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

I want to ask you about doing a trade walk every day. First, let’s make sure we’re on the same page as to what a trade walk happens to be:

1. All units traded or purchased are parked in a staging area as they come into the inventory.

2. Every morning, all the members of the management team, plus any available sales people, will hold a meeting in front of each unit, discussing how high or low we might be in it, its pros and cons and conclude a disposition and a unique strategy for that unit.

3. Disposition meaning, wholesale or retail.

4. Strategy meaning, using my life cycle management process to determine the allocated shelf life of each unit and how we intend to retail it within the assigned life cycle.

Do you agree that the trade walk is a good idea?

Why aren’t you doing it? That’s all I’m gonna ask, Tommy Gibbs

At this very moment you might not have an aging problem with your used car inventory. But, trust me on this; at some point you’re going to wake up one day and have a real mess on your hands.

Dealers have different definitions for what they consider to be an aged unit. For me, it’s anything around the 45 day mark.

Some things to keep in mind:

1. If you have aging problems, one of the causes is that you haven’t previously been pricing your inventory competitively.

Once you start pricing your cars “to market,” you’re going to see your grosses go down. Do not blame your vAuto pricing tool for the lack of average gross. Do not blame Auto Trader. Blame yourself for not taking action sooner.

2. If you have aged inventory, it’s choking you to death. You will never maximize your new car and used car sales potential as long as you have aged inventory.

Sure, you will get lucky once in a while and have a good month, but you will never be consistently great until you fix the problem.

3. Asking your management team to work you out of your aged inventory isn’t the fix. Some of your managers may have helped put you in this problem, but the reality is your lack of discipline and enforcing a 60 day turn is the root of the issue at hand.

Asking your managers to retail you out of your current mess is only prolonging the agony and hampering your ability to “do business” today.

A Strategy To Consider:

Re-appraise all units. Put them dead on the money. Once you do that then you have to decide how you’re going to eat the excess. There are a number of accounting tricks you can use, but in one way or another you’re going to eat some big bucks.

You could absorb some of it each month in wholesale losses or take the hit on your end of year statement. You’ve been hiding the losses way too long. Time to get on with it.

What you don’t want to do is to take your aged stuff to the auction, dump it and start over.

Let me give you a little math to think about. Let’s say you have $100,000 worth of water on your lot right now. If you take those units to the auction you will lose the $100,000.

If you write them down, they are now on the money and when you retail them you might generate $70,000 in used car gross. In the big picture you lose $30,000 vs. $100,000.

But here’s the problem. You cannot and should not do such a write down and keep running your used car department the old fashioned way or however you’ve been running it. You have got to make some disciplined changes and fix what got you so screwed up in the first place.

Remember the part where I talked about writing your inventory down and putting it on the money? What you need to do at that point is use my “Life Cycle Management” process.

As you re-appraise each unit, you need to assign them the number of days you are going to allow each unit to stay in your inventory. I recommend 20 to 60 days max. As you get better at this you should be shooting for 45 days max.

A 20 day car might be a car you are buried in; bad color, bad miles, bad equipment or a high dollar unit. You and your staff ought to know which units give you the most problems and tend to age.

A 60 day car might be a nice trade-in or something you purchased from one of your customers. You have to set your own criteria.

Remember, when you assign life cycle management, the goal is to price the units attractive enough that you find a retail buyer within the assigned life cycle. If you don’t sell it within the assigned days then the unit has to be wholesaled at the auction.

As you clean your inventory up your average gross profit will improve even though you are retailing some of these units faster at lower grosses. The reason it improves is because the units that you have determined to be problematic and have given a short life cycle, are the very units that in the past have been aging on you and destroying your gross profit.

I realize this is painful and difficult to do, but once you get on a 60 day turn you will never want to go back. Your challenge will be to have the discipline not to let anyone talk you into keeping units past 60 days.

There are always excuses. Your motto should be “talk to the hand.” That’s all I’m gonna say, Tommy Gibbs

I sold my first car off my dad’s clunker lot on Broad St. in Richmond, VA when I was 12 years old. The summer of my junior year in high school I sold cars at Manchester Mercury on Semmes Ave.

Back in those days the customer signed 3 or 4 blank contracts and got roughed up by the dealership personnel. The keys to their trades were thrown on the roof, trades often hidden, and they were told they had to buy a car because their car had already been wholesaled.

