The Big Gamble

The car business is a game of high stakes. The highest stake is and has always been the used car department.

It doesn’t matter if your trading at the front door or buying at the auction it’s always a gamble. You’re gambling that you paid the right money for the unit.

It’s true you make money when you buy the unit. It’s even truer that you make the money when you sell the unit. You never know what a unit is worth until you sell it. It’s always a gamble.

Used cars are not an exact science. It’s more often than not a wild-ass guess. Some guess better than others, but it’s always a gamble.

Solid leadership and a savvy understanding of the business will mitigate your gamble and give you better odds of winning the game and improving your bottom line.

If you’re the Owner, Dealer or General Manager you should never turn the riskiest part of your business over to a single individual. Your leadership and experience are critical to your thriving and surviving the risky part of your business.

There’s an old Chinese proverb that says: If you must play, decide upon three things at the start:

1. The rules of the game-Upper management set the rules of the game and decide if they are going to demand accountability. Rules without accountability are just stupid. Don’t be stupid.

2. The stakes-The stakes are very high. How much money do you have invested in your used car operation? Most of the time we think about that in terms of the amount of used car inventory we’re carrying.tion? Most of the time we think about that in terms of the amount of used car inventory we’re carrying.

Often in the millions of dollars. Yes, that’s the biggest chunk of the investment, but there’s also a huge investment in time, management development and resources that go into the equation. Don’t be stupid with your investment.

3. The quitting time-At what point do we find a retail buyer at some number? Our first inclination when reading “the time to quit,” is when do we dump the unit in the wholesale market.

Dumping in the wholesale market is always a bad idea. If you want to think about it as dumping, you should be thinking about it as dumping in the retail market.

At some point, the unit should be priced at a price point that makes someone come in and take it off your hands.

All units don’t deserve the same shelf-life. To assign all units the same quitting time is a bad business strategy. Not having a solid strategy and flying by the seat of your pants is just stupid.

I’m being repetitive, but it’s worth repeating that the used car business is a gamble and you need to do everything in your power to increase the odds in your favor.

That’s all I’m gonna say, Tommy Gibbs

Are You Committed?

In October 2019 Eliud Kipchoge ran the first sub-two-hour marathon in the history of mankind. Yep, I didn’t know of him and it doesn’t mean much to me.

What it does mean is people can accomplish great things when they are committed to a cause or effort that others don’t think is achievable.

No doubt he didn’t just wish something like this in his head. He trained and trained beyond what most people are willing to do. He and a bunch of people around him that were believers and committed to making it happen.

I’m sure you think in your head that you’re committed to being the best of the best. I don’t doubt that’s true outside of your head.

Saying we are going to improve our used car business and actually doing it are very different.

Even though you may think you’re fully committed, the difficult part for you is that you’re working with a team that isn’t.

Depending on your role in your dealership, it’s understandable that you would see the world differently than those in the trenches that are expected to make things happen day to day.

Assuming your thinking is more or less correct, you need to commit to pulling more people over to your way of thinking.

That takes great salesmanship and leadership skills. Heck, even if your ideas aren’t all that brilliant, you’d still be better off if everybody was running down the same railroad track.

It takes a serious commitment to run a sub-two-hour marathon.

It takes a serious commitment to run a powerful used car department.

Are you committed? That’s all I’m gonna ask, Tommy Gibbs

Do What You Want to Do

If you’re a consistent reader of my newsletters you may have noticed more than half of them involve the disciplines necessary to run your used car operation.

There’s no denying that the stronger you are in used cars the better you are in New, Service and Parts. It’s a given. It’s a fact. It is. It just is. You can deny it all you want. You will be wrong.

There’s an old saying, “Do the things you don’t want to do, so you can do the things you want to do.” That’s a great life lesson to understand, live and grow by. Never has there been a more powerful truism than for the automobile business.

There’s no department that requires more specific strategic disciplines and doing some things you don’t want to do than your used car department.

The most common discipline that dealers struggle with is turning their inventory in 60 days. Let me state it a different way; no unit can become 60 days old. Some of the more disciplined operations are starting to put that number at 45 days old.

Most dealers would say they want to make more money. In order to make more money, you have to do some things you don’t want to do. One of those things is the pain of discipline. Doing a lot of little things each day to ensure you can do what you want to do.

If you’re not already on a 60-day turn it’s going to be painful and costly to get there.

Either you or your staff will have all kinds of excuses as to why you can’t do it. It’s going to cost you some money to get it done. (Do the things you don’t want to do.) The reality is it’s going to cost you money one way or the other.

When you finally get it done, your dealership runs smoothly, you make more money, life is simpler and you smile a lot.

Now you’re doing the things you want to do, as in making more money.

“The pain of discipline or the pain of regret.” If you would use my life cycle management process you’d have a lot less regret. That’s all I’m gonna say. Tommy Gibbs

Are You in Attack Mode?

This is a valuable exercise that will improve your used car turn, gross and ROI.

This is about attacking your ten most expensive units in stock each and every day.

Require the used car manager to print out the 10 most expensive units each day. Distribute a copy to all the members of your management team including BDC, Internet, F&I, Desk Manager, GSM, GM, Prep Manager and Service Director.

Everybody has to be on the same page with a sense of urgency on these units. With a few exceptions, these units don’t make the kind of money they ought to make based on the amount you have invested in them. You will often find they are the very units that are starting to age on you and the ones you end up giving away at the end of their lifecycle.

They are competing with your new car business and there are fewer butts that can fit in the seats. The longer they sit, the uglier your grosses are going to be.

Three bullet points:

1. There should be a clear understanding with your Service Director that if for any reason one of these cars or trucks is sitting in the service department, they have to get it out of there in a hurry because it’s one of your ten most expensive units.

2. Throw your normal retail pricing scheme out the window on these cars. You should price these 10 cars to the public at a bargain-basement price. The sooner they go away the better. There’s only one exception to this approach-don’t do it on any of the 10 cars you always do well with. Use some common sense.

3. Consider putting a bonus on these cars regardless of the number of days they have been in stock.

Historically, here’s what happens. We have a car in inventory that’s around 60 days old. We are more than happy to sell it for what we have in it or less, and we are more than happy to pay a $500 bonus on it to make it go away.

If this becomes a habit for you, eventually your salesman’s compensation percentage gets out of whack to the tune of 22, 25, 28, even 30 percent.

After all is said and done, when the packs and all the crap shake out, most dealers are looking to get to 17 percent to 20 percent in salesman’s comp.

The point is, you are far better off paying bonus money on
these units sooner rather than later, regardless of the number of days they have been in stock. It will help you move the unit and avoid sales compensation creep.

The keys to remember:

1. Create a sense of urgency on these units.
2. Make these units go away faster.
3. Make what you can and run.
4. Put some bonus money on the most problematic ones.

Be an attacker. That’s all I’m gonna say, Tommy Gibbs