Here’s a section from last week’s newsletter:

…To price it right you have to own it right. When you add packs to the high cost of reconditioning (that’s a subject for another newsletter) then you are at a huge disadvantage when it comes time to sell the car.

As promised, today’s newsletter is going to be about used car reconditioning.

I realize human nature is that people like to complain and want to blame someone for their inefficiencies. What do you think the number one complaint is I hear from Sales management when I’m in dealerships?

Yep, you’re right, the service department. Sometimes it’s subtle, sometimes it’s blunt, often tempered with an excuse or apology to dare complain about it. Early in my career my attitude was "Shut up, go to work and control the things you can control because it’s not going to change." Well, I’m here to tell you it does need to change and sooner rather than later.

If you review history, you know that the reason dealers charged full retail from the service department to the used car department is very much the same reason they implemented packs as was pointed out in last week’s newsletter. Sales managers have historically worked from cost up and it has made dealerships a lot of money over the years.

You can think what you want, but as time has progressed, the used car department has become an easy mark for the service department. The mere fact that the hours per RO on a used car ticket vs. a customer pay ticket is more than double should tell you something.

It’s not only the amount they are charged, but also the time it takes to get the car in and out of service. Used car managers will tell you they get charged for things that they don’t need fixed, and things that need to be fixed often are not. Almost everyone in the business today understands how crucial speed is to being successful. The lack of speed and efficiency in your service department as it relates to used vehicles is killing your ability to do volume and make the money you have the potential to make.

Creating speed and becoming more efficient should be your number one priority as you move toward 2013. I like relating our business to sports. Name a sport, any sport and today’s athletes are bigger and faster than they have ever been. With profit margins decreasing, your business needs to emulate sports. You have to get bigger (sell more cars) and become faster and more efficient than ever before.

Yes, becoming more efficient means speed but it also means figuring a way to reduce the cost from the service department. There are many pieces to this puzzle, but with creative thought I’m confident a lot of dealers are going to figure it out and for those who do they shall reap the profits. Dealers will all tell you they know the key to being successful is teamwork, yet the pay plans and territories that are set up in the dealership enhance the opposite.

In CarMax’s 2012 Annual Report, Under the section "Discovering Efficiencies" it states:

"Eliminating waste from our reconditioning processes has contributed to a year-over-year improvement in our gross profit per used vehicle sold in 12 of the last 13 quarters, while still preserving the competitiveness of our pricing. At the end of last year, we noted that our targeted efforts allowed us to achieve a cumulative reduction in average reconditioning costs of approximately $250 per vehicle, while still maintaining our high quality standards. While actual reconditioning costs will vary based on sales mix, these sustainable savings are now embedded in our cost structure."

So, forget that they don’t have packs. Forget that they don’t pay sales people and sales managers on gross profit. Forget that they don’t view the service department as a profit center. Forget that they buy based on data. Forget that pricing is controlled at corporate headquarters. Forget that 99% of what they put on their lot to retail, they actually retail…just forget all of that…but realize and don’t forget they have a $250 cost savings per car that you don’t have. They have 108 stores. They sold 408,000 cars last year and made $413 Million in their last fiscal year so they must be doing a lot right. 

I had lunch this past Monday with two of the smartest people I know in the car business. Part of that conversation was that there are a lot of little things dealers can do a better job with in the sales department when it comes to managing the inventory, working deals, managing systems, etc.

I told them that even if all things were perfect in the sales department, until the service issues are fixed (cost and speed) it will be impossible for dealers to come close to maximizing their potential. The dealer has the power and expertise to fix any of these issues if they want to.

Here’s the bottom line: If you can become more efficient, more streamlined, and reduce the cost of repairs to your used cars then doesn’t it stand to reason that you will be able to sell more cars than you are currently selling?

Seth Godin, one of my favorite writers, wrote a blog this week and here’s the article:

Denying facts you don’t like

"Transformational leaders don’t start by denying the world around them. Instead, they describe a future they’d like to create instead. Denying the truth about relative market share, imperial power or the scientific method helps no one.

Gandhi didn’t pretend the British weren’t dominating his country, and Feynman didn’t challenge Einstein’s theory of relativity or the laws of thermodynamics.

It’s okay to say, "This is going to be difficult." And it’s productive to point out, "our product isn’t as good as it should be yet."

