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

Are They All Equal?

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

Get What You Deserve

Every week several people contact me about volume and gross.

No one will disagree that we need to be focused on inventory turn, and no one will disagree that we still have to generate X dollars in total gross to pay the bills.

There is often a disconnect between the desired goals and the skill level of those who have been put in charge of obtaining the volume and the gross.

I could go on and on about this skill level, but let me give you just one key point that goes into play when trying to determine what’s what. Are you ready? Are you really ready?

It’s “knowing what you deserve” for any given car or truck on your lot. It’s part understanding the data and part common sense. It’s really that simple.

Knowing what you deserve means having a true understanding of the market and the unit you’re staring at. It’s having the “cojones” to ask what you deserve for a given unit. And, it’s also knowing what not to ask and when to fish or cut bait.

Here are 5 more thoughts to help you:

1. Redundant Training- It ain’t redundant until you’re perfect. You ain’t perfect. If your sales staff isn’t polished enough to be able to justify the price then you are not going to get the desired gross. It’s just that simple. Get busy training and you’ll get more gross. (If you have a bunch of knuckleheads working with you then all the training in the world isn’t going to make a difference.) At the very least, you should have a lot walk once a week with all managers and all salespeople. The more your people know about your inventory, the more your gross goes up. (Training Proposal.)

2. Ask For More On The Right Units- There are some that you need to start way high. Some very low. vAuto’s Profit Time and my UpYourGross are great software tools to help you know which units are which.

Once in a while you gotta “ask for it all.” Since the beginning of this business, high average gross profit has been achieved by hitting a home run once in a while. You can’t hit it if you don’t take a full swing. If it’s a low mileage, really nice car you deserve more money for it. You don’t deserve more money for an edgy one and you have to be smart enough to know which is which. And without a doubt, you have every right to ask more money for a certified car. But that doesn’t mean you sit on the “more money” pricing forever. Change the pricing daily.

3. Not selling in Today’s Market-Your most profitable car is a 20-day car. If you are retailing a lot of cars at the 30, 45, 60 plus day mark, you don’t have a chance. Speed wins; the lack of speed kills. Why don’t you try charting those units that you sell at 45 days and beyond to see what they are doing to your average gross profit? In the movie “A Few Good Men,” Jack Nicholson might have been talking about you. You can’t handle the truth.

4. Lack of quantity and quality of photos –stop reading this. Go look at the used cars on your website. Now go look at Ttexasdirectauto.com or Carvana.com. If yours don’t look as good as theirs then you don’t have a chance. If you don’t have a photo booth, you need to step up and make the investment.

5. No Early Warning Radar-You’re asleep at the wheel. You have to be able to spot a problem child on day one, not day 44 or day 59. Every one of your aged units has a story to go with it. That story started back on day one.

You have to be smart enough to have an “Early Warning Radar” system in your arsenal. Fix your Radar system and your grosses will improve. I invented “Early Warning Radar.” You should steal it and use it.

You get what you deserve, when you do the work to deserve what you get. That’s all I’m gonna say,Tommy Gibbs

Getting Yourself Noticed

I’m often asked by managers and others what it takes to be successful in business and how to move to the next level.

They will often imply that they do a good job, but feel frustrated by the lack of forward progress.

Doing a good job doesn’t ensure you of anything except you get to keep doing a good job…until someone else comes along who can do it better and then you may be looking for another job that you can do a good job at.

It takes more than doing a good job to get you noticed and to the next level.

20 Tips For Getting Noticed:

1. Come early.
2. Stay late.
3. Come to work to work.
4. Stay busy.
5. Seek information and education.
6. Understand you are owed nothing.
7. Do more than you are asked.
8. Be tenacious.
9. Steal someone’s ball and run with it.
10. Force the passion. You may not be in the perfect job or perfect place. It’s up to you to make it the perfect job at the perfect place.
11. If you do these things, someone will notice.
12. If you get noticed, you have a ladder to the top.
13. If you don’t get noticed or this isn’t the place for you, then you are developing some skills that will eventually get you noticed.
14. Do it at the next place and the next place until you get noticed.
15. Be so good that you can’t be denied.
16. Pull others up. and up you go with them.
17. Set an example for others.
18. Get up, walk around, be nice.
19. Be enthusiastic, even on your worst day.
20. Dress up to the next level. Don’t dress like the rest.

