The odds are pretty good that gross profit from new car sales isn’t going to get any easier. There’s a greater supply of inventory hitting most lots than in recent years. As supplies increase there will be more incentives put on the table and even more pressure to “turn and burn.”

As inventories increase, the greater the heat there will be on dealers to turn the inventory. That pressure will become magnified with the demand from the manufacturers to capture market share.

Dealers will feel the stress of being put on probation by their represented franchises. Maybe it’s not called probation for your brand, but we all know the heat the factory can put on us.

Floor plan interest rates may be headed up, which will add to the angst of many.

Every day the consumer gains an advantage, as technology is added to assist them with their price search of new vehicles.

The stress to turn more new units will cause more and more dealers to put new car prices online. Dealers will compete that much harder via pricing, and grosses will continue to suffer.

Many models will be sold for zero gross with a heavy reliance on F&I, doc fees, trades, etc. Many dealers are already selling new cars at cost or below.

Most dealers are tuned into fixed operations and many are already at full capacity due to facilities and the lack of qualified technicians.

The best bet for many of you is to improve your used car business.

If you don’t believe that to be true all you need to do is look no further than the movement of the public companies such as Sonic, AutoNation and others. You will see that they are ramping up their used car operations by setting up stand alone operations, much along the same model as CarMax.

Improving your used car business has many challenges tied to it; none any greater than improving front gross profit, which isn’t likely to happen given the state of used car pricing online.

Your best opportunity to improve your used car business is to improve your volume. Clearly understand that to improve your volume means your average gross profit is likely to go down.

Keep the following in mind:

You cannot spend average gross profit.
You can spend total gross profit.

That’s all I’m gonna say. Tommy Gibbs

I’m thinking your business has been pretty darn good.

One of the more interesting dynamics of the automobile business is dealers make the most money when they are coming off tough times.

When things are tough, dealers get back to the basics and grinding it out. As business gets better, they are in a great position to make a lot of money because they have cut out all the fat.

As business gets better, dealers tend to add this and that to the expense line and get further away from the basics. From where I sit, I’m seeing dealers making good money, but many have started to get lax with spending, processes and their daily disciplines.

The standard in the business has been that we should make at least 2% net profit to sales dollars generated. If you are only making 2% right now while business is good you may be in trouble when business goes south.

Right now you should be making 4 to 6% net to sales. It stands to reason that if you can get the percentage up during the good times, then in the worst of times you can still maintain the 2% plus number.

If you’re in the 2% bracket or less, then you are missing something somewhere and need to re-evaluate your operation and do what you have to do to get it fixed.

Here are 11 things to think about as you move forward into the spring and summer:

1. Refine and stick to your basics.
2. Don’t get stupid with your expenses.
3. Keep the inventory turning.
4. Evaluate the inventory on hand vs. anticipated selling rate.
5. Examine every process from front to back.
6. Eliminate Legacy Thinking.
7. Get out of your little world and join a 20 group.
8. Don’t be afraid to fail; try something different.
9. Study the best of the best.
10. Improve your coaching and leadership skills.
11. Don’t think you have it figured out because you don’t.

Only you can make it great. That’s all I’m gonna say, Tommy Gibbs

The magic bullet for your used car operation is your brain and the software you stare at each day.

It’s that simple. You’re smart and you’ve got a world of information to work with.
One without the other will create frustration, stress and low profits.

I often see one or two things in my travels. I see management that’s still relying on “gut instinct/common sense” or management that “thinks” their software will take them to the promised land.

Either of those by itself is a bad bet.

You increase your odds when you realize that your software is a tool and the combination of using software with critical thinking has the potential to improve your business faster than a speeding bullet.

Having the magic bullet doesn’t do much good if you don’t load the chamber correctly. Let the brain loading begin. That’s all I’m gonna say, Tommy Gibbs

There are a lot of common problems when it comes to the used car operations for new car dealers. But of all the problems and challenges that dealers face, the number one problem is that dealers trade or buy a unit and have a lack of “intent.”

Most would say, “Of course I have intent. I intend to sell this unit and make some money.” That makes total sense, but the problem is, it’s far too general.

That’s like saying you’re going to drive from NY to LA without a plan on how you intend to get there. How many of you have ever heard the saying, “Every used car has to stand on its own?” If you’ve been around long enough you understand the term and can probably agree with the statement.

That being true, how can you give them all the same shelf life? How can you not have a specific intent for each unit? Most managers don’t think, “What’s my intent,” when a unit comes into their inventory. They paint them all with the same broad brush, which doesn’t make a lot of sense.

Intent starts with the appraisal and is finalized during the trade walk, where the “final intent” is determined. If dealership managers would look at each unit and clearly state their intent, they would have fewer inventory problems, turn would improve, and average gross, volume and ROI would go up.