The problem with Orwellian talking heads, agitprop, faux news and Ballmer-like posturing is that they take away a foundation for a genuine movement to occur, because once we start denying facts, it’s difficult to know when to stop. Tell us where we are, tell us where we’re going. But if you can’t be clear about one, it’s hard to buy into the other."

If you’re happy and you know it and clap your hands. If you’re not happy smack yourself upside the head and fix it. That’s all I’m gonna say. Tommy Gibbs

Here’s a section from last week’s newsletter:

…While it’s very smart to understand the market you are in it can be futile "to do as the market does." Just because everyone in the market charges a $500 processing fee doesn’t mean you should. Or, to be specific about your store, just because you’ve always charged packs, doesn’t mean it’s the right thing to do in today’s market. (You are killing your used car buyer, and your ability to sell cars in the Internet world with your old style thinking, but that’s another Zinger for another time.)…

As promised, packs will be the subject of today’s newsletter. I love packs. I’ve always loved packs. I also love manual typewriters, but they are no longer effective and neither are packs. Packs are "Voodoo Magic" of the past.

Wheee, I said it, I really said it. Packs are no longer effective and they are killing your ability to buy cars and sell cars in today’s market. Out with the voodoo and in with the "New new."

Packs are very much like the Labor Unions, Factory CSI scores, and all the stuff that J.D. Powers puts out. They were very effective at one time, but they have all outlived their usefulness. As is the case, especially with labor unions, many people want to hang on to the good old past and not accept the present.

Let’s review the history of packs and where we are today. My best guesstimate is packs came to being somewhere in the 1960’s. They were very effective because managers worked deals from the bottom up. If the mindset was to make a $1500 gross profit on each car sold then regardless of what was added to the cost, the managers would get the $1500 because they were working from cost up. Over the years talented sales managers have been darn good at working the deal, working the sales person, and working the customer. Many of you are dealers today because you had such skill and talent.

Dealers became very creative and developed hard packs and soft packs. Soft packs were added to the cost of the car for commission purposes. Often dealers (me included) would advertise up to 40% commission in order to lure new sales people to the dealership. By adding packs dealers were able to say they were paying a much higher percentage than they were actually paying. Everybody went away sort of happy and voodoo magic lived on.

Hard packs were a way of offsetting some expenses such as floor plan and advertising. Many dealers used part of the hard pack money to fund accounts often referred to as "Bruise, Slush Fund or Inventory Adjustment" accounts. These accounts were often used to write down or adjust aged inventory. In some cases dealers would use the money to zero out their wholesale losses. Dealers were able to justify these accounts to the management teams by paying the managers in one way or another on the "Packed money." More voodoo magic.

The bottom line is packs in one way or another increase the cost of your vehicles. I’ve known some dealers who have packs as high as $2500 per unit. Isn’t it obvious that such packs put the dealerships, the management team and the sales people at a big disadvantage when it comes time to sell a car and make a profit?

The problem in today’s market is the margins/profits are dropping because most customers shop the Internet when they are thinking of buying a vehicle. Dealers have come to realize that if they have a car they need to sell, it has to be priced right in order for a customer to show up.

To price it right you have to own it right. When you add packs to the high cost of reconditioning (that’s a subject for another newsletter) then you are at a huge disadvantage when it comes time to sell the car.

To quote my good friend Dale Pollak from his newest book (you need to get a copy) "Put another way, packs are really a tax that a dealer imposes on every used vehicle–an add-on that increases the unit’s cost but does not enhance the vehicle’s overall value."

If gross margins continue to compress, and they are and they will, then the only way to win the net profit game is to sell more cars. The only way to sell more cars is to be able to buy more cars at the auction and the front door.

You don’t have to have a big lot or a lot of money to sell more cars. You have to create a fast turn. You can only create a fast turn if you price your inventory right. You can only price your inventory right if you own it right. The rapid turn of inventory has never been as important as it is in today’s market.

The only way to buy more cars is to have a "cost advantage." Packs and other worn out strategies of the past are hurting you more than you realize. Let’s do some basic math:

Packs $1000

Recon Cost $800

Front Gross Profit Objective $2000

Total Dis-advantage $3800

Why do I call the $3800 a dis-advantage? Because that number is etched in the brain of your used car manager or buyer every time they buy a car or price a car.

Dealers and used car managers often complain there is a shortage of used cars. I’m not going to debate that as such because to a point it may be true. But, did you know that for the last 7 years new car sales have averaged 13.9 million and used car sales have averaged 38.8 million? How did 38.8 million used cars change hands if there is such a shortage?

