Did you ever wonder why you can’t achieve and maintain maximum success in your used car department?

When you analyze it you have a pretty good inventory. You’re not short on operating capital. The amount of space you have is ok and most of the management staff seems to have a pretty good understanding of the importance of having a good used car department. You have great software that you use to stock and price your inventory and you do a nice job of reconditioning your inventory.

So what could it possibly be?
I’m gonna tell you.
Are you ready?
Are you really ready?
Here it comes…hang on.
I’m gonna tell you.
I won’t lie to you.
I have the answer——“nobody owns the department.” It’s that simple.

Until you or somebody takes ownership, it ain’t gonna happen. I realize every dealership has some restrictions on the amount of management staff that can be allocated to any one department, but far too often used cars are an add-on for someone on the team.

Maybe it’s sorta the GM’s responsibility.
Maybe it’s sorta the GSM’s responsibility.
Maybe it’s sorta the Desk Manager’s responsibility.
Maybe it’s sorta the Sales Manager’s responsibility.
Maybe it’s sorta the combination used car manager/sales manager’s responsibility.

See what I mean? Nobody owns it. Yes, the duties of a used car manager today are far different than they were 20 years ago. There are some situations where we are asking some “used car managers” to do things they don’t have the skills to do. Just because someone understands the wholesale market doesn’t mean they understand the retail market.

When somebody owns the used car department they come to work every day on a mission:

On a mission to make it happen.
On a mission to get people excited.
On a mission to ensure units aren’t aging.
On a mission to get units through the system.
On a mission to make sure the inventory is turning.
On a mission to get cars online and on the line ASAP.
On a mission to build a team that gets after the used car market.
On a mission to study the best of the best and make the department the best it can be.
On a mission to identify and have a strategic plan in place to make the problematic units go away.
On a mission to sell everyone on the role the used car department plays in the overall success of the dealership.

Who owns your used car department? That’s all I’m gonna ask, Tommy Gibbs

Everyone has problem cars from time to time. You know the ones I’m talking about. The ones that want to stick around forever. The ones you haven’t yet found a buyer for.

But where did they come from? How did they all of a sudden end up on your lot? Did they just fall out of the sky?

Can you imagine how much better off you would be if you could identify problem cars on day 1 vs. day 61? Suppose you had a strategy in place to deal with them sooner rather than later?

The number one problem I see in the industry is we just don’t pay attention. We don’t pay attention soon enough. By the time we realize we have a problem, it’s too late.

Take the time to do a “trade walk” which includes all purchase units, and be blatantly honest about what you’re staring at.

Then put a strategic plan in place to deal with the more problematic units. If you did nothing more than that, you’d have a lot less units falling from the sky, hitting you in the head and giving you a headache.

And, you would have a lot better bottom line. That’s all I’m gonna say, Tommy Gibbs

There’s a book out by Jason Jennings and Laurence Haughton that has the perfect title for the automobile business, “It’s Not the Big that Eat the Small…It’s the Fast that Eat The Slow.”

Some new car dealers believe the definition of Velocity is:

“Velocity-a method of giving your cars away so as to impact your gross to a point of a substandard amount that will make you want to throw up your hands, beat yourself over the head, and barf.”

I have a new definition for the word velocity; the whipping boy of the auto industry that can be blamed when we use software pricing tools as the Bible, don’t use our brains and don’t use the tool as it was intended in the first place.

You can make one of two choices:

1. Hold high gross profit per unit.
2. Do lots of volume at a little lower gross.

Which way do you think is going to pile up the most gross to pay the bills at the end of the month?

Dealers have been known to complain that when they went on the velocity method of pricing their used cars to market, their grosses went south. Well duh, of course they did.

What actually happened is those dealers had let their inventories age on them and when they finally priced them to market they got crushed.

Software won’t save you. Having discipline and using your brain will save you. There will be pain unless you use your brain. I like that, “Pain, if you don’t use your brain.”

That’s all I’m gonna say, Tommy Gibbs

So, how was your June? How have your first six months been? It’s July. Half the year is gone. Kinda scary isn’t it?

Some of you have had a great first half. Some of you, not so much.

Some of you have been running full speed ahead. Some of you have been dragging through the sand.

Something has been holding you back. There may be some legitimate excuses, but maybe you just had the wrong plan in place. Just because you had the wrong plan does not mean it’s too late to fix it. You’ve still got 6 more months to go.

Those of you who have had a good first 6 months need to be cautious of becoming complacent. Even though things have been going well, you would be very smart to review how you can make things better as you tackle the second half.

Everything we do is about choices. You can choose to let things be as they are or you can choose to dial it up a notch or two.

To do so means to review your plan and the strategies you have in place. And, make the changes that are necessary to get you where you know you need to go. That’s all I’m gonna say, Tommy Gibbs

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

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.

It’s a safe bet that expenses are going up, gross is going down and the fastest way to generate a substantial bottom line is to do volume.

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 own 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 newfound pricing and marketing.

The only way you will win is to increase your volume. The only way to increase your volume is to acquire more cars.

In order to acquire more cars you have to have a costing advantage when you go to the block or your front door. The dealers that 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.

As a dealer’s used car volume goes up there will be more used cars going through the shop. 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 isn’t a stretch at all. When you’re making money all over the place you can sell for less.

Somebody is going to figure out a better way. You can be Uber or you can be a yellow cab. You get to pick. That’s all I’m gonna say, Tommy Gibbs