As is the case with most Zingers I write they are usually a result of issues I come across in my travels, or emails and phone calls from dealers and managers with specific questions.

I was contacted recently by a general manager whose dealer was putting pressure on him because the average F&I gross was falling.

Here’s the specific question as it was presented to me:

"Great article this past week and as always very true. Here’s my question. We have been selling more and more inexpensive cars (many that have over 100,000 miles) and the volume definitely has increased and our turn is much better, but that being said our backend averages have dropped. We are selling fewer products because the cheap cars are not eligible for product. My owner is putting tremendous pressure to keep backend averages up, but due to us pushing prices down and selling these older cars our averages are falling. Basically the numbers are telling me we are doing a poor job in used car F&I. Your thoughts?"

You have to believe the dealer likes the volume that these lower price cars are bringing to the table, but he also wants the higher F&I income. I get it, I really do.

However, it’s possible the dealer is missing the big picture or he is doing what dealers sometimes do; he’s working the management team. Been there and done that and there’s nothing wrong with it unless it totally screws up the heads of the members of the management team. It may also be he’s trying to create an environment of "If you think you can, you can."

The first thing that has to be realized is achieving high gross profit and doing volume is a contradiction. It goes against Tommy’s laws of nature.

I’m not saying it can’t be done but I will say it’s very unusual, and there has to be a very special set of circumstances for it to happen with consistency. If it’s going to happen in today’s market it’s because the dealership has amazing talent or they exist in a very unique market.

There is no question F&I is going to take a hit when selling cheaper cars. What has to be determined is, are you better off selling them, with a smaller F&I average or not selling them at all and pulling your F&I average up. Hello?

Suppose the dealer puts so much heat on the F&I averages that the GM throws in the towel on the less expensive units and goes back to retailing more expensive cars and a better F&I average. Is the dealership really better off?

Here are 10 key questions that need to be answered:

1. What about all the parts and service gross that would have been generated on the less expensive cars going through service and reconditioning? 

2. What about the fact that you could have put more money in some trades because you intend to retail them vs. wholesaling them? How many more car deals do you end up making because you have a better plan?

3. Does the increase in volume from the less expensive units impact the attitude of the sales staff and their ability to earn additional income? Isn’t it true the best time to sell a car is when you just sold a car?

4. What’s the benefit of having someone driving a car, any car, high dollar, low dollar, that they purchased from you? 

5. Is there a chance you just sold a car to someone who might never have set foot in your store because you had a vehicle at a price point they could afford to pay? 

6. Is it possible that this new customer has a friend or relative who might one day come back and buy something because of the way this new customer was treated during the buying experience?

7. Are the odds in your favor that they may come back for an oil change or other service?

8. Does doing business generate business?

9. What’s the "Return on Investment" on selling these less expensive cars? Relative to the amount of money tied up aren’t they a far better investment than what you would make with a $25,000 car? How many times in a year can you turn over a $7,000 to $10,000 investment vs. a $25,000 investment?

10. Doesn’t it make sense, that if you can sell more cars with less money tied up that it’s a good thing? There really isn’t much of a downside to increasing volume and decreasing investment.

To keep the accountability up on F&I it might be a good idea to keep two logs; one with the more expensive cars that you hold to your normal F&I standard and another for the less expensive cars. You have to decide how that gets broken down.

Let me remind you that what’s really important is how much total gross you are generating. I always say, "You cannot spend average gross profit. You can only spend total gross profit." That’s all I’m gonna say, Tommy Gibbs

If you were in the military you know what the "chain of command" means. Even if you weren’t in the military I’m thinking you have a pretty good idea of what it’s all about. The chain of command is critical to success in the military, sports or business.

In a radio appearance this past week on ESPN’s Mike and Mike in the morning, former Orioles pitching coach Leo Mazzone had some interesting comments about his tenure with the club when asked about the current turmoil surrounding the Boston Red Sox.

If you’re not familiar with what’s been going on, the Red Sox new manager, Bobby Valentine, has had a very tenuous year in dealing with some of the players. He has been faulted for their extremely poor performance this year and in large part that may very well be true. Recently during a road trip to play the Yankees, a number of the players had a private meeting at the hotel with the top brass and owners of the team.

Mazzone compared his time with the Atlanta Braves (where he helped the team to 14 consecutive division titles and five World Series appearances including one championship) to his two years with the Orioles.