Adding additional cost to the cost of your used cars by the use of packs and high recon cost along with some of the other issues in today’s business climate is impacting your ability to maximize your new car and used car business.

Relying on voodoo "packs" will trick you into thinking you’ve got it right, while the savvy competition quietly makes the changes necessary to dominate today’s market.

One of the elements of voodoo magic is to take a little stuffed doll and stick pins in it to create pain in the person the doll represents. The more you rely on voodoo magic, the longer the pain is going to last. 

People change when the pain of not changing exceeds the pain of changing. Enjoy the pain, that’s all I’m gonna say, Tommy Gibbs

One of my readers, Robert Whisner with Robert Basil Auto Group in Fredonia, NY, recommended I read the book "American Icon" by Bryce Hoffman. It’s about how Alan Mulally saved Ford Motor Company.

Very early in the book there’s a quote by Henry Ford that we all should pay close attention to:

"Business men go down with their businesses because they like the old way so well they cannot bring themselves to change. One sees them all about–men who do not know that yesterday is past, and who woke up this morning with their last year’s ideas." 

No truer words have ever been spoken. One of the things I find so often when working with dealers and their managers is they tend to want to rely on their past success. And they should, to a point, but if you also think that way, then you need to realize your past successes may not carry you very far into the future.

As we age in the business we have to be careful not to fall into the trap of thinking that it worked for you in the past so it will work today. If you continue to hang on to the past you could wake up one day and wonder what day you are in.

Once the mind’s thinking has set out to do something, or has gotten in the habit of doing something, it is very difficult to implement change. You don’t have to be a brain surgeon or know much about how the human brain works to know that people resist change.

If leadership is smart enough to realize this well known fact then you would think they would be smart enough to develop a strategy that would lead the group into change knowing that change has to happen.

As cruel as it may seem, if you can’t get people to change then you may need to change the people. But therein lies the problem. Leaders fear change as much as anyone and they fear the change of people even more than the change of culture, processes and ideas. The concept of "the devil you know is better than the devil you don’t" may not serve you very well if you are allowing it to become a crutch for doing nothing. 

The problem with change is it sets up an automatic element of accountability. If you decide to change course and/or change people now the eyes of the world are upon you to make it work. For many, it’s far safer and less scary if you don’t implement change because nobody’s watching and you can ride a wave to nowhere as long as you can stand up.

I have a friend who lives in Key West, FL. When the hurricanes would head toward Key West the masses of the population would head for the mainland. One of his favorite sayings is "Don’t panic and never follow the crowd." I think more often than not, many in the car business panic when it’s too late and end up following the crowd far too long.

While it’s very smart to understand the market you are in it can be futile "to do as the market does." Just because everyone in the market charges a $500 processing fee doesn’t mean you should. Or, to be specific about your store, just because you’ve always charged packs, doesn’t mean it’s the right thing to do in today’s market. (You are killing your used car buyer, and your ability to sell cars in the Internet world with your old style thinking, but that’s another Zinger for another time.)

Isn’t it interesting all the changing that takes place when new ownership takes over? How many times in your career have you seen new ownership come into a market and turn the place upside down and double or triple the previous owner’s sales?

If you are going to succeed in this volatile market then you need to constantly evaluate your market, your staff and your thinking. You cannot be afraid to change just because you and the market have always done it that way. "That way" will not carry you very far.

Ralph Waldo Emerson said "Fear defeats more people than any other one thing in the world." Nothing was ever achieved by sitting on the sidelines waiting to see what others are going to do. You will not win by following the crowd. That’s all I’m gonna say. Tommy Gibbs

As is the case with most Zingers I write they are usually a result of issues I come across in my travels, or emails and phone calls from dealers and managers with specific questions.

I was contacted recently by a general manager whose dealer was putting pressure on him because the average F&I gross was falling.

Here’s the specific question as it was presented to me:

"Great article this past week and as always very true. Here’s my question. We have been selling more and more inexpensive cars (many that have over 100,000 miles) and the volume definitely has increased and our turn is much better, but that being said our backend averages have dropped. We are selling fewer products because the cheap cars are not eligible for product. My owner is putting tremendous pressure to keep backend averages up, but due to us pushing prices down and selling these older cars our averages are falling. Basically the numbers are telling me we are doing a poor job in used car F&I. Your thoughts?"

