A three part series on improving gross profit.

1. Can you reduce your recon cost? Are you being as efficient as you can possibly be? Does service have carte blanche? Is service still selling the used car department the same old same old?

2. Can you speed up reconditioning? Very few of you really know how long it takes to get a car through service and clean up. Is your sales management team constantly crying about how slow service is? Might be some truth to it. Check it out. “It’s not the big that will eat the small, it’s the fast that will eat the slow.”

3. Re-evaluate your packs. Have they outlived their usefulness? Are packs ultimately affecting your average gross in a negative way? Are they giving you a false picture? Dale Pollak refers to packs as taxing yourself. I think we are all taxed way too much.

4. Have you made an all out effort to convince your sales and management staff to sell the value of your company, your product and the fact that you have the best prices in the market?

5. Re-think what you are stocking and the when, how and how often you tweak your pricing. Far too often prices are not massaged soon enough so you end up pricing your cars at the end of the cycle at crappy grosses. I suggested in a previous newsletter that you go back and review your grosses by age categories. Have you done it yet? The aging units you are selling are killing your grosses.

There are many parts to improving gross profit. Look for Part 3 next week. That’s all I’m gonna say, Tommy Gibbs

Just the other day I was having a conversation with a key manager of a dealer group whose dealer was beating him up pretty badly about his average used car grosses being so low.

Like many dealers, the dealer has either seen numbers in his 20 group or heard of dealers doing big averages. Dealers will often say that they have dealer friends doing as much as $3,000 and higher on the front.

Achieving $3,000 on the front is easy enough to do. It really is. You can do it overnight. Yes, all of you can. I believe in you and I know you can do it.

When dealers are screaming about low grosses they often point to the fact that their cars are priced too low on the internet and therefore the easiest solution is to increase the prices.

The fact is you can improve your grosses dramatically overnight by increasing your prices. I mean really if you don’t ask for it how do you ever think you will get it? Remember you can always go down but it’s impossible to go up.

Yep, that works for me. Raise your prices, ask for more and you will get more. Gross has always been a state of mind. Whatever mindset you are in then you can achieve it.

So, right now, right this minute, right this second, all of you need to stop giving your cars away, raise your prices and the grosses will go up.

Oops, there are a number of little problems with raising your prices.

1. Your used car volume is going immediately in the tank.
2. Your total gross is also going so far south you will lose your butt.
3. Your profits are going to be pooh pooh because you have totally cut off the spigot of cars going through service.
4. New car volume will go into the tank because you are reluctant to step up on trades since you need to steal them to make gross on.

I’ve said this before and I’m going to say it again, doing used car volume and achieving high used car average gross goes against the laws of nature. I’m not saying you can’t improve your grosses, but the days of doing $3,000, $2,500 and in some cases $2,000 are history.

Your best opportunity to improve your overall business is to improve your volume. Improving volume improves business in all your departments.

You can’t spend average gross profit. You can spend total gross profit. That’s all I’m gonna say. Tommy Gibbs

1. Resell the team that you have the pricing correct. Remind them that more than 80% of the people who shop for a used car are shopping via the Internet. In most cases the customer would not have shown up today if they didn’t like the vehicle you have or felt the price wasn’t in the ball game. Thus, we need to stay focused on selling the fact that we have got the price right, they are at the right place, so don’t bother asking for more discount. The management team has to do a better job reselling this concept on a daily basis.

2. If you have aged inventory your goal should be to retail out of it by April 1. In doing so you need to realize that in order to retail out, you’re going to have to price them right. Pricing them right and finally doing what you should have already done is going to cause your average gross to take a hit. You’re going to put yourself in a better position to sell lots of new and used cars as the spring rolls around because you are now in the driver’s seat and not trying to dig out of a hole.

3. Implement the trade walk with all members of the management team. Use my life cycle management process. Each morning analyze the fresh trades and purchase units to determine the number of days it will be assigned. Make sure you spot the most problematic units, price them right and get them gone.

4. Start tracking 30/30. Track the gross on units you sell under 30 days old and the gross on units you sell over 30 days old. You will soon realize those over 30 days old units are killing your averages. Ask yourself right now, how many units do you have in stock that are over 30 days old? What’s the percentage? If more than 50% of your inventory is over 30 days old you can bet your averages are going to take a hit.

5. Attack the 10 most expensive units in stock. Print out a list of them every day. Give a copy to the service manager, desk and F&I managers. Make sure the team has top of mind awareness on these units. Price them right on day one. Consider putting bonus money on the most problematic ones. These units will eat your lunch if you don’t stay on top of them.

6. Do anything you can to improve speed from the time you own it until it’s on the lot and ready to go.

So, there you have it. 6 easy things to get focused on that will help you have the best spring and summer in the history of your business. That’s all I’m gonna say, Tommy Gibbs

Used cars have always made me nervous. Not scared, just nervous.