"It all starts at the top. It’s called the chain of command. With the chain of command, I have experience with both ends of it," Mazzone said in the interview. "When I was with the Atlanta Braves, there was a chain of command that was in place that was never broken. It was never broken by the players. It started with ownership, with Ted Turner. Then it started with the general manager, John Schuerholz, the manager, Bobby Cox, and the coaching staff and the players. So you had a chain of command that was never broken.

"Then I go to Baltimore and find out why they’re losing," Mazzone continued. "The chain of command was always broken, where players got to voice their displeasure to the front office, which took away the power from the manager and nobody really knew who was running what. Basically, what it was, was a bunch of players finding excuses for losing. This is what’s going on in Boston right now."

So, how often does the chain of command get broken in your dealership? It’s not unusual for the Dealer, GM or owner operator to have a special relationship with those who answer to others in the store. A breakdown of the chain of command and discipline occurs when they are allowed to do an end run on management.

How many times have you seen upper management allow the sales people to run off a good manager for no reason other than they don’t like the systems, processes and disciplines that manager is attempting to bring to the table? Upper management allows this to happen due to some special bond created over a long period of time with certain sales people or favorite employees.

That’s not to say that some of these managers shouldn’t have been shown the door in the first place, but to allow it to be done based on the tail wagging the dog is totally wrong. It is insanity to allow the inmates to run the asylum. A good friend of mine who referees in the NBA often uses that term to describe how the players run the league.

If you’re in upper management and aren’t going to support your management team, then why hire them in the first place? Everyone performs better when there is a solid chain of command. The management team needs to be allowed to succeed or fail on their own merit, not based on the likes and dislikes of those who answer to them.

That doesn’t mean you can’t have an open door policy. You can, but be smart enough to know when to say you need to go speak with your supervisor about that issue.

I learned this valuable lesson back in 1980 when I became a partner in my first dealership. All I really had was a little ownership on paper with the majority of the stock and ownership belonging to Ashton Lewis. All the employees more or less knew the deal. I will never forget the day when one of the managers approached Ashton to ask him a policy question. He pointed to me and said "That’s who you need to be talking to." End of story. End of people doing an end around. End of anyone circumventing the system.

You cannot run a successful business when people are allowed to break the chain of command. The reality is the chain of command is actually broken by those in command. And that’s the end of this story and all I’m gonna say, Tommy Gibbs

Ok, everybody stomp your feet. Clap your hands. Drum roll, louder drum roll…here comes the answer…PRESS YOUR COST DOWN.!!!

If you’ve ever heard me speak, and most of you have, and if you haven’t you should, you know this is my favorite subject. It’s so simple, yet so very powerful when it comes to improving your used car and new car business for that matter. I’ve included new in that statement because the stronger you get in used, the more new cars you will sell.

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.

If you don’t believe what I’m saying is true I have an easy experiment 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 sold 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.)

You should require your used car manager to print the report every morning, and circle today’s average cost, put his/her initials inside the circle and lay it on your desk. I have found it very effective 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 all 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 him/her "What’s your average cost?" 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 would 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 I 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 not to 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. If you have a service issue, then fix it. If you’re the dealer, owner or general manager then you can fix it if you want to.

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 and nothing but 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.

Pressing your average cost down is a no brainer. That’s all I’m gonna say, Tommy Gibbs

Last week’s article was titled "Could It Be George W. Bush’s Fault?" In the article I listed 22 reasons why some dealers’ grosses might be going a bit south. (ARTICLE)

The point I was making is we should always have a mindset of re-examining how we do things and seek to improve whatever we are doing. The list was meant to be a checkup of what you are doing and what you can do better.

I’ve now been writing these articles for over 10 years. I’ve received thousands of positive responses and only one negative. (ARTICLE)

That’s not to say that everyone always agrees with everything I write. We often have friendly debates and I always win. (Little humor here.) But to have received only one negative response is pretty darn amazing.

Last week’s article created my second negative response. I want to share the complaint, my response back to the person and a point by point explanation.

Here in the writer’s words is what he said:

1. You begin to blame things on incompetence like it exists in every dealership.
2. You assume that nobody executes the basics anymore.
3. You assume that most dealers are simply dumbasses.