You have to believe the dealer likes the volume that these lower price cars are bringing to the table, but he also wants the higher F&I income. I get it, I really do.

However, it’s possible the dealer is missing the big picture or he is doing what dealers sometimes do; he’s working the management team. Been there and done that and there’s nothing wrong with it unless it totally screws up the heads of the members of the management team. It may also be he’s trying to create an environment of "If you think you can, you can."

The first thing that has to be realized is achieving high gross profit and doing volume is a contradiction. It goes against Tommy’s laws of nature.

I’m not saying it can’t be done but I will say it’s very unusual, and there has to be a very special set of circumstances for it to happen with consistency. If it’s going to happen in today’s market it’s because the dealership has amazing talent or they exist in a very unique market.

There is no question F&I is going to take a hit when selling cheaper cars. What has to be determined is, are you better off selling them, with a smaller F&I average or not selling them at all and pulling your F&I average up. Hello?

Suppose the dealer puts so much heat on the F&I averages that the GM throws in the towel on the less expensive units and goes back to retailing more expensive cars and a better F&I average. Is the dealership really better off?

Here are 10 key questions that need to be answered:

1. What about all the parts and service gross that would have been generated on the less expensive cars going through service and reconditioning? 

2. What about the fact that you could have put more money in some trades because you intend to retail them vs. wholesaling them? How many more car deals do you end up making because you have a better plan?

3. Does the increase in volume from the less expensive units impact the attitude of the sales staff and their ability to earn additional income? Isn’t it true the best time to sell a car is when you just sold a car?

4. What’s the benefit of having someone driving a car, any car, high dollar, low dollar, that they purchased from you? 

5. Is there a chance you just sold a car to someone who might never have set foot in your store because you had a vehicle at a price point they could afford to pay? 

6. Is it possible that this new customer has a friend or relative who might one day come back and buy something because of the way this new customer was treated during the buying experience?

7. Are the odds in your favor that they may come back for an oil change or other service?

8. Does doing business generate business?

9. What’s the "Return on Investment" on selling these less expensive cars? Relative to the amount of money tied up aren’t they a far better investment than what you would make with a $25,000 car? How many times in a year can you turn over a $7,000 to $10,000 investment vs. a $25,000 investment?

10. Doesn’t it make sense, that if you can sell more cars with less money tied up that it’s a good thing? There really isn’t much of a downside to increasing volume and decreasing investment.

To keep the accountability up on F&I it might be a good idea to keep two logs; one with the more expensive cars that you hold to your normal F&I standard and another for the less expensive cars. You have to decide how that gets broken down.

Let me remind you that what’s really important is how much total gross you are generating. I always say, "You cannot spend average gross profit. You can only spend total gross profit." That’s all I’m gonna say, Tommy Gibbs

If you were in the military you know what the "chain of command" means. Even if you weren’t in the military I’m thinking you have a pretty good idea of what it’s all about. The chain of command is critical to success in the military, sports or business.

In a radio appearance this past week on ESPN’s Mike and Mike in the morning, former Orioles pitching coach Leo Mazzone had some interesting comments about his tenure with the club when asked about the current turmoil surrounding the Boston Red Sox.

If you’re not familiar with what’s been going on, the Red Sox new manager, Bobby Valentine, has had a very tenuous year in dealing with some of the players. He has been faulted for their extremely poor performance this year and in large part that may very well be true. Recently during a road trip to play the Yankees, a number of the players had a private meeting at the hotel with the top brass and owners of the team.

Mazzone compared his time with the Atlanta Braves (where he helped the team to 14 consecutive division titles and five World Series appearances including one championship) to his two years with the Orioles.

"It all starts at the top. It’s called the chain of command. With the chain of command, I have experience with both ends of it," Mazzone said in the interview. "When I was with the Atlanta Braves, there was a chain of command that was in place that was never broken. It was never broken by the players. It started with ownership, with Ted Turner. Then it started with the general manager, John Schuerholz, the manager, Bobby Cox, and the coaching staff and the players. So you had a chain of command that was never broken.

"Then I go to Baltimore and find out why they’re losing," Mazzone continued. "The chain of command was always broken, where players got to voice their displeasure to the front office, which took away the power from the manager and nobody really knew who was running what. Basically, what it was, was a bunch of players finding excuses for losing. This is what’s going on in Boston right now."

