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

When I was a kid growing up in Richmond VA my father had a “dirt lot” used car lot.

My father and some of his fellow used car dealer friends loved to gamble. Back in those days they would rent a hotel room in downtown Richmond and play cards all night long. Some nights he came home with money. Some nights he came home broke.

My father’s nickname with his peers was “Nervous.” Yep they called him nervous. He was always worried that the cops were going to raid the joint and take ’em all to jail.

We all inherit traits from our parents. I inherited the “nervous” trait from my father.

Used cars make me nervous. Some used cars make me more nervous than others.

I actually believe I have a special radar for some units that make me shake in my pants.

A few of the ones that make me the most nervous are:

1. High dollar
2. High miles
3. Bad colors
4. Bad equipment
5. Cars we have too much money in from jump street
6. Anything 45 days old and older

Yep, those are just a few of the ones that make me nervous.

Gambling made my dad nervous.
Used cars make me nervous.
Gambling on the wrong used cars makes me even more nervous.

What makes you nervous? That’s all I’m gonna ask, Tommy Gibbs

Sometimes it’s simplest processes that are the most effective. Pressing your cost down may be the easiest and fastest way to improve your 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. 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 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 sold 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 best 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.

The bottom line is that 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.

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. What I am saying is that 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.

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

I’m in multiple dealerships almost every week. I get to see it all. The big ones, the little ones and bunches of in-between. I’ve seen 15-car showrooms and I’ve seen some that have zero cars in their showrooms.

In the big picture I realize dealers have to build what the manufacturers require them to build in order to acquire, keep and maintain the franchise. But, do you really need the size facility that some require you to have? Expensive real estate and expensive buildings may one day be the kiss of death.

Take a look at the banking industry. They are stuck with some serious “legacy buildings” that at some point are going to come home to roost. ATMs have turned into online banking. Online banking could turn into a thumb-print and you’re done.

Who needs to take a check to the bank when you can make the deposit with a photo and a few clicks on your phone? Go into any bank today and you will see very few staff members. What the heck are they going to do with all those buildings as we move into the new era?

Every piece of research indicates the car buying consumer wants to handle more and more of the purchase online.

In a recent article in Automotive News, Tom Kinney, manager of the General Motors Pre-Owner Collection Division, while discussing the Collection strategy stated, “The way the dynamics are changing in the marketplace, consumers are clearly demanding this type of a process, on a large scale, all in one place and more of it online. We’ve built this to keep us and our dealers relevant so we can be ahead of that curve.”

Sounds like they know the curve is moving more to online yet they want you to build and maintain big facilities. You can replace the words GM with Toyota, Honda, or Mercedes. They are all the same when it comes to facilities requirements.

Think about what’s happening right now with Cadillac. In the not too distant future, some of the smaller Cadillac stores won’t have any inventory and will order cars online for their customers. Push a button and maybe the car will show up before they buy something else.

What size is your current store? What size does it need to be? Makes you wonder how much longer you’re gonna need that big expensive showroom, doesn’t it?

I think the factory is speaking out of both sides of its mouth. That’s all I’m gonna say. Tommy Gibbs

Memorial Day is just around the corner so here’s an idea for you.

Odds are you are saying you’ve been there and done that. Probably not the way I’m going to explain it. Depending on the state you’re in, most dealers have had some experience with off-site “tent sales.”

Going off-site creates lots of issues. Many of those issues can be eliminated by doing an on-site “tent sale.”

Try This:
Put the tent up as close to the road as possible. Pick the best strategic position on your lot.
Put tables and chairs in the tent.
Put ALL of your people in the tent.
Everybody goes in the TENT!
Work all deals in the TENT!
If at all possible move your computers into the tent and do F&I in the TENT.
Hang banners from the TENT saying “TENT SALE.”
Promote it with Direct mail and/or with a “private invitation” only deal for Thursday before you kick off your regular ads.
Do anything you can to make it look like a circus.
Rent those jumping air things for kids.
Get Port-a-Potties. (People think something special is going on when they see them. Make sure you put them close to the road.)
Balloons and more balloons.
Pop Corn, Sodas, Hot Dogs.
Lots and lots of spiffs for your sales people and managers.
Do a great kick off breakfast on Thursday for your staff. Don’t just do it for the sales staff; get as many of your employees involved as you can. (Feed everybody lunch every day of the event as well.)
Send out memos and emails to all employees explaining in detail what’s going to be happening.
Rope off special parking for customers. Hire an off duty police officer or security guard to direct them.
Answer the phone XYZ Dealership Tent Sale in Progress.
Use any ideas you can think of to create attention.
Do a fundraiser at the same time for the local little league or whatever.
Post the event on your website.
Do an email blast to all your customers advising them of the sale. If your CRM system is sophisticated enough, make sure you tell them you need their specific trade and will pay top dollar for it during the sale.
Giveaways generally don’t do much except cause people to show up to get their gift and leave, but having people register for a free car is a good way to get info on them when they show up. Pick out a $1000 or $2000 car and give it away.
Along that same line, give the salesman who registers the winning ticket some sort of prize. Gift card, $200, whatever floats your boat…
Make up a bunch of signs like real estate signs that say “Tent Sale in Progress” and put along the grass in front of the dealership.
If you’re close to the interstate do some signs with arrows and put up close to the ramp. (Oh come on, the worst that can happen is they make you take them down.)
Rent a chicken suit or some kind of character and have them walk up and down in front of the Dealership with a placard that says “Tent Sale in Progress.”