My email to him:

"Sorry you read it that way. That was not my intent. What I know to be true is how hard it is to do all the fundamentals day in and day out regardless of how disciplined a dealership or dealer might be.

The evaporation factor is always in play. I don’t think dealers are dumbasses. I do think we all need to be reminded of what’s important when it gets to basics. With all the things a typical dealer has coming at him/her each day it’s almost impossible for some things not to slip.

I speak from experience. My stores have always been well disciplined, but yet it was not all that unusual for me to have this sort of conversation with the management team:  "what the heck happened to that process? Why aren’t we doing a save-a-deal meeting every day? No, twice a week is not good enough. Whose idea was it to change it?"

The one thing I know about the automobile business is we never "get it right." When you get one department squared away, something else needs attention. Sorry, if I offended you in any way. Please accept my apology."

My Comments:

1. On incompetence-nothing could be further from the truth. In my opinion, the competence level of the management teams in dealerships has never been greater. The education and training of today’s managers and dealers is tenfold what it was 20 or even 10 years ago. Today’s dealers realize they cannot do it the old fashioned way and seek to employ higher quality people who are smart, competent and who are committed to a high standard.

2. On basics-never in the industry’s history have dealers executed basics any better than they do today. Most dealers are process driven. Processes promote good basics. Dealers, GMs and owner/operators have come to understand that their number one responsibility is to guard the processes, which in essence guards the basics.

3. On dumbasses-I’m sure there are some dumbasses out there, but I’ve not actually run into any. Most of the people I meet are either in 20 groups, attend conventions or are clients of mine. Dumbasses don’t run in those circles.

My Zinger Newsletter is designed to do several things:  

1. To share ideas and tips that will enhance the profitability of a dealer’s used car department.  

2. To share solid processes that are proven performers and easy to implement.  

3. To help you and your team avoid the "evaporation factor" by keeping what’s important in front of you on a frequent basis.  

4. To share with you what’s "hot" and what’s "not" in the quickly changing automobile world.  

5. To get in your face once in a while on issues that dealers need to pay attention to but so often forget.  

6. To promote my training and workshops. I don’t do a lot of this, but heck it’s the business I’m in and I’d be an idiot not to let dealers know what I do and how I can make them a lot of money.  

I would not expect you to agree with everything I write in my newsletters. Part of my mission is to stir you up a bit…get you to think about some things you might not normally take the time to consider.

I want to help you push the envelope. We all need a little push once in a while and I can help you do that. I will tell it like it is, and then you have to decide if it’s a fit for you and your team. 

"The Pain of Discipline or the Pain of Regret." That’s all I’m gonna say, Tommy Gibbs

I hear dealers often complaining that Dale Pollak’s "Velocity" concept has killed their grosses. I beg to differ with that thinking. The reason your grosses have gone south is because of George W. Bush. He messed them up when he was President; Obama didn’t realize how big the problem was and thus hasn’t been able to fix it. Really?

Have you ever noticed in life we always want to blame someone or something else for our woes?

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 that because you wait so long in the life cycle to reduce your pricing that when you get to about 50 days you have to give all the gross away rather than giving a little away over a period of time?

4. Could it be the inventory you have is not the inventory that people are willing to pay the price for? If there are 300 Nissan Altimas in the market and you stock lots of Altimas, do you really think you’re gonna make any money when the market is over saturated?

5. Could it be the stuff you are buying is like an impossible dream? Are you buying 2011’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.

6. 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?

7. Could it be that the team doesn’t get "Return on Investment" and what it does to the bottom line?

8. 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?

9. Could it be you are not tracking "GAP," which stands for "Give Away Profit." GAP is the difference between the Internet asking price and the transaction price? If you aren’t tracking GAP then how are you to know who’s selling your cars and trucks for less than what you have them priced on the Internet.

10. Could it be you’ve done a lousy job of teaching the sales team to sell the value of your product and your store?

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

12. Could it be your presence on Auto Trader and your website is just so, so? Very few pictures, lousy pictures or no pictures.

13. Could it be your management team is living in the past and waiting for the good old days to return?

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

15. Could it be you haven’t done a "lot walk" since Hector was a pup?

16. Could it be you have gotten too smart to do a "save-a deal" meeting every morning and gross is impacted negatively because F&I takes the easy route of cutting the deal?

17. Could it be your purchase strategy is called "buy that late model stuff cause it’s easy?"

18. 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?