So, how often does the chain of command get broken in your dealership? It’s not unusual for the Dealer, GM or owner operator to have a special relationship with those who answer to others in the store. A breakdown of the chain of command and discipline occurs when they are allowed to do an end run on management.

How many times have you seen upper management allow the sales people to run off a good manager for no reason other than they don’t like the systems, processes and disciplines that manager is attempting to bring to the table? Upper management allows this to happen due to some special bond created over a long period of time with certain sales people or favorite employees.

That’s not to say that some of these managers shouldn’t have been shown the door in the first place, but to allow it to be done based on the tail wagging the dog is totally wrong. It is insanity to allow the inmates to run the asylum. A good friend of mine who referees in the NBA often uses that term to describe how the players run the league.

If you’re in upper management and aren’t going to support your management team, then why hire them in the first place? Everyone performs better when there is a solid chain of command. The management team needs to be allowed to succeed or fail on their own merit, not based on the likes and dislikes of those who answer to them.

That doesn’t mean you can’t have an open door policy. You can, but be smart enough to know when to say you need to go speak with your supervisor about that issue.

I learned this valuable lesson back in 1980 when I became a partner in my first dealership. All I really had was a little ownership on paper with the majority of the stock and ownership belonging to Ashton Lewis. All the employees more or less knew the deal. I will never forget the day when one of the managers approached Ashton to ask him a policy question. He pointed to me and said "That’s who you need to be talking to." End of story. End of people doing an end around. End of anyone circumventing the system.

You cannot run a successful business when people are allowed to break the chain of command. The reality is the chain of command is actually broken by those in command. And that’s the end of this story and all I’m gonna say, Tommy Gibbs

Ok, everybody stomp your feet. Clap your hands. Drum roll, louder drum roll…here comes the answer…PRESS YOUR COST DOWN.!!!

If you’ve ever heard me speak, and most of you have, and if you haven’t you should, you know this is my favorite subject. It’s so simple, yet so very powerful when it comes to improving your used car and new car business for that matter. I’ve included new in that statement because the stronger you get in used, the more new cars you will sell.

This may be the simplest and easiest way to get out of the NEWSCAR business and into the 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.

If you don’t believe what I’m saying is true 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 out 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 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 greatest 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. 

So, the bottom line is 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.

The easiest way to manage this from the Dealer’s standpoint is to drive your used car manager nuts about what their average cost per unit is in stock each day. Surely you have some way of pulling what your average cost is per unit every day? There is no set of circumstances you can lay out that negates this concept. 

So, if you were to say any of the following, you would be wrong:

1. We do a great job with highline cars. (Irrelevant.)
2. We do a great job with high dollar pick-up trucks (Irrelevant.)
3. We do a great job with high dollar SUVs (Irrelevant.)
4. We don’t have software that can separate our inventory by Cars, Trucks, SUVs and Wholesale Pieces (Irrelevant.)

You should require your used car manager to print the report every morning, and circle today’s average cost, put his/her initials inside the circle and lay it on your desk. I have found it very effective to take this page and tape it and the previous day’s page to the wall in my office. What happens is anytime someone walks in my office they all look at the number to see where we are today. 

It creates peer pressure and accountability of the used car department and especially the used car manager.

Every time I see the used car manager in the hallway I will ask him/her "What’s your average cost?" The more you aggravate your used car manager about this number the better off you will be. For me in the past it’s gotten to the point where all I had to do was just wink at them and they would spit it out.

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. But, what I am saying is 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.

One of the most important things you can do is to quit letting "Bubba and the gang" have your cheaper cars. There is absolutely no reason not to retail any vehicle that has a piece of life left in it. You can present all the excuses you want, and they are just like the rear anatomy that we all have. Don’t say well, we don’t want to be in that business because it creates customer issues. That’s all a bunch of bull. Don’t say it’s because we spend too much money on them in service. That’s a bunch of bull. If you have a service issue, then fix it. If you’re the dealer, owner or general manager then you can fix it if you want to.

There is no question that if you just pay closer attention to what you are buying and what you are keeping to retail that your average cost will go down and nothing but good things end up happening. As you monitor your average cost it is going to bump up from time to time. 

There are two reasons for this. First, it’s because you traded in some high dollar stuff, which you will naturally have to do and second it’s because you got goofy and went to the auction and bought some high dollar cars. In both cases it’s a matter of paying attention to it daily and getting back on track.

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. 