You just have to be creative. Get some of your key people together and throw around some ideas. Event advertising works. You won’t spend that much more money than you normally spend on a big weekend, but you will get better results.

Consider following up after your “Tent Sale” weekend with a Big Used Car sale the next weekend with a theme of “we have to move all these trades because of the big success of last weekend’s Tent Sale.”

This might not be a fit for everyone, but maybe it’s a fit for you. That’s all I’m gonna say, Tommy Gibbs

Like many things in life, either we over-think them or we don’t think about them at all.

I have a little drill for you. Take a look at your retail used cars sales over a 24-month period. Graph out the sales for each corresponding month.

You should be able to spot trends in your sales that are directly tied to each month of the calendar year.

Even though we want to be optimistic and are always thinking of increasing our sales, we also need to be realistic. Maybe realistic is a 10 to 20% increase for each month. I like the term “optimistic-realist.”

The problem I often see is that dealers’ inventory stocking levels are the same for the slow months as they are for the busiest months. If you know January is your slowest sales month, then why would you have the same stocking levels as you do in July?

I have a hard time buying into the concept that you are stocking up on inventory in January to sell in May. If you’re totally sold on that idea then do yourself a favor and run the ROI on those units when you finally sell them and let me know how it turns out for you.

It’s ok to be optimistic, but don’t be “stupidmistic” (yes, I make words up) when it comes to how many you’re going stock. That’s all I’m gonna say, Tommy Gibbs

You’re looking for more and better sales people. You’re looking for more and better used cars and trucks for your used car department.

The reality is that there is no simple fix for either of these problems.

If you think hiring a rock star buyer will solve your inventory problems, in the end you will probably make them worse. If you think hiring a full time trainer/recruiter will be the fix-it for your need for sales people, then it’s probably not going to work out that well.

But of the two, hiring the recruiter/trainer will probably work out better than the buyer. These are the two toughest problems facing all automobile dealers and there is no one fix and voila it’s done.

Finding great players is a full time, never ending job. It’s just like being in the coaching field. Great coaches are always scouting and recruiting. If you are looking for a magical ad to put in the paper that’s going to attract your next superstar you may be waiting quite a while. (Try Hireology)

If you are looking toward the next great job fair and think you’re going find 10 college graduates for your sales team that will carry you to the promised land you are in for a very long day. It doesn’t happen. It doesn’t work that way. If you wait to hire people when “you need” them you are never going to find the people you need.

You and your assistant coaches have to be recruiting every minute of every day. You should be recruiting your customers, the sales clerk at the shoe store, your next-door neighbor, the waiter or waitress you meet at lunch or the enthusiastic hostess you met at Applebee’s. One of the most successful General Managers I know was working at Wendy’s when he started selling cars.

I love college graduates. It’s not so much what they actually learn, but it does show they can stick to something. However, the odds of them sticking with you are not very good. Most college graduates don’t see selling cars as a “step up” in their life.

What you should be looking for is someone who feels they missed the boat and this is their big chance. Someone with a year or two of college is a great selection. They think they screwed up by not finishing school and they see what you offer as a super opportunity. And of course if they have a sports background all the better. They are used to getting knocked down and getting up.

As for finding more inventory…Hey coach it’s the same thing. It’s a constant thing. There is no one answer. If you are going to succeed in finding used car inventory you cannot leave any stone unturned. Trades, mining your customer base, online auctions, auctions, for sale by owner and any other brilliant idea you can come up with. (Try StockWave)

But, none of them in and of themselves will give you the inventory you need. If you are only looking for cars when you need them you are going to end up with a lot of cars you don’t need.

When it comes to finding people and finding inventory they both require an ongoing effort by the entire management team. When you dabble in finding people and cars when you most need them, it’s like plowing a field uphill with a mule.

When you and your team accept the responsibility of looking for inventory and people as part of an every day discipline then you increase the odds of finding what you need.

It still won’t be easy.

Everybody wants easy.

It’s never been easy.

It will never be easy.

Stop looking for easy. Start looking for people and used cars and trucks.

That’s all I’m gonna say, Tommy Gibbs