for the majority of their purchases and therefore is pushing you into a pricing war you would rather not be in?

2. Could it be that you are not managing your pricing correctly? Are you coming out of the gate based on a bucket concept and pricing everything at X amount under market? Are you failing to shoot the moon on a few select units for x number of days before you drop your pants?

3. Could it be the stuff you are buying is like an impossible dream? Are you buying 2015’s with 25,000 to 35,000 miles on them? Really? The only way you’re gonna sell them is to give them away, eroding more average gross profit.

4. Could it be that you and/or your team really don’t understand “Life Cycle Management” and the powerful impact it has on gross and volume?

5. Could it be that you are stocking cars that are way too expensive, so you end up competing with your new car business and selling them at little or no gross just to make them go away?

6. Could it be you are not tracking “GAP?” If you aren’t tracking GAP then how are you to know how much you’re giving away once the customer shows up?

7. Could it be your used cars spend the best days of their shelf life tied up in service and recon?

8. Could it be your presence on Auto Trader and your website is just so, so? When was the last time you looked at the photos on your website?

9. Could it be your management team isn’t really a team?

10. Could it be you have gotten too smart to do a “save-a deal” meeting every morning?

11. Could it be you let a lot of nice trades get away from you because either (A) your managers won’t step up or (B) they wholesale them because they feel the service department is ripping them off?

12. Could it be you have aged units and when you dump them they kill your overall gross?

13. Could it be the deal is screwed up before it ever gets a chance to be turned over to a manager and/or the managers just aren’t taking TOs?

14. Could it be you’re not willing to invest in your team what it will take to maximize results?

Maybe you just need to think about what it could be. That’s all I’m gonna say, Tommy Gibbs

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