Every now and then we all poke our heads above the fence, and sure enough, someone will throw a rotten tomato at us. I’m poking my head above the fence. Don’t throw too hard.

My subject today is those units that come back into your used car department that have previously been in loaner or rental car service.

Most of the time they are just a few months old, nice cars, with low miles. They quickly become aged units in the dealer’s used car inventory that don’t make the used car department any money and worse than that, they are a source of great frustration for all.

There are solid and legitimate business reasons for having loaner/rental units as part of your business model. I get that.

The problem is they aren’t curtailed/written down enough while they are being utilized in your fleet and when they come out of service the dealer expects the used car department to save the day by retailing out of them.

Dealers sell them to the used car department based on what they have in them not based on what they are worth.

You sometimes try to justify to yourself that they are worth what you have in them because they are brand new units. They are not brand new units. By and large they don’t have new car incentives attached to them and in most states they have to be sold as a used car.

Ask yourself, if you went to the auction what would you pay for them. Hey, there’s a thought…why haven’t you taken them to the auction? Because you know they aren’t worth what you have in them. This ain’t rocket science.

Another piece of this equation is that these units have to compete with your new car business. It’s an impossible task that you are bestowing upon your used car department to retail you out of units you are super high in.

These units are probably worth $2,000 to $4,000 less than what you are selling them to your used car department for. Do you think your sales staff wants to sell units that you are so buried in? And you wonder why they are aging on you.

These units are costing you business left and right. Why would a used car manager want to step up on a similar trade at the front door when they know they have 15 units sitting out there right now, and probably another 10 on the way? (Read THIS from a week ago.)

These are dead units taking up space and dollars in your inventory.

If you want to get real, you should sell them to the used car department for the right money and share the write down expense with all departments. All departments, especially the parts and service departments, benefit from having loaner cars at their disposal.

This situation isn’t going to improve in the long term unless you take the advice I’ve just given you.

In the short term, you need to re-appraise all those units. Eat the loss, give them a new birthdate and put my life cycle management process in play.

I said you weren’t going to like this. We often don’t like the truth. I’m telling you the truth. Let the tomato throwing begin. That’s all I’m gonna say, Tommy Gibbs

Quotes I often hear when I’m in dealerships:

1. “We never miss a trade.”
2. “We don’t try to steal trades.”
3. “We put top dollar in every unit we appraise.”
4. “We’re not going to miss a deal at the front door.”

Fundamentally none of these are true. Everyone misses trades.

What’s funny is when you go to the auctions to buy cars you always pay more for them than you would if that car was sitting at your front door.

Stealing trades is one of those things that falls into the “We’ve always done it that way” category.

I believe there are four fundamental causes for trying to steal trades:

1. The fear of the bump. Used Car Managers fear the bump from upper management so they low-ball the trade thinking the bump request is just around the corner. The used car manager is protecting their “territory” by low-balling the trade.

2. Pay plans also tie into stealing the trade. The manager is protecting their own personal pocketbook especially in those cases where the used car manager is only paid on used car gross. Even if they are paid on total gross it still creates “trade stealing.” Gotta make some gross someplace.

3. Aged inventory. We need to steal the trades to make up for the sins we have on the lot right now. As long as you allowed aged inventory to exist you’re going to have people trying to steal trades.

4. The old adage that you “make the money,” when you buy or trade the unit. That’s only partially true. You “make the money” when you sell the unit and you make the most when money when you sell it fast.

Here’s the fix:

1. Put solid disciplines in to eliminate aged inventory. (My Life Cycle Management Process.)

2. Put top dollar on every trade. I said top dollar on every trade. No bumps. Pretend you are at the auction. Step up from jump-street.

3. Change the pay plans. Paying on gross profit becomes more archaic every day.

4. Stay focused on improving your look to book. Review every vehicle that was appraised from the previous day that you didn’t get.

When you stop stealing trades you improve the quality of your used car inventory.

When you improve the quality of your used car inventory you sell more used cars.

When you sell more used cars you become more confident that you can put top dollar on trades.

When you put top dollar on trades you sell more new and used cars.