Don’t be concerned with that. If you do a good job with $25,000 SUVs, you will still sell $25,000 SUVs, but by pressing your average cost down it just makes you that much better.

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

Last week’s article was titled "Could It Be George W. Bush’s Fault?" In the article I listed 22 reasons why some dealers’ grosses might be going a bit south. (ARTICLE)

The point I was making is we should always have a mindset of re-examining how we do things and seek to improve whatever we are doing. The list was meant to be a checkup of what you are doing and what you can do better.

I’ve now been writing these articles for over 10 years. I’ve received thousands of positive responses and only one negative. (ARTICLE)

That’s not to say that everyone always agrees with everything I write. We often have friendly debates and I always win. (Little humor here.) But to have received only one negative response is pretty darn amazing.

Last week’s article created my second negative response. I want to share the complaint, my response back to the person and a point by point explanation.

Here in the writer’s words is what he said:

1. You begin to blame things on incompetence like it exists in every dealership.
2. You assume that nobody executes the basics anymore.
3. You assume that most dealers are simply dumbasses.

My email to him:

"Sorry you read it that way. That was not my intent. What I know to be true is how hard it is to do all the fundamentals day in and day out regardless of how disciplined a dealership or dealer might be.

The evaporation factor is always in play. I don’t think dealers are dumbasses. I do think we all need to be reminded of what’s important when it gets to basics. With all the things a typical dealer has coming at him/her each day it’s almost impossible for some things not to slip.

I speak from experience. My stores have always been well disciplined, but yet it was not all that unusual for me to have this sort of conversation with the management team:  "what the heck happened to that process? Why aren’t we doing a save-a-deal meeting every day? No, twice a week is not good enough. Whose idea was it to change it?"

The one thing I know about the automobile business is we never "get it right." When you get one department squared away, something else needs attention. Sorry, if I offended you in any way. Please accept my apology."

My Comments:

1. On incompetence-nothing could be further from the truth. In my opinion, the competence level of the management teams in dealerships has never been greater. The education and training of today’s managers and dealers is tenfold what it was 20 or even 10 years ago. Today’s dealers realize they cannot do it the old fashioned way and seek to employ higher quality people who are smart, competent and who are committed to a high standard.

2. On basics-never in the industry’s history have dealers executed basics any better than they do today. Most dealers are process driven. Processes promote good basics. Dealers, GMs and owner/operators have come to understand that their number one responsibility is to guard the processes, which in essence guards the basics.

3. On dumbasses-I’m sure there are some dumbasses out there, but I’ve not actually run into any. Most of the people I meet are either in 20 groups, attend conventions or are clients of mine. Dumbasses don’t run in those circles.

My Zinger Newsletter is designed to do several things:  

1. To share ideas and tips that will enhance the profitability of a dealer’s used car department.  

2. To share solid processes that are proven performers and easy to implement.  

3. To help you and your team avoid the "evaporation factor" by keeping what’s important in front of you on a frequent basis.  

4. To share with you what’s "hot" and what’s "not" in the quickly changing automobile world.  

5. To get in your face once in a while on issues that dealers need to pay attention to but so often forget.  

6. To promote my training and workshops. I don’t do a lot of this, but heck it’s the business I’m in and I’d be an idiot not to let dealers know what I do and how I can make them a lot of money.  

I would not expect you to agree with everything I write in my newsletters. Part of my mission is to stir you up a bit…get you to think about some things you might not normally take the time to consider.

I want to help you push the envelope. We all need a little push once in a while and I can help you do that. I will tell it like it is, and then you have to decide if it’s a fit for you and your team. 

"The Pain of Discipline or the Pain of Regret." That’s all I’m gonna say, Tommy Gibbs

I hear dealers often complaining that Dale Pollak’s "Velocity" concept has killed their grosses. I beg to differ with that thinking. The reason your grosses have gone south is because of George W. Bush. He messed them up when he was President; Obama didn’t realize how big the problem was and thus hasn’t been able to fix it. Really?

Have you ever noticed in life we always want to blame someone or something else for our woes?

Could It Be:

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 2011’s 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 that you are stocking cars that are way too expensive, so you end up competing with your new car business and selling them at little or no gross just to make them go away?

9. 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? If you aren’t tracking GAP then how are you to know who’s selling your cars and trucks for less than what you have them priced on the Internet.

10. Could it be you’ve done a lousy job of teaching the sales team to sell the value of your product and your store?

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

12. Could it be your presence on Auto Trader and your website is just so, so? Very few pictures, lousy pictures or no pictures.