I worry a lot. I worry about aged units. I’ve learned that we all have our own definition of an aged unit. For me it’s around 45 days.

Especially the iffy ones. If you think about it, there are more iffy ones than not.

Most aged units have issues such as:

Too much money in it
Bad color
High miles
Wrong equipment
High dollar unit

Those are just a few issues that make me nervous.

When I see units on the lot that are aging and they have any of those issues, I react very much like what you see in this video and you should too.

Watch the video. Pretend that the cucumber is an aged unit that you just discovered. That’s all I’m gonna say, Tommy Gibbs

https://www.youtube.com/watch?v=8HGoKN1kjk0
You And Aged Units

A good friend of mine who passed away this past year had a saying and it goes like this: “You can justify anything you want to justify.”

Dealers and managers will often try to justify keeping units past 60 days. If you’re a believer in the value of keeping up with ROI, I doubt there are many cases in which you can prove the justification.

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 that 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 that 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 that 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 what I call “false justification.”

Sometimes when we justify things in our own mind, we are simply lying to ourselves and those around us. That’s all I’m gonna say, Tommy Gibbs

1. Average gross per unit will come down. (Doesn’t mean it has to be that way at your store.)
2. Use of personal devices by consumers to shop vehicles and prices will increase.
3. Nice used cars will be scarce.
4. You will struggle to make ANY gross on aged units. (Well, duh, you’re not using my Life Cycle Management process)
5. Finding sales people who want to work the hours and be paid on gross will become even more difficult.
6. Maximizing the use of software and technology in your dealership will challenge you.
7. The franchises you represent will put more expenses on your side of the table.
8. The manufacturers will increase the pressure on you to hit market share.
9. You will accept aged units as a necessary evil of the automobile business.
10. Your average cost per unit in stock will go up.
11. You will become more dependent on your used car department to save your new car department.
12. The amount of water in your used car inventory will increase.
13. Your dealership will be sued because someone didn’t “just handle it.”
14. Your CPA and legal fees will go up.
15. You will waste 50% of your advertising dollars and you won’t be able to figure out which 50%.
16. F&I income will feel stress from the regulators.
17. Improving recon time for used going through your shop will be a high priority. (You will talk about but not fix it.)
18. You’ll hire managers from the outside because you haven’t developed your own people.
19. You will wholesale some used cars that you should have retailed.
20. You’ll think about hiring me, but you’ll talk yourself out of it…again.

Well duh. Most of these are always true. Some things change. Many don’t.

Happy New Year to you too. That’s all I’m gonna say, Tommy Gibbs

You’ve tried everything else to move that aged inventory. Might as well try this:

“Mark Down Tent.”

A “Mark Down Tent” is not a permanent fixture. It’s to be used from time to time when you are trying to unload problem cars. You know those units that you all of a sudden discovered you are killed in and have had hanging around way too long.

Put up a tent that can hold 3 or 4 units, as close to the road as possible. If permissible, hang banners around it that say “Mark Down Tent” and use the little signs that you can stick into the ground with arrows to the “Mark Down Tent.”

Promote the “Mark Down Tent” in all your ads including your website. You might want the receptionist to answer the phone, “ABC Motors, have you heard about our Mark Down Tent?”

Using a marker, start off by putting a very, very high retail price and the date on the front windshield. You will be marking the price down each day by $500, with the date beside the new price until sold.

Draw a line through the old prices and dates. The sales person’s commission on day one will be $2000. Each day that you mark the car down by $500 the sales person’s commission will be reduced by $100.

Now don’t panic. I said to start off with a really high retail price. If you get to a point where you are uncomfortable with the pricing going too far south you can always pull it from the tent.

The idea is to create a sense of urgency with both the customer and the sales person to take action.

The reason you now need to put cars in the tent is you didn’t have a sense of urgency soon enough in the first place. That’s all I’m gonna say, Tommy Gibbs

There’s an old adage that you make the money on a used car when you buy it or trade it. Buying it or trading, it’s all the same thing.

For the moment, I’d like to take issue with that statement. Of course, it’s true you have to be in a unit right, but the most important things that impact your profit are the decisions you make about the unit once you own it.

Sometimes we make a bad decision on what to keep and what to wholesale.

Sometimes we spend too much on it. Sometimes we spend too little.

The biggest problem dealers have is that they don’t have a defined strategy of how they intend to market the car.

They price it too low.
They price it too high.
They don’t change the price fast enough.
There’s no sense of urgency to get it on the lot and on the web.

If you want to make more money on your used cars then make sure you have a defined strategy on what you’re going to do with it. Retailing or wholesaling isn’t a strategy. That’s a disposition decision.

A strategy means you understand what you’re dealing with and you have a plan to get it retailed.

Think of the potential. You buy them right. You strategize them right. That’s when you make the most money.

That’s all I’m gonna say, Tommy Gibbs