I’m not going to go into the details here in this newsletter, but my life cycle management process gives you the disciplines to determine and carry out your “intent.”

My intent with this article is not to try to sell you something. My intent is to get you to think harder about what your own intent happens to be when you bring units into your inventory.

That’s all I’m gonna say, Tommy Gibbs

It’s easy to do easy.

It’s easy to ignore.

It’s easy to look the other way.

Easy to let slide.

We all like easy.

Anybody can do easy.

Being easy causes you to say yes, when you should say no.

Being easy causes you to take your eye off the big picture.

When you take your eye off the big picture, everything around you becomes a little fuzzier.

The fuzzier things get, the more confused you and your staff get.

The more confused you and the staff get, the more little things begin to slide.

Easy now becomes habit.

Habit becomes the norm.

The norm becomes easy.

That’s when rinse and repeat occurs. The problem is that the water you’re rinsing with is murky and dirty.

Expectations begin to drop. Lower expectations become the norm.

The little things can be hard to measure, so they are ignored.

When you focus on the little things, the performance of the team improves.

Why would you want to do easy?

Don’t do easy. That’s all I’m gonna say, Tommy Gibbs

Most of my messages are geared toward management, but today I want to talk to your sales staff. You should forward this to every sales person on your team.

As a sales person I want to help you re-frame what you do every day and what a great opportunity you might be missing.

Have you ever wanted to be in business for yourself?

Have you ever thought about going into business, to get someone else to invest the money and you reap the rewards?

Welcome to the amazing world of the automobile business:

You have free office space.
You get rewarded based on how hard you work.
You have opportunities for advancement.
You have healthcare, vacation and retirement opportunities and Christmas bonus programs.
You have a management team working to help you be productive.
You have a free computer system.
You have a DMS and other software provided free of charge.
You have staff and technicians available to handle customer problems.
You have free marketing, advertising and a website developer.
You have an administrative staff to help process your deals, DMV work, etc.
You have millions of dollars of inventory to sell with zero personal investment.
You get special spiffs/incentives from the factory.
You get all the free training/coaching that you can stand.
You have a detail/clean up department that gets your vehicles ready for delivery.
You don’t have to pay a penny for phone, electricity and other utilities.
You can demand an assistant when you become productive enough.
You have an Internet/BDC department begging you to take leads.
You have free janitorial service.
You have free coffee.
You have your own personal financial officer (F&I) working to put your deals together.
You work out of a multi-million dollar facility located on prime real estate.
You have an opportunity of a lifetime with no personal financial investment.

You need to “own” your own business. That’s all I’m gonna say, Tommy Gibbs

1. I wish we could do away with packs.

2. I wish every sales person worked his or her entire deal on a tablet.

3. I wish we could eliminate cashiers.

4. I wish we had salaried sales people with annual bonuses.

5. I wish we had salaried management with annual bonuses.

6. I wish we didn’t have to rely on processing fees to make a nice bottom line.

7. I wish we had two-tiered pricing from the service department to the used car department.

8. I wish every service writer presented the menu on a tablet.

9. I wish we didn’t have to negotiate prices.

10. I wish we didn’t have “towers of power.”

11. I wish sales people didn’t sit behind a desk to work with a customer.

12. I wish sales management & sales people had a 40-hour workweek.

13. I wish we could get units through service in 3 days.

14. I wish we never would have any units over 60 days old.

15. I wish we didn’t have new car rebates.

16. I wish auction fees could be reduced.

17. I wish we focused more on “leading” rather than “managing.”

18. I wish every dealer was in a 20 group.

19. I wish your showroom didn’t look like a showroom.

20. I wish I’d see you at the NADA convention.

21. I wish 75% of a sales transaction could take place online.

22. I wish you’d get 12 turns per year.

23. I wish we could rid ourselves of “Legacy Thinking.”

24. I wish you would finally hire me.

25. I wish you a great holiday season.

That’s all I’m gonna wish for, Tommy Gibbs

I’m a big proponent of forecasting. It lays out a map as to where we are going. Although there are detours along the way it gives us a chance to get to our final destination.

I’m an even bigger proponent of department head meetings. I believe your job as a leader should be to teach, educate, coach and encourage your team to seek ways to improve your operations. I tend to take a common sense approach to most things in life and I approach forecasting and monthly management meetings no differently.

Dealers, or any business for that matter, tend to forecast based on what they would like to do in the upcoming year. Often it’s based on statements such as “we need to increase our sales by 10%” and/or “we need to reduce expenses by 15%.”

Saying you want to increase your business by 10% sounds good, but if you don’t have a plan to get there what good is it? I’ve always been baffled by annual forecasting.

One of two things usually happens:

1. Someone is overly optimistic and/or they are blowing smoke up someone’s butt.
2. Someone serves up a low ball because they don’t want the pressure of hitting an unrealistic number.

