I continue to be amazed and flabbergasted by what some people are thinking when they finally decide to clean up their problem cars by dumping them at the auction. I’m not talking about the onesies or twoesies that you dump at the end of the cycle. Nor am I talking about the clunkers with no life left in them that you sell at the local auction.
The dealer’s famous last words are “Oh crap, all these problem cars have been hidden by the previous used car manager. I’m gonna fix this once and for all. We’re gonna dump all these problem cars and start over.”
Really, really, really…why would you do that? Why would you want to lose $100,000 in an instant?
Let me give you some basic math. Let’s suppose you have 50 cars and you’re $2000 high in each car for a total of $100,000. In your brilliant thinking and with a mindset of starting over you take them to the auction and lose $100,000.
As much as none of us like writing inventory down, let’s pretend you decide to re-appraise those aged units and take the $100,000 worth of water and eat a bit of it each month, at the end of the year or whatever.
You now own the cars for the “real money.” The best part is that prior to taking this drastic step you developed some solid strategies and put into use Tommy Gibbs’ world famous “Life Cycle Management Process.”
You take each of these re-appraised units that are now on the money and give them a new birthdate, along with a life cycle exit strategy.
Since you are now “on the money” we can safely assume that the sales people are less likely to walk around them. Also, we can safely assume that we have a much better chance of retailing them now that we can price them right using the vAuto pricing tool.
I think it’s a safe bet that on these “on the money” units you will generate $70,000 or so in front gross profit.
Ok Einstein, how much money did you really lose versus taking them to the auction? $30,000. Would you rather lose $30,000 or $100,000? But wait there’s more! You didn’t have to truck 50 units to the auction and you didn’t have to pay auction fees on 50 units. Yes, you did have to pay commission on the 50 units you retailed. Tell me how retailing more cars and paying a commission is a bad thing!
Oh shucks, I failed to mention you might have some F&I income from those units. Oh darn, I also failed to mention that you might have a trade in on some of those 50 units. More darn, I almost forgot to mention the retail parts and service work that might come your way from having a retail customer. Oh, pooh, I also forgot to mention you have just captured a retail customer who might re-buy from you down the road, or they might even tell a relative or friend how awesome you are.
Yeah, go ahead and dump those 50 units at the auction. It’s faster, easier, and more fun…and you send a powerful message that you have finally gotten serious about the used car business. Works for me. That’s all I’m gonna say, Tommy Gibbs