Back in 1972, after a couple years of teaching and coaching I, like many of you, got in the car business until something better came along. Obviously nothing better came along.

In those early days, selling systems were the latest and greatest thing to hit since man landed on the moon. Turning the customer over multiple times was the norm and “if I could, would you,” became the closing tool of the day.

The business has changed a lot over the years.

Back them we didn’t have the Internet. We didn’t have third party leads. We didn’t have Google. We didn’t have vAuto. We didn’t have Vin Solutions. We didn’t have Auto Trader. We didn’t have Manheim online auctions. We didn’t have social media.

We didn’t have millennials as customers and employees. We didn’t have customers in their 50s, 60s, 70s and 80s who would rather shop online than spend 3 to 4 hours in a dealership negotiating a deal. We didn’t have 7 year old kids that could figure out your iPhone in a New York second.

What we did have were people in the business who had street savvy and a desire to make a lot of money. They had a strong work ethic and a willingness to grind it out 12 hours a day. And, we still had some questionable business practices. Truth in lending was right around the corner.

For many years, managers have worked deals from cost up and have been able to achieve a desired gross profit regardless of paying full retail in parts and service and/or having packs added to the cost of the cars. The skill level of those passing through the business back then was extraordinary.

No doubt a lot of things have changed over my many years in this business.

But, guess what hasn’t changed? Pay plans!

Most dealers are still paying sales people and sales management on gross profit with volume bonuses thrown in here and there.

With so many customers shopping the Internet, does it still make sense to pay on gross profit?

With a different breed of team members coming into the business, does it still make sense to pay on gross profit?

With prices being established well before the customer gets to the dealership, does it still make sense to pay on gross profit?

With customer’s expectations changing so much, does it still make sense to pay on gross profit?

With 90% of the dealerships using a pricing tool, does it still make sense to pay on gross profit?

With 90% of the public walking around with a personal device that can pull up pricing in a heartbeat, does it still make sense to pay on gross profit?

With the factory having so much control on how you price your cars and such low margins, does it still make sense to pay on gross profit?

With you paying so many flats and minimums, does it still make sense to pay on gross profit?

I’m just asking, does it still make sense? That’s all I’m gonna ask. Tommy Gibbs

Yep, here we are again. October is almost over. October is the perfect month. “Perfect for what?” you say. Perfect for figuring out where you’ve been and where you want to go.

I can’t say that math was one of my best subjects, but I can divide by 10 real easy. At a glance I know what the averages are for any line item expenses, sales volume and gross profit.

What also makes October a perfect time is it sets the stage for the next year. Now is the time to start planning for 2016. Waiting until the last week in December to get your plan together is a really bad strategy.

This is the perfect time to dig in and firm up your fundamentals in all departments. This is the time to get back to basics. This is not the time to cut back on your training.

This is when you need to amp up your thinking, stretch your organization and stretch your imagination. If you don’t have a solid foundation of basic processes you will never maximize your success.

This is the time to take control of the “evaporation factor” that’s been occurring all year long. This is the time to stop the “process bleeding.”

Your long term plan should include joining a Twenty Group and attending the NADA convention. Look, we all get lazy, and get caught up in our daily routines. Attending these meetings gets you revitalized. It gets you outside of your daily box and opens your eyes up to what the possibilities might be. Seems like a no brainer.

This is the time to make those plans. Teamwork is critical if you’re going to maximize your bottom line. To keep your team on the same page you have to constantly communicate to them what the expectations are and what processes they are expected to follow.

There is no “shake ‘n bake” solution. You don’t fix it and walk away. You fix it and re-fix it.

What to do?

1. Ask yourself if you can improve your processes? If you focus on revamping your processes, what effect do you think it will have on your business? It is an absolute fact that regardless of how well disciplined you are, over time your processes are going to evaporate. The best piece of advice I can give you is to lock yourself and your management team in a room and review every detail of your selling processes. Be brutally honest with yourself. Then take the necessary action to get you back on track.

2. Can you improve your team? Got the wrong players? Now is the time to make the changes. If you already have the right team in place then it’s time to let them know what your expectations are and show them the plan and the path to achieve those expectations.

3. Don’t think of your planning as “you now having a plan.” Think of it as a “mission.” Plans can fall apart. When you’re on a mission you stay after it until you succeed and then you stay after it some more.

I’m on a mission to get you to re-think what you’re doing. I’m on a mission to get you ready. That’s all I’m gonna say, Tommy Gibbs