Thanks for noticing. That’s all I’m gonna say, Tommy Gibbs

Speed Wins-Speed Kills

Your inability to move fast is a killer for your used car business. Moving fast puts you in the winner’s circle. Not moving fast puts you in the loser’s circle.

The speed of your service department has a direct impact on your ability to produce gross in the used car department. And without a doubt, it impacts how fast you get a car out in the Internet world. You cannot afford a 7 to 10 day window.

I have never understood why some dealers allow the service department to control their ability to turn used car inventory quickly.

It’s as if the Dealer/Owner Operator has some sort of fear of the service manager when it comes to explaining who wears the pants and who the service department’s best customer is. “Tail wagging the dog?” Have you checked the name on the sign on the front of the building lately?

I’d be preaching to the choir if I went over all the reasons the service department needs to cooperate and get your used cars through service just as quickly as possible.

Unfortunately, many service managers haven’t been trained to understand that your inventory is costing you a ton when it’s sitting. I’m not selling my workshop with this newsletter, but I always push the dealer to include the service manager in my used car workshops.

If I was giving service managers the benefit of the doubt, I think in some cases they get caught up in the day-to-day issues with your retail customers and they don’t pay attention to what’s going on with your used cars.

They need to continuously be educated about how fast the market can change on a used car and what it does to your bottom line.

If you want to improve your speed, then you need to take a hard look at my “Life Cycle Management” process. “Life Cycle Management” will change your used car world forever, make you lightning-fast, eliminate wholesale losses, improve turn and gross profit.

One of the absolute killers of your ability to turn units fast is your poor display of used cars on your website. It is not unusual to have used cars in inventory for a week or two and they are still not properly represented on your website. I’m amazed at several things when I look at dealership websites:

How hard it is to get into the used car section. Far too many clicks. (Lack of speed kills)

The lack of quality pictures. (You need your own photo booth!)

The lack of quantity. You need 40 plus pictures to be competitive in today’s market.

The posting of stock photos. (You’ve got to be kidding!)

Description of cars with no photos or saying “photos coming soon.” (Another you’ve got to be kidding!)

One through five is because someone doesn’t care, someone is lazy or someone just doesn’t have a clue. Regardless of the reason, it gets back to speed being the killer and speed making you a winner. You have to decide how serious you are about this business.

If you’re dead serious you will get off your duff and get these things fixed. If you’re not then you and your business will just soon be dead. Speed Wins. Speed Kills. You get to make the choice.

That’s all I’m gonna say, Tommy Gibbs

I TRUST YOUR GOOD JUDGEMENT

One of my favorite statements, when people come to me seeking guidance on making specific decisions, is “I trust your good judgment.”

Granted they will sometimes make decisions I might not agree with, and that’s the best part. Why? Because it gives me a chance to coach them in a positive way.

I don’t have to tell them they were wrong. I simply ask them if they considered coming to a different conclusion by doing whatever?

I might say next time it might be better to blah, blah, blah.

Only in a rare set of circumstances would I bust them over a decision they have made.

If you want to build a powerful team of leaders look for opportunities to say, “I trust your good judgment.”

That’s all I’m gonna say, Tommy Gibbs

You Can’t Spend ROI

I’ve always encouraged dealers and managers to track ROI. I’m convinced it’s a critical piece of information that everyone needs to be aware of. By doing so the bottom line will increase.

If nothing else, it makes you aware of how important speed is when it comes to making money on used cars. (Or new for that matter.)

But let’s be clear. We pay our bills and we get paid by generating gross profit. Lots of gross profit.

It’s not about giving all your inventory away. It is about understanding which cars you can make money on and which ones need to be turned faster.

The question often comes up, “When does the clock start ticking?” Does it start with the actual day you own it, or does it start when the car goes on the lot/online?

Let me make this as clear as I possibly can. It starts the moment you own it. Period. No exceptions, no ifs, ands, or buts.

The gross profit and ROI clock is ticking from the moment you own it.

If you want to trick yourself by assigning a different date once the car’s online then go ahead; it’s your store you can do what you want. What you can’t do is change the math.

It is what it is. It’s a depreciating asset. Your ROI and Gross Profit are going south minute-by-minute, day-by-day.

Understanding the connection between ROI and Gross Profit makes you smarter. Be smart. That’s all I’m gonna say, Tommy Gibbs