One of the things I’m constantly encouraging my readers and clients to understand is that keeping units past 60 days is a really, really bad business plan. It borders on insanity.

If you still have 60-day-old-plus units, and/or you’re not a believer yet, I want to give you another way to frame it.

If you had $1,000,000 in the bank and each month the bank took $100,000 of your money and said “Thank you, goodbye, and have a nice day,” how long would you keep your money in the bank?

Well, well, well—hello 60-day-old units.

If you have $1,000,000 tied up in used cars, and $400,000 of it is over 60 days old, (I see numbers like this all the time) you’re losing a minimum of $40,000 month, give or take. If you want to debate the 10% idea then say goodbye to 5% and ring up a loss of $20,000.

One thing is for sure, you no longer have the $400,000 you thought you had. You do on paper, but you don’t in reality.

I have a lot of dealers who send me their GAP/ROI spreadsheet to review each month. (If you don’t know what it is, then you should find out.)

What is so shocking is when you sort the columns by days in stock or gross profit, more often than not, there isn’t any money being made after 30 days. Yep, 30 days. You don’t have to take my word for it. Just start tracking your mess and you will see.

We are all good sales people. Good sales people like to be sold. Often, someone is selling you on the idea it’s ok to keep ’em past 60 days. And even sadder, you might be selling yourself that it’s ok to do so.

A very smart man once told me that there are three places you should never put your money; in the bank, in the bank, in the bank.

Don’t be stupid. That’s all I’m gonna say. Tommy Gibbs

As I write this I’m headed to the NADA convention. Are you going? If not, maybe you should be.

If you’re not going, I’m wondering why? Why would you not go? Don’t have time? Don’t want to spend the money? Don’t want to leave the store? None of those are very good excuses.

Now is the time to open your mind and shoot some WD 40 into your brain to loosen things up a bit. It’s winter, it’s cold and if you’re not careful your brain will freeze up and not thaw until sometime in August.

If your mindset is “the Convention is always the same” then the only reason that would be true is because you’re always the same. You get out of something what you put into it.

It’s hard for your vision to change when you sit there and stare at those same walls and same people day after day.

That’s why you need to go. You need inspiration. You need to see the possibilities. You need to go and learn something.

If you show up and find me I’ll give you a copy of my book, “The Little Used Car Book, Volume 6.” My little book is not a cure-all for your used car business but it’s guaranteed to give you some ideas and wisdom to help your bottom line.

By helping your bottom line, it will more than pay for your little trip. I’ll be hanging out at the vAuto booth (1718S), so look me up.

I’d hate to miss you this year. That’s all I’m gonna say. Tommy Gibbs

I’m thinking about half my readers know what a “wash out sheet” is and the other half probably don’t. For those that don’t, in the early years of the retail auto business, dealers used a “wash out sheet” to determine how much money they really made on the sale of a vehicle.

Here’s the way it worked. A new car comes into your inventory. You don’t know how much money you made until any and all trades are sold and thus “washed out.”

Follow the sequence. A new car creates a trade; you sell the trade. You trade in another and finally sell the last one with no trade. You then you calculate the total gross generated by the sale of that one new car plus all the trades.

It this case it took 3 transactions to determine how much total money was made. You would do the same thing if you purchased a used vehicle. If there were no trades or maybe one, the wash out occurs much sooner.

Some dealerships didn’t pay the sales person his/her full commission until the deal “washed out.” Do you think the sales person had a vested interest in seeing that the trades got sold? You betcha!

As I see the industry struggling with gross profit I have to wonder if maybe we’d be better off to go back to the old way of thinking. With technology being as sophisticated as it is today, why not calculate the total gross generated by one new car sale or one purchased used car sale?

We can all agree that to improve front gross profit, we need to work harder to sell the value of the vehicle and our organization. Most would also agree the key to long term success is going to be to improve volume.

If you’re going to improve volume it might be wise to look at the big picture by thinking about how much total “wash out gross” we are generating rather than just the sale of one unit.

It’s kind of like suits and ties. Keep them around long enough and they will come back in style. That’s all I’m gonna say, Tommy Gibbs

My parents and grandparents lived through the Great Depression. Their lives and the way they think about money and how they spend it was dramatically changed forever.

In the last 10 years or so many dealers went through their own great depression. No doubt, many learned some very valuable lessons.