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

20. 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?

21. Could it be you need to get your mind in a place to think about what it could really be?

22. Could it be you need to go look in the mirror? Nah, it’s George W. Bush’s fault. That’s all I’m gonna say, Tommy Gibbs

If you have been reading my newsletters and emails then you know I totally believe we have to change the way we have always done this business.

I frequently rave about CarMax because more often than not they outsell everybody in whatever market they are located. And, they don’t do it the old fashioned way.

One of the things that sets them apart is they show reconditioning as a line item on the financial statement. For most of you that’s way over the top when it comes to making changes so I’m not even going to get into it. I know you don’t want to hear it.

Today’s subject is about some changes the industry needs to address as we move into the most competitive environment in the history of the automobile business.

In order to determine how much you and I agree or disagree please take this little informal survey. You don’t have to click anything. Just click it in your brain.

1. Has average gross profit per unit gone up or down in the last 5 years in your used car department?

2. Do you think used car average gross profit will be trending up or down nationwide over the next 5 years?

3. Is it becoming more challenging to keep your expenses in line?

4. What do you think will happen to your bottom line if average used car gross keeps coming down and you maintain the same used car volume?

5. If your grosses have come down, what role do you think the Internet is playing in the equation?

6. Do you think most dealers are using a pricing tool like vAuto?

7. If you could get more of the right inventory is it likely your volume would go up?

8. Do you often get outbid at the auctions by the likes of CarMax?

9. Do you think that if you had an advantage with the pricing from the service department to the used car department that you would be in a better position when it comes time to acquiring vehicles when appraising or buying at the auction?

10. Can you agree that more often than not volume has a greater overall impact on the bottom line than improving the average gross profit?

I’ve just used mental telepathy to conclude the following from your answers:

Expenses are going up, gross is going down and the only way to generate a substantial bottom line is to do volume? Did I get it right?

In order to do volume in used cars you need to have a "costing advantage." By "costing advantage," I mean what’s added to the car once you get it which includes packs and reconditioning. To have a costing average you have to re-think your packs (which usually gets down to pay plans) and most important what you charge the used car department from your shop.

If you review history you know that the reason dealers added packs and charged full retail from the service department to the used car department was because sales managers worked from cost up.

In the good old days sales managers had control over gross so you could nail them with high charges all you wanted. They still got the gross you needed and you could put the money from Parts, Service and Packs in your other pocket.

This is no longer true as your sales managers no longer have control over gross as they once did. That’s why dealers are more and more becoming one-price dealers and saying "no" when the customer shows up and wants a discount.

If you’ve already dropped your pants on the Internet with a price designed to get them to show up then you have nowhere else to go. So, without saying they are a one-price dealer, many dealers are taking a tougher stand as well as changing sales people’s pay plans to match their new found pricing and marketing.

I predict within due time more dealers will become more like CarMax and not pay sales people or managers on gross. Remember as we move more towards a once-price concept the skill and pay level of the "desk managers" will be much lower than today’s market.

You just got through agreeing with me that average gross will continue to come down. Then you have to agree that the only way you will win is to increase volume. The only way to increase volume is be able to acquire more cars. Am I repeating myself?

In order to acquire more cars (like CarMax) then you have to have a costing advantage when you go to the block or your front door. So, whichever dealers can figure a way to reduce the cost to the cars once they acquire them will win.

They will win because they have more of the right cars to sell and because they will have a pricing advantage over the competition. And, no doubt they will be pushing more volume through the shop.

I believe the reality is the overall shop profits will ultimately go up for these forward thinking dealers. As the shop profits go up they can sell their cars for even less gross due to the overall volume they are doing.

That last sentence may be a stretch but the rest of this is not. I have never been so sure of something in my life as what I just shared with you.

Another little side bar of this is if you have a cost advantage it only stands to reason you will trade for more cars. If you trade for more cars you will have more new car customers coming back to you for service after the sale.

As you may know the hours per RO for a customer pay ticket comes in at 1.7. The average hours per RO for a used car ticket is 4.0. I can tell you that nationwide service departments still don’t know who their best customer is. They say they do, but they don’t. Their actions in terms of how they treat the used car department speak louder than words. By and large most dealers/owners will not explain to the service departments whose name is on the sign.

So, what’s the conclusion of all this madness? There has to be a better, more efficient approach to the charges from the service department to the used car department. "Status Quo," needs to turn into "Status No."