13. Could it be your management team is living in the past and waiting for the good old days to return?

14. Could it be your management team isn’t really a team?

15. Could it be you haven’t done a "lot walk" since Hector was a pup?

16. Could it be you have gotten too smart to do a "save-a deal" meeting every morning and gross is impacted negatively because F&I takes the easy route of cutting the deal?

17. Could it be your purchase strategy is called "buy that late model stuff cause it’s easy?"

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

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

20. Could it be the deal is screwed up before it ever gets a chance to be turned over to a manager and/or the managers just aren’t taking TOs?

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

22. Could it be you need to go look in the mirror? Nah, it’s George W. Bush’s fault. That’s all I’m gonna say, Tommy Gibbs

If you have been reading my newsletters and emails then you know I totally believe we have to change the way we have always done this business.

I frequently rave about CarMax because more often than not they outsell everybody in whatever market they are located. And, they don’t do it the old fashioned way.

One of the things that sets them apart is they show reconditioning as a line item on the financial statement. For most of you that’s way over the top when it comes to making changes so I’m not even going to get into it. I know you don’t want to hear it.

Today’s subject is about some changes the industry needs to address as we move into the most competitive environment in the history of the automobile business.

In order to determine how much you and I agree or disagree please take this little informal survey. You don’t have to click anything. Just click it in your brain.

1. Has average gross profit per unit gone up or down in the last 5 years in your used car department?

2. Do you think used car average gross profit will be trending up or down nationwide over the next 5 years?

3. Is it becoming more challenging to keep your expenses in line?

4. What do you think will happen to your bottom line if average used car gross keeps coming down and you maintain the same used car volume?

5. If your grosses have come down, what role do you think the Internet is playing in the equation?

6. Do you think most dealers are using a pricing tool like vAuto?

7. If you could get more of the right inventory is it likely your volume would go up?

8. Do you often get outbid at the auctions by the likes of CarMax?

9. Do you think that if you had an advantage with the pricing from the service department to the used car department that you would be in a better position when it comes time to acquiring vehicles when appraising or buying at the auction?

10. Can you agree that more often than not volume has a greater overall impact on the bottom line than improving the average gross profit?

I’ve just used mental telepathy to conclude the following from your answers:

Expenses are going up, gross is going down and the only way to generate a substantial bottom line is to do volume? Did I get it right?

In order to do volume in used cars you need to have a "costing advantage." By "costing advantage," I mean what’s added to the car once you get it which includes packs and reconditioning. To have a costing average you have to re-think your packs (which usually gets down to pay plans) and most important what you charge the used car department from your shop.

If you review history you know that the reason dealers added packs and charged full retail from the service department to the used car department was because sales managers worked from cost up.

In the good old days sales managers had control over gross so you could nail them with high charges all you wanted. They still got the gross you needed and you could put the money from Parts, Service and Packs in your other pocket.

This is no longer true as your sales managers no longer have control over gross as they once did. That’s why dealers are more and more becoming one-price dealers and saying "no" when the customer shows up and wants a discount.

If you’ve already dropped your pants on the Internet with a price designed to get them to show up then you have nowhere else to go. So, without saying they are a one-price dealer, many dealers are taking a tougher stand as well as changing sales people’s pay plans to match their new found pricing and marketing.

I predict within due time more dealers will become more like CarMax and not pay sales people or managers on gross. Remember as we move more towards a once-price concept the skill and pay level of the "desk managers" will be much lower than today’s market.

You just got through agreeing with me that average gross will continue to come down. Then you have to agree that the only way you will win is to increase volume. The only way to increase volume is be able to acquire more cars. Am I repeating myself?

In order to acquire more cars (like CarMax) then you have to have a costing advantage when you go to the block or your front door. So, whichever dealers can figure a way to reduce the cost to the cars once they acquire them will win.

They will win because they have more of the right cars to sell and because they will have a pricing advantage over the competition. And, no doubt they will be pushing more volume through the shop.

I believe the reality is the overall shop profits will ultimately go up for these forward thinking dealers. As the shop profits go up they can sell their cars for even less gross due to the overall volume they are doing.

That last sentence may be a stretch but the rest of this is not. I have never been so sure of something in my life as what I just shared with you.

Another little side bar of this is if you have a cost advantage it only stands to reason you will trade for more cars. If you trade for more cars you will have more new car customers coming back to you for service after the sale.