It’s funny how a few good years in the car business can make one forget life’s valuable teaching moments. I get to see a lot from where I sit, and what I’m seeing is dealers feeling a great deal of temptation right now.

You might fit one of these two categories:

1. You’ve done a good job of selling down for the winter season. Inventory is short and you’re worried that you may not be able to keep pace with your current growth. You want to go out and buy a bunch of inventory so you can be ready.

Tommy Says: Oh stop it. You’re in the catbird’s seat. Take a look at what you sold last January, February and March. I’ll bet you if you turn your current inventory, add a little here and there that you can exceed what you did last year. You’re poised to have the best spring and summer in your entire career. You’ve gotten smarter this past year. Don’t be stupid and let the Devil turn you into a dummy.

2. You’ve got lots of inventory on hand. Lots of aged inventory, that is. The Devil is telling you to push the panic button, unload them at the auctions and start over. Prices are dropping and you are tempted to go buy some new stuff and be ready for the New Year.

Tommy Says: Oh stop it. You cannot win by dumping all that aged crap at the auction. If you’re going to do anything you’d be better off writing them down, finding retail buyers and getting yourself in position to have a big spring and summer. Now is the time to fix your mess. You’re not going to fix it by letting the temptation of unloading your crummy aged inventory in the wholesale market and loading up on more inventory.

The light you think you’re seeing at the end of that tunnel is a locomotive being driven by the “Devil of Temptation.” 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 dealers don’t think “What’s my intent” when a unit comes into their inventory. It makes no sense to paint them all with the same broad brush.

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.” I will be making my life cycle app available to a limited number of dealers in early 2015.

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

If you read Automotive News and other related publications then you know the value of used cars has started to head south. 

For some of you it’s no laughing matter. And for some of you, you’re sitting there with a smile on your face. You might even be using the secret code LOL.

Those that are smiling are smiling because they have the disciplines in place to make sure units don’t go over 60 days. Others are frowning because they have a lot of stuff sitting out on the used car lot way over 60 days.

They know they have a ton of water and with values dropping the water is moving up to flood levels. Might be panic time.

It’s very, very simple. If you are turning your inventory then you don’t really care what happens in the market. That’s because you’re always buying and selling in the same market.

Think about it; if you have units in stock that are aged, then you are not in today’s market. There are other dealers bringing those same units in the inventory today, for less money than you have in yours.

And, they can sell them for less and make more money than you can.

Kinda funny ain’t it? That’s all I’m gonna say, Tommy Gibbs

Dealers all over the country have a big push on buying cars from the public.

Many are spending thousands of dollars on advertising, marketing and software in an effort to find more and better cars at their front door. 

Some have even hired an “Equity Specialist” who has a full time presence in the service department and customer lounge in order to solicit customers with an offer of “Would you like us to appraise your car for you?”

Some dealers have even started an “exchange program” offering the customer a new or newer car for the same payment that they currently have. 

But wait, stop the presses! It’s a waste of time. Yes, it’s a waste of time if you haven’t put meaningful processes in place that are customer friendly and effective for you, your team and the customer.

Mistake #1: The tendency when someone says “Yes I’d like my car appraised” is to drop them off at the used car manager’s desk and leave. The person making contact with the customer needs to remain the contact. Though somewhat modified, there needs to be a “full routine” presentation by the contact person to each and every customer that says yes. 

Mistake #2: Most dealerships only want to buy what they know they can retail. If the program is going to be effective you have to be willing to buy anything from a stone piece of junk to a very expensive luxury car. CarMax has built the reputation that they will buy anything. Bring it to us-get a number. That should be your mantra.

Mistake #3: You try to steal it. What are you thinking? Get real. Get the unit. You will pay far more for it at the auction than you will at your own front door. Step up. Don’t be stupid. You need to own that unit.

Mistake #4: Giving verbal or handwritten appraisal quotes. Whatever you hand the customer needs to be computer generated in the most professional manner possible.(Appraisal Form) The quote should be good for a minimum of 7 days.(Voucher) The very brilliant Mike Porro of the Swope Auto Group even gives them a free CarFax report.

Mistake #5: Not paying the sales person or contact person based on the acquisition. If you want staff members to give the “full routine,” then you need to pay them just as if they sold a car. The full routine might actually inspire the seller to buy a car from you today or months down the road. Think about how much more efficient and cost effective it is when you can buy a car at the front door. The savings on the auction fees and transportation cost alone make it more than worthwhile for you to pay a reasonable commission.