Although dealers want to see an improvement in the next year’s numbers, what they really want is a number they can take to the bank.

In order to do a realistic forecast you have to take into account staffing, inventory, and market conditions. How can anyone do a forecast and predict what those three pieces of the equation are going to look like 3, 6 or 12 months down the road?

I’m not saying you shouldn’t do an annual forecast, but doesn’t it make more sense to adjust that forecast monthly or quarterly based on those three fundamental elements?

Because most leaders don’t make those adjustments it frustrates the management team and defeats whatever good intentions there might have been. Everyone eventually loses respect and confidence in any type of forecasting and concludes “Why bother?”

While it makes good sense to do a monthly or quarterly review of the actual numbers, managers become disillusioned with these reviews in that they become a “beat up” session rather than trying to figure out what went wrong and how “we” can fix it.

People know when they didn’t perform. What they want from upper management is leadership that gives well defined ideas and direction on how to “fix it” or make it better.

Using more common sense with your forecasting and monthly management meetings will help you grow a solid organization that generates consistent profits and sustained growth.

That’s all I’m gonna say, Tommy Gibbs

Once in a while I run into dealers and managers that struggle with how long they should keep units. It can create conflict so severe that someone (the manager) ends up losing their job.

Over the years I’ve run into a few people that are adamant that it’s ok to keep units past 60 days. I’m ok with someone having a different business model that really works. But, I question if it’s really working when you do the math.

Take a look at the chart and the bullet points below:

1. The first one is a car that you make $1200 on, hold 25 days and end up in the sweet spot of 117% (Sweet spot 110 to 120%)

2. The second one shows that if you keep that same car for 60 days, in order to achieve the same ROI you would need to make $2900 in order to get to the 118%. Is that doable?

3. The 3rd example shows that if you hold that same car 60 days, make $1200 on it, you end up with an ROI of 49%…not good, but if you held it 60 days you are probably happy to make the $1200.

4. The 4th example shows that if you make a $1200 gross on a car that you hold for 90 days you end up with a horrible 32% ROI…is that a good use of your money?

5. The last example shows that if you hold that same car for 90 days, in order to hit the sweet spot you would need to make $4300 gross. Can you really do that after 90 days?

Holding cars based on the theory that you can’t replace them is “false justification.”

You might be a rock star, but unless you do the math you might be living under a rock. That’s all I’m gonna say, Tommy Gibbs

It’s Thanksgiving and time to give thanks. If you’re like me for sure you have a lot to be thankful for. Among many things I’m thankful for are your friendship and support.

Thanksgiving also starts the close out of the year. It centers around Black Friday and rolls through the last week of the year. Like it or not, 2017 is already here. I’ve listed some very basic ideas you need to take into consideration that will help you finish strong and get ready for your best year ever.

A. Re-commit yourself- and your thinking towards being the very best you can be. Take stock of all those great ideas running around in your head. Write them down and make a commitment to get them done by certain dates. Post it on the wall in several places that you will see frequently. If you have a private restroom, put it on the mirror.

B. Re-evaluate-the appearance of your inventory. Let’s do a little checklist:
1. Look at your inventory online. Are they all there? 40 + pictures & prices posted?
2. Take a lot walk. Are the vehicles in straight lines?
3. When was the last time the entire lot was rotated?
4. Are you using angles to display your inventory?
5. Do you have hang tags? If so, do they all have hang tags?
6. Are they nasty, dirty on the outside?

C. Refocus-To be successful in the used car business (or any business) you have to be focused and be totally committed. Your entire management team has to understand your commitment to the business. Make sure a weekly lot walk is part of your routine. Every car in your inventory must be touched. If it’s in service, touch it. If it’s in prep, touch it. If it’s in the budget center, touch it. Everybody touches it.

D. Re-Recon-Take every unit over 30 days old back through a recon process. (You’ve already missed your best window of opportunity to make gross; that would be the first 20 days.)

E. Re-Invest-in yourself and your management team. Do something to gain some knowledge. Hire me, visit CarMax, or visit a dealer friend in another state that does a good job in used. Attend a workshop. Join a Twenty Group. Join a Used Car Twenty Group. (Hire me!) Do something besides sitting there and waiting for something to happen.

F. Re-think- your management team. Do you have the right person running your used car operation? Yes, that person may have been with you for years. Loyalty sometimes equals mediocrity. Maybe they have some great skills, but the fact is that you may not be making the best use of their talents. Used car managers today have to be “Asset Managers.”

The dealers with the most successful used car operations are those who have taken ownership of the used car department. The more involved you get, the more success your dealership will have.

I’m thankful for lots of things this holiday season and I’m especially thankful that you’ve taken the time to read my little Zingers. That’s all I’m gonna say, Tommy Gibbs