Back in June I wrote an article in my newsletter call “Don’t Panic.” It was based on my best friend in high school who lives down in Key West, FL. He has a saying, “Don’t panic and never follow the crowd.” A few years ago he repeated this motto often when the hurricanes were blowing through Florida. When everyone was leaving the Keys in a panic, he just sat tight. Hung in there and rode it out.
My point back in June was that many dealers at that time had a problem with SUVS and Pick Up Trucks and were in a panic because gas prices were well over $3.00 a gallon. Many of them were dumping them at the auctions and taking huge hits.
MY advice was don’t panic and dump your SUVS and Pick Up Trucks at the auction. As we sit here today, six months later gas prices have gone as low as $1.99 per gallon in some markets. See, I told you so. I told you not to dump them, but you didn’t listen. You dumped them, went out and bought a bunch of cars that you still have and can’t sell. So, now you have a problem, it’s a different problem, but a big problem, and I have more advice for you.
I’ve going to give you the same advice again as I did back in June. Don’t Panic! Don’t do it. Right now, just stay away from the auctions. I know you need to sell these units and I know you need to raise cash, but you need to be creative and figure out a way to retail these units, even if you retail them at a loss you will come out a whole lot better. No sense in me continuing to beat you up on this, but if you are feeling in a panic right now it’s in large part because you have not been paying attention. Don’t be offended by that statement, but your biggest problem is for years you’ve not had any real discipline in your used car department. Some of you import dealers have been on a gravy train and now the chickens have come home to roost.
These are uncharted waters we are traveling in, but here are a few suggestions:
- This may sound like a contradiction to my discipline of not letting units go over 60 days, but this is the one time to ride it out and to “retail like hell.”
- Make sure that anything under 60 days goes into a true 60 day turn policy. Right now anything that’s 45 days old should be viewed as if it has already turned 60.
- Hopefully you’re using vAuto software to price your vehicles in the most advantageous price position on the Internet. Remember 80% of people looking for a used vehicle shop the Internet. If you have a vehicle that you need to sell, then you have to be in the top five least expensive in your market.
- You cannot price your vehicles based on what you have in them. You have to price them based on market. I know that’s painful, but it’s a fact. One of the reasons CarMax kicks everybody’s butt is because they price based on the market not based on what they have in a car. Sales people and managers are not paid on gross and have no control over the pricing.
- You will have to deal with write downs/losses in whichever way makes you float your boat. You can put it in an inventory adjustment account if that works for you. If your organization buys into the concept of adding $200 to $500 to the cost of every used vehicle that comes into stock then you can try and work your way out of it over the remainder of the year using that money. You may go upside down for awhile or you may end the year upside down. The worse case scenario is you eat it at the end of the year. But the sooner you move these units out, the sooner you can get back into the business of selling cars and trucks. Your sales people will keep walking around units when they can’t make any money selling them.
- Consider forgetting about paying on gross on these problem units. Yes, your salesman’s compensation is going to get out of whack. Since I’m showing you how to lose even more money, make sure you put incentives on for your managers as well. Yes, they helped get you in this trouble so why let them benefit? Because if you don’t you’re going to lose even more money the longer that stuff sits.
- Consider a pencil write down. Revaluate every unit to today’s current market value. Pay all the sales people and sales managers based on the new number. You have to make a big deal of this with the sales staff. Mentally give each unit a new birthday and now they will get 60 and gone.
- I hate it when dealers put tents up, call it a tent sale, and park cars under the tent. If you’re going to put a tent up, put tables and chairs in the tent and work all deals in the tent. (I have a whole article on this subject. Sent me an email and I will forward it to you.) But, this is the one time I recommend you put some units under a tent. Try this: Put the tent up as close to the road as possible. Put as many of these problem children in the tent that will fit. Put banners up, rent a sign, pay somebody to walk in front of the tent all day. The message on banners and all signs is “These vehicles will be marked down $500 a day until sold!” Each day write the date and amount on the windshield. Leave the old amounts on there so they can see where you started. You can start at retail if you want. Since I’m sure you have a large email database, make sure you send an email to all your customers and prospects promoting this program. Put the promotion on your website. Change the price on these units each day on your website just like you’re doing on the lot. Make the promotion part of your advertising plan and consider a direct mail piece. For the sales people, pay them a flat $2000 if they sell one. But…that $2000 goes down by $100 a day. You don’t like my numbers? Ok, pick your own and don’t leave the managers out of the equation.
Until you work your way out of these problem units you are going to be operating at a real disadvantage in the marketplace. Those of you that have been managing your inventory all along are in the driver’s seat. Yes, this is a very mentally challenging time for all of us. Right now we just don’t feel in control of our destiny and that’s a very uncomfortable feeling for those of us that have always been able to “make it happen.”
I want to leave you with three of my favorite Vince Lombardi quotes:
“Fatigue makes cowards of us all.”
“I firmly believe that any man’s finest hour, the greatest fulfillment of all that he holds dear, is that moment when he has worked his heart out in a good cause and lies exhausted on the field of battle – victorious.”
“The difference between a successful person and others is not a lack of strength, not a lack of knowledge, but rather a lack of will.” That’s all I’m gonna say,