Mistake #6: Someone hands them the appraisal and says, “Just let us know what you want to do.” The manager and the contact person need to do a complete review/presentation of the appraisal, answer questions and ask for the business.

Mistake #7: No one follows up with the customer. There should be a system in place to follow up within 24 hours, 1 week, etc. even if it means upping the ante $500 or so to acquire the car. There’s an old and very useful saying in the car business, “Follow them till they buy or die.” That saying applies to you buying their car as well.

Eliminate these 7 mistakes and you won’t be wasting your time, energy and money. That’s all I’m gonna say Tommy Gibbs

If you’ve ever participated in my training program you know that a lot of what I focus on centers around speed.

Your inability to move fast is a killer for your used car business. Moving fast puts you in the winner’s circle. Not moving fast puts you in the loser’s circle.

The speed of your service department and detail operation has a direct impact on your ability to produce gross in the used car department. Being slow in these departments impacts how fast you get a unit into the Internet world.

The first 20 days you own a used car are critical to your success. You cannot afford to let a unit sit for 7 to 10 days. The sad part of this story is most dealers don’t know how long it takes to get a unit through the system, on the lot and online.

Your entire staff needs to be continuously educated about how fast the market can change on a used car and what it does to the bottom line.

Being fast can save a turkey’s life. Being fast will not only save your life, but improve your bottom line.

Hope you have a great Thanksgiving. That’s all I’m gonna say, Tommy Gibbs

1. Could it be that the consumer is using the Internet for the majority of their purchases and therefore is pushing you into a pricing war you would rather not be in?

2. Could it be that you are not managing your pricing correctly? Are you coming out of the gate based on a bucket concept and pricing everything at X amount under market? Are you failing to shoot the moon on a few select units for x number of days before you drop your pants?

3. Could it be that because you wait so long in the life cycle to reduce your pricing that when you get to about 50 days you have to give all the gross away rather than giving a little away over a period of time?

4. Could it be the inventory you have is not the inventory that people are willing to pay the price for? If there are 300 Nissan Altimas in the market and you stock lots of Altimas, do you really think you’re gonna make any money when the market is over saturated?

5. Could it be the stuff you are buying is like an impossible dream? Are you buying 2014s with 25,000 to 35,000 miles on them? Really? The only way you’re gonna sell them is to give them away, eroding more average gross profit.

6. Could it be that you and/or your team really don’t understand “Life Cycle Management” and the powerful impact it has on gross and volume?

7. Could it be that the team doesn’t get “Return on Investment” and what it does to the bottom line?

8. Could it be you are not tracking “GAP” which stands for “Give Away Profit?” GAP is the difference between the Internet asking price and the transaction price? Improving your GAP improves your grosses.

9. Could it be the sales team isn’t selling the value of your product and your store?

10. Could it be your used cars spend the best days of their shelf life tied up in service and recon?

11. Could it be your photos and pricing on Auto Trader and your website are just not with the times?

12. Could it be you’re missing some good grosses because you let a lot of nice trades get away from you? It’s either (A) your managers won’t step up or (B) they wholesale them because they feel the service department is ripping them off?

13. Could it be you have aged units and when you dump them they kill your overall gross?

14. Could it be you need to get your mind in a place to think about what it could really be?

That’s all I’m gonna say,Tommy Gibbs

It’s a fact that more and more dealers are moving away from negotiating toward one price selling, whether they want to or not.

The stress of posting prices on the Internet for both new and used is putting pressure on the sales team to stand firm on the price once the customer shows up.

No doubt the best business model is to sell your car for your asking price and you give the customer wholesale value for their trade-in.

For those who aren’t quite there yet, I’d like to suggest that you consider serving up an under-allowance on every trade. I didn’t say to do it just with those customers who look drunk or stupid. I said with every trade.

I’ve often referred to this technique as “taking the customer’s temperature.”

If you do so, one of three things will happen:

1. They say yes and you make some extra gross.
2. The customer will quickly adjust their thinking as to the value of their vehicle.
3. You just put yourself in a much better bargaining position.

There are a few customers you might have to peel off the ceiling. That’s ok. That’s why you’re paid the big bucks.

As long as you’re going to negotiate, you may as well put yourself in the best position to win the game. It’s a shame we have to play the game this way.

I predict that one day we will look back and ask, “Why didn’t we change sooner?” That’s all I’m gonna say,Tommy Gibbs