I lot of what I write about involves improving your average gross profit, total gross profit and of course volume. And, as is often the case, is based on some issue that has surfaced over the past week. Today is no different.
Historically in this business we’ve given up on average gross, focused on volume and been able to ring the bell with total gross. Doing it that way has allowed us to pay the bills and come away with a nice bottom line.
If you’ve ever heard me speak, you know I’m a big proponent of identifying your most problematic units on day one and having a plan to make them go away quickly. More and more dealers are adapting my life-cycle management process.
When done correctly, and with discipline, dealers have
discovered that average gross and volume will go up by using life-cycle management.
That being said, nationwide dealers have resorted to an overall turn and burn philosophy which is starting to have a negative effect on the bottom line. Volume has always been able to overcome a lot of our ills, but there is a point of “oh crap” that you need to be aware of.
In this day of Internet pricing, the selling strategy of turning and burning is starting to impact the bottom line in a negative manner, if for no other reason than our ability to find cars has gotten that much more competitive.
Competitive internet pricing has caused a major thirst for more inventory by new car and stand-alone used car dealers throughout the country.
The Carvanas and CarMaxs of the world will continue to challenge you when it comes to vehicle acquisition. It’s going to get a lot worse before it gets better. Actually, I don’t see any relief when it comes to finding more inventory.
You might first read this as your ability to find more units at the auctions is what is being impacted. If so, you’re reading it half wrong. You’re going to feel it at the front door with trades as more and more people are chasing those cars your customer used to trade-in.
So, when inventory becomes shorter and shorter doesn’t it stand to reason we need to figure out which units have the greatest profit potential and get all we can?
You should have a mindset that your inventory is nothing but a bunch of investments. Offload the bad investments ASAP and make sure you hold and make a bunch of money on the better investments.
My UpYourGross software allows me and my team to analyze numbers we would not normally see in the course of doing business with dealers.
I’m seeing far too many units being given away that shouldn’t.
Here’s a classic example of where a dealer sold a good investment short:
A dealer sold a 14-day old car and made $1807 on the front. Sold it for the Internet price. The numbers on this unit all lined up in favor of the dealer. Days supply, cost to market, etc. If you’re using vAuto’s Profit Time this unit would have scored as a Platinum unit.
Often when we see a unit that’s been sold short, it’s because it was heavily discounted from the Internet price. That’s usually a case of the salesman doing a better job of selling the sales manager than the customer. That wasn’t the case on this unit.
This one was priced too low based on its favorable rating.
At the very least this dealer left an additional $1000 on the table.
To this dealer’s credit, he never has anything over 60 days old, but you have to ask yourself if the dealer is too focused on age rather than making the most profit he can on every unit in stock.
All units are not created equal. They are unequal investments. You need to manage them as such and make all you can on the ones that you can.
That’s all I’m gonna say,Tommy Gibbs