I know a lot of really smart new car dealers and I know that somebody is going to figure it out. If you don’t, and you don’t do it soon, others will and when they do, you will find yourself wishing you had.

You can do it CarMax’s way, or you can do it your new way, but you can’t do it the old fashioned way. The pain of change or the pain of regret. You’re going to have one or the other and the cool thing is you get to pick. That’s all I’m gonna say, Tommy Gibbs

The All-Star baseball game was played on Tuesday night with the National League defeating the American League 8-0. For baseball it’s referred to as their mid-season break and it determines the home team advantage for the World Series. 

It’s sort of the same way for you. You’ve just passed the half way mark in the business year and I’m wondering how many of you and your team members have made the All-Star team? To determine if you’re an All-Star you have to certainly look at some numbers. So how are they? Parts and Service up? New Car sales up? How about total new gross?

And of course you know I’m going to ask you about your used car numbers. Are volume and gross up in used? Has your team jelled over the last 6 months? Are your key players showing good leadership and performing like All-Stars?

Here are 6 elements necessary to be an All-Star:

1. Hustle, Hustle Hustle-When I think of baseball and hustle I can’t help but think of Pete Rose. His nickname was "Charlie Hustle." As a player Pete was the epitome of the word hustle. That is the mindset you need to be successful and move your business to the next level.

You have to be determined to out-hustle the other guy, gal or business. The great thing about hustle is that it requires no God-given talent. It just requires that you want to do it. So maybe you’ve not been hustling as hard as you should. Let’s hustle a little harder. Let’s dive for some line drives. Get with it.

2. Have a Game Plan-Nothing happens without a strategic game plan. The plan has to be well thought out. A solid plan requires research, time and talking to others. Those around you see and know things you cannot possibly know. It will surprise you what you can learn from people you would normally discount as not being important or having much to offer.

Your plan should be constantly developing, growing, expanding. Adjustments are a part of the game. Those who can adjust to the changing conditions increase their chances of winning. Put the plan in place and be ready to make adjustments. Every one of those players in the All-Star Game took batting practice before the game. Part of your batting practice needs to be to look for ways to tweak your game plan.

3. Think Fast-Think fast and move fast should be your motto. Decisions and changes need to be well thought out. If you’re "up early and stay up late" you can make fast decisions that will bury your competition. In baseball, even if your team has weak areas, speed can overcome a lot. Think fast, be fast.

4. Increase Your Communication-Communication starts by listening and responding. It takes a combination of meetings, memos, emails, and phone calls to distribute information. The keys are updates and progress reports. The more information you share with your team the more progress you will see and the more your team will develop. 

The more the team develops the more wins you get. There’s a lot of communication going on in a baseball game; signs, signals and meetings on the mound. You can never communicate the game plan too much or too often.

5. Get Back to Empowerment– Years ago, automobile dealers took a page out of the airline book of customer satisfaction by allowing staff members to make on the spot decisions to satisfy customers. Our policy for years was if the customer asks then the answer is "Yes."

That’s not to say that you don’t need to have limits, but you must empower your people to "just handle it." Nine times out of ten you’re going to do it anyway, so let them handle it in the trenches. If you have talented players sometimes you have to turn them loose.

Talented base runners are often allowed to steal on their own. The coach lets them use their God-given talent. Yes, they get thrown out once in a while, but people have to make some mistakes in order to learn and get better.

6. Pick Up The Intensity-When you combine Intensity with Hustle it’s almost impossible not to become an All-Star. There’s nothing magical here. Intensity separates the winners from the losers. It gets down to the teams who are moving ahead vs. the ones who are stagnant. How much are you willing to separate yourself and your business from the competition? Show me a laid back baseball player and I will show you a player who didn’t make the All-Star Team.

Hope you made the All-Star Team. That’s all I’m gonna say, Tommy Gibbs

So, feeling kind of smug these days about your new car business? Production is up, inventories are better and you’re selling more. Ford’s doing well. Chrysler, Jeep and Dodge have never been better. GM has some great products. The imports are getting back to full capacity. Incentives are starting to crank up. Luxury vehicles are doing well as those with money are starting to turn it loose.

Nice time to be a new car dealer isn’t it? Is the new car drug giving you a nice high? Feeling really good aren’t you? I’m thinking your new car drug addiction has gotten a grip on you once again.

