If you’ve ever watched ESPN you might be familiar with a segment they do called “C’mon Man.” They show clips from some of the strange and ridiculous things that happened in sports such as a football player tackling his own teammate or a basketball player scoring at the wrong end of the court. ESPN’s segment could just as easily be called “You gotta be kidding me.”
Just the other day I was having a conversation with a key manager of a dealer group whose dealer was beating him up pretty badly about his average used car grosses being so low. Like many dealers, the dealer has either seen numbers in his 20 group or heard of dealers doing big averages. Dealers will often quote that they have dealer friends doing as much as $3000 and higher on the front.
Achieving $3000 on the front is easy enough to do. It really is. You can do it overnight. Yes, all of you can. I believe in you and I know you can do it. When dealers are screaming about low grosses they often point to the fact that their cars are priced too low on the internet and therefore the easiest solution is to increase the prices. The fact is you can improve your grosses dramatically overnight by increasing your prices. I mean really if you don’t ask for it how do you ever think you will get it? Remember you can always go down but it’s impossible to go up.
Yep, that works for me. Raise your prices, ask for more and you will get more. Gross has always been a state of mind. Whatever mindset you are in then you can achieve it. So, right now, right this minute, right this second all of you need to quit giving your cars away, raise your prices and the grosses will go up.
Oops, there are a number of little problems with raising your prices.
1. Your used car volume is going immediately in the tank.
2. Your total gross is also going so far south you will lose your butt.
3. Your profits are going to be pooh pooh because you have totally cut off the spigot of cars going through service.
4. New car volume will go into the tank because you are reluctant to step up on trades since you need to steal them to make gross on.
I bet you saw this coming: “C’mon man, you gotta be kidding me.”
I’ve said this before and I’m going to say it again, doing used car volume and achieving high used car average gross goes against the laws of nature. I’m not saying you can’t improve your grosses, but the days of doing $3000, $2500 and in some cases $2000 are history.
Should you shoot for high gross? Of course you should on selected models, but if you think you are going to price your cars on the internet like you did in the “good old days,” then you are in for a rude awakening as your volume goes south.
More often than not a dealer who has high gross averages also may have a lot of aged inventory loaded with water that he or she has not come to reckoning day with. Take the water out of the inventory and how good does “high gross dealer” look now? If your inventory is turning then the “water factor” ain’t much of a factor.
I’ll bet you that if you and I sat down we could come up with at least 25 things that are impacting gross rather than your pricing. Here are 10 to get you started:
1. Can you reduce your recon cost? Are you being as efficient as you can possibly be? Does service have carte blanche? Is service still selling the used car department the same old same old?
2. Can you speed up reconditioning? Very few of you really know how long it takes to get a car through service and clean up. Is your sales management team constantly crying about how slow service is? Might be some truth to it. Check it out. “It’s not the big that will eat the small, it’s the fast that will eat the slow.”
3. Re-evaluate your packs. Have they outlived their usefulness? Are packs ultimately affecting your average gross in a negative way? Are they giving you a false picture? Dale Pollak refers to packs as taxing yourself. I think we are all taxed way too much.
4. Have you made an all out effort to convince your sales and
management staff to sell the value of your company, your product and the fact that you have the best prices in the market?
5. Re-think what you are stocking and the when, how and how often you tweak your pricing. Far too often prices are not massaged soon enough so you end up pricing your cars at the end of the cycle at crappy grosses. I suggested in a previous newsletter that you go back and review your grosses by age categories. Have you done it yet? The older units you are selling are killing your grosses.
6. Think in terms of improving gross in small increments. Try paying the managers a bonus for achieving nominal increases each month. Start by improving gross by $50 a unit. Do that over the next year and you will see a slow, but effective way to increase your gross. You can only eat the elephant one bite at a time.
7. How could I talk about your grosses without mentioning “Life Cycle Management?” Life Cycle Management is designed to help you create a sense of urgency on those cars that are most likely to kill your grosses. The faster they go away the better your gross will become.
8. Track GAP and ROI. When you do, grosses go up. How much are you giving up once the customer shows up at your store with a price from the Internet? If you don’t know then you can’t fix it.
9. Are you stocking the wrong stuff? If the data tells you there are a lot of Impalas being sold in the market then it stands to reason that there must be are a lot of them for sale? And wouldn’t it be logical to assume that it will be hard to make money on those units since there is a high day’s supply? When it comes to making gross, the law of supply and demand is certainly in place. You don’t have to be an economics major to understand this fundamental principle.
10. Shoot the moon on the right stuff. Since the beginning of the car business, higher grosses are driven by some homerun cars. You have to understand which ones are home runs, singles, doubles and triples.
C’mon man, get real with your thinking on gross profit and fix those things that can have a meaningful impact without killing your volume. That’s all I’m gonna say. Tommy Gibbs