Stop stealing trades. That’s all I’m gonna say. Tommy Gibbs

There’s a lot of conversation these days about a surge of off-lease cars flooding the market and hurting wholesale values.

Oh stop it! Don’t listen to all that silliness. Of course values are going down. It’s not very often that used car values go up.

Of course you have to pay attention to the market. It’s not any different today, tomorrow, this year or next year. It’s always like that.

What you should be thinking is stick to your core principles. Do those fundamental things each and every day that you know you need to do.

Do What You Know!

1. Make good decisions
2. Price them right
3. Price the problematic cars to sell faster
4. Speed your processes up
5. Be smart with high dollar used cars
6. When you miss a car, deal with it quickly
7. Don’t operate in fear
8. Do a Trade Walk every day
9. Turn units faster
10. Press your cost down

You won’t get hurt if you pay attention and do the things you know you need to do. And, do them every day. Do what you know.

That’s all I’m gonna say, Tommy Gibbs

I frequently write articles trying to get you to take certain actions in order for you to avoid having aged inventory.

The more I study the subject and the more dealers I work with, the more I become convinced that there’s very little money being made on anything over 30 days old.

The biggest problem with aged units is the impact on your ability to sell cars today. Nope, I’m not even talking about your ability to price and sell the aged units. I’m talking about your ability to trade for more vehicles as you work new and used car deals.

When you have aged units, there’s a little voice deep inside the dark corner of your brain saying, “Hey, be very careful, don’t step up too much on that trade. Bossman, you’ve got a bunch of other issues out there on the lot and if you step up on this one, you’re just creating more problems.”

It’s not just that you can’t make any money on the aged units; you can’t sell fresh units or new units because your existing inventory keeps your brain all twisted up.

Keep an eye on that dark corner inside your brain. That’s all I’m gonna say.Tommy Gibbs

I often have conversations with dealers and managers about units they have had in their inventory too long and/or those vehicles that might be in the $25,000 to $35,000 range.

I question whether they are profitable or not. For those managers who want to keep units until they can retail them I sorta agree in that I’d like to see you retail them, but faster. I hate dumping retail pieces in the wholesale market.

I’m convinced that keeping them past 45 to 60 days doesn’t make you money unless of course you make a killer gross. I’m also convinced that the longer you keep the more expensive vehicles, the further you erode your profits unless of course you make some awesome grosses which isn’t too likely.

So, here’s the deal…if you disagree with me “prove it.” Yep prove it. Start tracking the ROI on any unit you retail over 60 days old and any unit that you have over $25,000 in.

Come on, bring it on. Prove it to me. Prove it to yourself. Remember when calculating ROI, the standard is to use only front gross and the sweet spot is 110 to 120%. You can use my ROI calculator. Go to FixRoi.Com.

I’m looking forward to you proving me wrong. Bring it on. That’s all I’m gonna say. Tommy Gibbs

The final in a 3 Part Series.

1. Think in terms of improving gross in small increments. Try paying the managers a bonus for achieving nominal increases each month. Start by improving gross by $50 a unit. Do that over the next year and you will see a slow and effective way to increase your gross. You can only eat the elephant one bite at a time.

2. How could I talk about your grosses without mentioning “Life Cycle Management?” Life Cycle Management is designed to help you create a sense of urgency on those cars that are most likely to kill your grosses. The faster they go away the better your gross will become.

3. Track GAP and ROI. When you do, grosses go up. How much are you giving up once the customer shows up at your store with a price from the Internet? If you don’t know then you can’t fix it.

4. Are you stocking the wrong stuff? If the data tells you there are a lot of Impalas being sold in the market then it stands to reason that there must be are a lot of them for sale? And wouldn’t it be logical to assume that it will be hard to make money on those units since there is a high day’s supply? When it comes to making gross, the law of supply and demand is certainly in place. You don’t have to be an economics major to understand this fundamental principle.

5. Shoot the moon on the right stuff. Since the beginning of the car business, higher grosses are driven by some home run cars. You have to understand which ones are home runs, singles, doubles and triples.

Fix what you can fix. That’s all I’m gonna say, Tommy Gibbs

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