I wrote an article a few years ago about new car drug addiction. Many of the points I made in that article are starting to once again come full circle.
New Car Addiction can be a serious problem. Many have beaten this addiction, at least temporarily, but it’s on its way back into our business. 

New car addiction tends to take total control of the brain’s actions and leaves the user in a state of confusion, and more often than not, with a poor bottom line. Yes, you can make money with new cars, but you make even more when your team understands how to get new and used to work together in harmony.

CNN reports that hundreds of dealers suffer from new car addiction every year and have been known to do almost anything to fuel the habit, including increasing their floor plan limits when the drug pushers (your new car franchise) offer them special deals to take more of the drug in order to support this addictive habit.

During the last few years, many of you, out of necessity, have created a serious focus on used, fixed and expense reduction. Many of you have made the most money in the history of your business by getting off the "hard stuff." You should be fearful of the temptation of sniffing new car leather. New car leather has a special chemical in it that excites your "ego cells" and the next thing you know you can’t even spell "uxed kars."

The new car addiction is knocking on your door and your ego is screaming at you to climb up on the roof and shout "I’m number 1 in new cars sales, I’m number 1 in new car sales." What you should be shouting is "I’m number 1 in new cars sales, the factory loves me, but I ain’t making any money."

I stated in my past newsletters that there is nothing really all that new out here in the world of information found in cyberspace and beyond. Most of the things I write you already know. There are probably some things I write that annoy you because you already know them, and you don’t like to be continuously told something you already know.

I understand that feeling, but if we are honest with ourselves we all know how easy it is for the "Evaporation Factor" to kick in. The next thing you know you are wondering what the heck happened to all the good disciplines you know to be true.

So one last time; you’re going to be tempted to fall back into an addictive "New Car Drug" mode. You’ve come a long way, you’ve seen the light and the light is used cars, fixed operations and expense control. Don’t stumble back into the dark world of addictive "New Car Drug" abuse. That’s all I’m gonna say, Tommy Gibbs

I just got back from speaking at the Virginia Auto Dealers Association Convention held at the Ritz in Amelia Island, FL. I was originally scheduled to fly over on Sunday, but with Hurricane Debby lurking off the Gulf Coast of Tampa I decided to drive over at the last minute. It was a rough trip, as it took me 6 ½ hours to make what is normally a 5 hour drive.

Even with the bad weather they only had one dealer not make the trip and it was because he flies his own plane and thought better of flying into a hurricane. He’s a very good decision maker.

The three speakers on the agenda for the Monday session were me, Mark O’Neil from Dealer Track and Scott Painter from True Car. Interesting group wouldn’t you say?

Prior to Dealer Track, Mark O’Neil spent a number of years at CarMax and was a key innovator in the development of what CarMax is today.

You may also be aware that Scott Painter has been on the hot seat over the last year with dealers, state associations and regulatory bodies over the True Car approach to selling cars. True Car has made major changes in its program, and has hired a number of experts to help fix what’s wrong. They have also added an advisory board filled with some of the top experts in the field to assist them with their mission. I don’t think they have it figured out just yet, but you have to give them credit for getting "humbled up" and trying to right the ship.

Mark and Scott are excellent speakers and handled themselves well. Going from their speaking delivery to mine was like going from sitting through a Catholic Mass and then walking outside falling into an all day Southern Baptist Revival under a big tent. A bit of a contrast to say the least. I’m not saying that’s a bad or good thing either way. Just different.

The title of my presentation was "The Past, The Present and The Scary Future." Most of the focus was on the scary future. (The is a presentation your 20 Group or state association needs to hear.) When you shake it all out, the common theme by all three of us was that the consumer wants you to simplify the selling process.

They want to do more of the sales process online. They want a simple app they can access on their portable device that will allow them to select the car they want, and the price and payment they want to pay. They want it now and they want it fast. (Isn’t that what we all want?)

Now for the really scary part. Someone, maybe you, is going to figure out how to get it done. When it’s finally done it’s going to turn the automobile world upside down. Did you know that the new app "Draw Something" had 12 million users within the first 10 weeks? Apps are here to stay and they are growing at a pace that boggles the mind.