As you may know the hours per RO for a customer pay ticket comes in at 1.7. The average hours per RO for a used car ticket is 4.0. I can tell you that nationwide service departments still don’t know who their best customer is. They say they do, but they don’t. Their actions in terms of how they treat the used car department speak louder than words. By and large most dealers/owners will not explain to the service departments whose name is on the sign.

So, what’s the conclusion of all this madness? There has to be a better, more efficient approach to the charges from the service department to the used car department. "Status Quo," needs to turn into "Status No."

I know a lot of really smart new car dealers and I know that somebody is going to figure it out. If you don’t, and you don’t do it soon, others will and when they do, you will find yourself wishing you had.

You can do it CarMax’s way, or you can do it your new way, but you can’t do it the old fashioned way. The pain of change or the pain of regret. You’re going to have one or the other and the cool thing is you get to pick. That’s all I’m gonna say, Tommy Gibbs

The All-Star baseball game was played on Tuesday night with the National League defeating the American League 8-0. For baseball it’s referred to as their mid-season break and it determines the home team advantage for the World Series. 

It’s sort of the same way for you. You’ve just passed the half way mark in the business year and I’m wondering how many of you and your team members have made the All-Star team? To determine if you’re an All-Star you have to certainly look at some numbers. So how are they? Parts and Service up? New Car sales up? How about total new gross?

And of course you know I’m going to ask you about your used car numbers. Are volume and gross up in used? Has your team jelled over the last 6 months? Are your key players showing good leadership and performing like All-Stars?

Here are 6 elements necessary to be an All-Star:

1. Hustle, Hustle Hustle-When I think of baseball and hustle I can’t help but think of Pete Rose. His nickname was "Charlie Hustle." As a player Pete was the epitome of the word hustle. That is the mindset you need to be successful and move your business to the next level.

You have to be determined to out-hustle the other guy, gal or business. The great thing about hustle is that it requires no God-given talent. It just requires that you want to do it. So maybe you’ve not been hustling as hard as you should. Let’s hustle a little harder. Let’s dive for some line drives. Get with it.

2. Have a Game Plan-Nothing happens without a strategic game plan. The plan has to be well thought out. A solid plan requires research, time and talking to others. Those around you see and know things you cannot possibly know. It will surprise you what you can learn from people you would normally discount as not being important or having much to offer.

Your plan should be constantly developing, growing, expanding. Adjustments are a part of the game. Those who can adjust to the changing conditions increase their chances of winning. Put the plan in place and be ready to make adjustments. Every one of those players in the All-Star Game took batting practice before the game. Part of your batting practice needs to be to look for ways to tweak your game plan.

3. Think Fast-Think fast and move fast should be your motto. Decisions and changes need to be well thought out. If you’re "up early and stay up late" you can make fast decisions that will bury your competition. In baseball, even if your team has weak areas, speed can overcome a lot. Think fast, be fast.

4. Increase Your Communication-Communication starts by listening and responding. It takes a combination of meetings, memos, emails, and phone calls to distribute information. The keys are updates and progress reports. The more information you share with your team the more progress you will see and the more your team will develop. 

The more the team develops the more wins you get. There’s a lot of communication going on in a baseball game; signs, signals and meetings on the mound. You can never communicate the game plan too much or too often.

5. Get Back to Empowerment– Years ago, automobile dealers took a page out of the airline book of customer satisfaction by allowing staff members to make on the spot decisions to satisfy customers. Our policy for years was if the customer asks then the answer is "Yes."

That’s not to say that you don’t need to have limits, but you must empower your people to "just handle it." Nine times out of ten you’re going to do it anyway, so let them handle it in the trenches. If you have talented players sometimes you have to turn them loose.

Talented base runners are often allowed to steal on their own. The coach lets them use their God-given talent. Yes, they get thrown out once in a while, but people have to make some mistakes in order to learn and get better.

6. Pick Up The Intensity-When you combine Intensity with Hustle it’s almost impossible not to become an All-Star. There’s nothing magical here. Intensity separates the winners from the losers. It gets down to the teams who are moving ahead vs. the ones who are stagnant. How much are you willing to separate yourself and your business from the competition? Show me a laid back baseball player and I will show you a player who didn’t make the All-Star Team.

Hope you made the All-Star Team. That’s all I’m gonna say, Tommy Gibbs