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

Yep, here we are again. October has just ended. 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 2015. 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…That’s all I’m gonna say, Tommy Gibbs

If you read the likes of Automotive News or pay attention to media reports you may have heard there’s a glut of used inventory coming from off-lease vehicles and prices are going to start to drop.

Some of you have already experienced the so called “price drop.” If you’ve had conversations with Bubba or been to the auction of late you absolutely know about the “price drop.”

For whatever reason, you may have beefed up your inventory over the last 60 days or so and now you’re going, “Oh crap, I’ve got a serious problem.”

Let me ask you something. And before I do, please don’t get mad at me. I’m not trying to be a smart butt. But, what planet have you been living on? Don’t prices start to fade a bit this time of year? Would you call this the real “selling season?”

Doesn’t it make sense to tighten your inventory up just a tick as we move into the late fall/winter season? This media thing is a trick, a mean trick to make you think you don’t know what you’re doing.

Maybe you don’t or you had a slight memory loss when it comes to remembering how the market works. If you went out and purchased a bunch of inventory over the last 60 days, what were you thinking?

You need to stop thinking about what’s going on in the wholesale market. It’s not any different than it’s ever been.

What you need to be thinking about is how to retail your inventory, not wholesale it.

While I’m at it, I have another trick or treat for you.

If you have a vehicle and it’s priced number one in the market and it hasn’t sold, guess what? It’s not cheap enough. Trick or treat, that’s all I’m gonna say, Tommy Gibbs

I recently purchased an iPhone 6. Nice little gadget. I also tried the 6 plus. A bit too big for my style of running through airports.

At first even the 6 felt a bit too big. After a few days it felt pretty normal. About a week later I picked up an iPhone 4.

Geez, that thing feels so small. It didn’t feel small until I got used to the 6.

The question is what have you gotten used to?

1. Have you gotten used to low grosses?
2. Have you gotten used to low used car volume?
3. Have you gotten used to 60 day plus used cars in stock?
4. Have you gotten used to 7 to 10 days to get a car through service?
5. Have you gotten used to having lots of $25,000 used cars in stock?
6. Have you gotten used to buying cars from the rental car companies?
7. Have you gotten used to listening to “I can’t find used cars”?
8. Have you gotten used to crappy ROIs?
9. Have you gotten used to lousy used car photos on your website?
10. Have you gotten used to giving up discounts on used cars that you’ve priced “really, really right” on the Internet.

Yep, I’m just asking, what have you gotten used to? You’ve probably gotten used to a lot of things you shouldn’t. That’s all I’m gonna say, Tommy Gibbs

Sometimes it’s simplest processes that are the most effective. Pressing your cost down may be the easiest and fastest way to improve your used car business. Most new car dealers are not in the used car business. Most are in the NEWSCAR business.

That’s when the average cost per unit in your inventory keeps creeping up and up and before you know it you are too close in price points to your new car inventory. I have an easy experiment for you to do.

Take out your financial statement and go to the used car page. To do this correctly you will need to chart each month for the entire year. On that page you will see a column that has used car sales dollars in it. Simply put, that’s as if you sold one car for $10,000 and one for $20,000, thus you had $30,000 in Sales Dollars.

That in and of itself doesn’t mean much to you. Now, subtract your total gross profit from that sales dollar number for each month. That will give you your cost of sales.

Divide the cost of sales by the number of units sold each month. That will give you the average cost per unit sold for each of the twelve months. I know, I know, pretty simple stuff.

Hang on… When we do this little experiment here is what we generally find: the month in which you had your best retail sales is the month in which your average cost per unit sold was the lowest for the entire year. And, the month in which you had your worst retail sales, your cost per unit sold was the highest for the entire year.

The bottom line is that the more you press your average cost down, the more used you will sell and the better off you will be. You end up getting in the used car business and out of the NEWSCAR business.

You end up selling more units with fewer dollars tied up. Oddly enough, most of your problem cars go away. Your ability to get on a 45 to 60 day aged inventory goes way up.

So, what’s the magic number to get to? There is no magic number. Every dealer’s number will be different. If you are at $14,500 today, your mindset should be “How do I get to $14,000,” then $13,500, then $13,000 and so on.

The more you press your average cost down, the better off you will be. I find it interesting that when I’m speaking to a group, they think they are hearing me say go out and buy cheaper cars.

No, that’s not what I’m saying. I fully realize how hard it is to buy cheap cars. What I am saying is that it’s not so much about what you buy, but what you don’t buy. If you are buying a high dollar car you have to buy it with great caution. You need to either have it sold, or have data to back up that it’s going to move fast.

I’m often asked two questions:

1. What should my target goal be? There is no target, just try to get it lower than the day before.

2. Can I press my average cost too low. The answer is no.

Pressing your average cost down is a no brainer. That’s all I’m gonna say, Tommy Gibbs