Recently one of the more forward thinking public auto groups purchased 7,000 iPads for their employees. Do you think they see the future? How about you? So, at your business today how many of your staff members have a company furnished iPad? I doubt I’m going to get very many responses on that one especially since, believe it or not, some of you still don’t have computers on the desk of every sales person.

If almost all products and services can now be sold online through the use of a mobile device what makes you think that automobiles will be an exception? Is it the new car smell that’s missing? Someone will figure that out in the not too distant future as well.

You can be a leader or a follower. Leaders take chances; they move forward and that’s why they win. Followers sit on their hands waiting for the next great thing to happen. By the time followers try to get on board, the train has already left the station.

Go Angry Birds, that’s all I’m gonna say. Tommy Gibbs

Without exception I have multiple conversations each week with dealers and managers about how to avoid wholesale losses created by dumping inventory in the wholesale market as they have aged out.

The first point I always make when this conversation comes up is that if you have cars aging on you and you are dumping them in the wholesale market and losing money then you are totally on the wrong path. If you are paying attention to the right things and if you understand that you are in the retail automobile business there should be very few units you blow out and lose money on. It’s about retailing cars before they get to the end of the cycle.

5 Keys To Eliminating 99% of Aged Units and Wholesale Losses:

1. It starts by selecting the right inventory. Unless you are an exception to the rule, most of those aged units are purchase cars. Therefore, you are obviously buying the wrong stuff. I continue to be fascinated at how many overage cars have been purchased from the likes of Enterprise Rent-a-Car. If you were using tools like vAuto, Auto Trader and Auto Count USA then you wouldn’t be buying some of that stuff that’s killing ‘ya.

2. Tackle my "Life Cycle Management" concept like your life depends on it, because it does. You will never get your inventory under control as long as you allow all units to have the same number of days on the shelf. You have to identify and acknowledge what each car is on day 1 not day 61. Can’t you spot a Zebra in a herd of horses? Acknowledging what you are dealing with is a major step towards improving your used car turn and eliminating problem cars. Why is it so hard to understand that your most profitable car is a 20 day unit and that it goes down in value every day it sits after that?

3. Making smart and quick decisions on trade-ins you bury yourself in. Happens all the time. You step up for whatever reason, but since you don’t use "Life Cycle Management" you treat these units just like every other unit. Look Einstein, if you buried yourself in it on day one it’s only going to get worse. The best thing you can to is price that unit below market and make it disappear.

4. Don’t get too excited about a successful short term run. It will kick your butt every time. Stop it. All of a sudden you have a strong 30 day period when you sell 10 XYZs. For whatever reason they were hot. So, what do you do? You run out and buy 20 more of those bad boys. And guess what happens? They sit and they sit. And now you have some more huge wholesale losses staring you in the face.

If you go back and analyze those first 10 you popped out like hotcakes you will probably find something unique and special about those units. Might have been miles, might have been color or it might have been the price of gas during that stretch that influenced those sales. I’m not saying you shouldn’t get excited and try some more of those hot babies, but you need to be smart enough to keep your enthusiasm under control. You have much more control when you take them in small doses rather than choking yourself to death.

5. Understand that you are in the retail business. I mentioned this briefly back in the second paragraph. You need to make sure you are pricing your cars to market early enough and attractive enough to find a retail buyer early in the life cycle. In most cases, if you analyze your aged units you will discover that for whatever reason you overpriced them too long. Key words here are "too long." Sure you might have them priced correctly now, but they are now stale, the sales staff knows they can’t make any money on them so they walk around them.

Bullet point five takes me to my favorite subject CarMax and the reference in the title of this article to 99%. The quote below is directly from CarMax’s 2012 Fiscal Year Annual Report:

"Our proprietary inventory management and pricing system tracks each
vehicle throughout the sales process. Using the information provided by this system and applying statistical modeling techniques, we are able to optimize our inventory mix, anticipate future inventory needs at each store, evaluate sales consultant and buyer performance and refine our vehicle pricing strategy. Because of the pricing discipline afforded by the inventory
management and pricing system, generally more than 99% of the entire used car inventory offered at retail is sold at retail."

Re-read the last sentence. Has it sunk in yet? It’s all about figuring out how to retail a car. They retail 99% of what they put on their retail lot. They figure out how to find a retail buyer. When you are retailing your retail pieces you don’t have to worry about aged units and wholesale losses. That’s all I’m gonna say. Tommy Gibbs