A letter from my inbox

by dpollak on 10/23/2009 · View Comments

Today I received the below email from a new customer. Please read his message and my response. I welcome any input you might have on this subject.

Dale – upon return from my recent 20 group meeting, I sent an email to our GM’s with a new plan to kick into gear and I would like your feed back as to whether this has been done, should be done or if we need to tweak it.

I will become responsible for all inventory over 90 days at all stores. I will take on the responsibility for the disposition of the old inventory (with the help of the store GM). Whatever loss or gain is realized with the disposition is put into a bucket during the month. At the end of the month, that amount (positive or negative……obviously it will be negative) will be:

A) spread evenly to all of the remaining used car inventory in stock at that store
B) *or* we will begin adding an additional pack of between $300-$500 per fresh used unit purchased or traded for, those dollars are put into a separate bucket and then we balance out our losses at the end of each month from the dispositions during the month with those ‘pack’ dollars accumulated.

I have to do something QUICKLY based on our dashboard and the fact we’ve been paying VAUTO, have gone through training and we are still stuck in the mud because of the manager’s lack of ‘b**ls’ to make things right and to realize they can’t operate like it’s the 1980’s any longer. I think my strategy will get this kicked off very quickly (like today). Thoughts?

 

Thank you very much for your concern and personal attention. I agree that your personal involvement is absolutely necessary and will be beneficial. I would, however, like to make a few suggestions regarding your plan.

First, I think that it is important for you to make a strategic decision as to how you want your pricing profile to look. For example, if you were using 15 day buckets, perhaps you would want the profile to look like 97%, 95%, 93%, 91% respectively. Once you decide and communicate the strategy, we can assist you with setting up the appropriate pricing plans within the vAuto system. You and your managers will be alerted on vehicles that are not priced consistent with the strategy plan. All vehicles that are not priced according to the plan should be discussed among you and your managers.

Second, I urge you to consider an absolute drop-dead aging policy. A strict age policy is essential to the health and well being of any used car operation. You will certainly have some pain getting rid of the current aged vehicles, and never again should you have to do it. If a vehicle can’t be sold within a specified period of time, it only means that someone failed to do the right thing quickly enough. All sorts of new focus and aggressiveness will come along with this no exception policy.

Finally, regarding the pack, I would try and keep it to a minimum as much as possible. The reserve that it creates can be applied against the loss generated from the disposition of the aged inventory. Also, please note that I don’t believe that reconditioned retail inventory needs to be taken back to the wholesale market. Every vehicle should be sold in the retail market, even if is it at a wholesale price (unless it’s unsafe). You will undoubtedly endure some pain, both financial and emotional from your managers in implementing these disciplines. They are all worth it.

Thank you

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Tagged as: Automobile, Business, Ford Motor Company, General manager, General Motors, GM, Penske Automotive Group, Retailing

  • Nick,

    Thank you so much for your note. First, in order to implement a drop dead aging strategy at any point, whether it be 45, 60 or 90 days, the process begins literally on day one. More specifically, at the very point of acquisition, it’s imperative to know the vehicle’s physical qualities and the market day’s supply. For example, if it’s a replaceable vehicle, with high supply and low demand, the vehicle should go out into the market priced very competitively and you should be prepared to drop it frequently. Conversely, if the vehicle has special physical appeal, high demand and short supply, it deserves to be put in the market with a healthy gross and drop slowly if necessary.

    As your vehicle ages, the frequency and amount of price changes should increase. Also, the comparative set should be expanded to include more geography. Jasen Rice, your performance manager, is very skilled on this technique, and I will ask him to contact you for one-on-one coaching and consultation.

    Velocity dealers will re-price a vehicle every day if necessary in order to make it go away in the specified period of time. If the vehicle hasn’t gone away, it only means that we haven’t been willing to do what it takes quickly enough. If you find yourself with the vehicle at the age limit, pull the trigger and wholesale it. The pain that you will incur in the long run will be healthy, because it will force you to come to terms with the fact that it was either the wrong car from the beginning or there was a failure to do the right thing quickly enough. As you move forward with this solution, fewer and fewer vehicles will have to be wholesaled.

    One more thing, I would not advise doing a wholesale dump of vehicles currently over the age limit. Simply draw a line in the sand and attack the beast from both ends. Don’t ever let another vehicle cross the line and apply creative persistence to make the vehicles over the limit go away as quickly as possible through the retail channel. Let me know if this approach makes sense to you, and again, please watch for a call from Jasen. - Dale
  • Dale,

    Can you talk a little more about how you recommend a dealership run their "drop-dead" aging policy? I am attempting to transform our entire operation in to a "velocity" dealership but we have been reluctant to institute a firm aging policy. Say we institute a firm 60 day policy, if we are not to wholesale any viable vehicles (which I agree with) what happens at day 60 to make it drop-dead? I am running a 96-94-92-90 policy on my market rankings, but am still having trouble with vehicles turning 90 days old. Any advice to help eliminate this would be very helpful.

    Thanks,

    Nick Miller
  • Absolutely agree that retail vehicles are exactly that, retail vehicles. Decide when they come in if they will be retailed or wholesaled and then have a plan to sell it. We haven’t wholesaled a vehicle that we decided was retail in 2 years. Why would you not want to retail those vehicles for all the reasons Mat stated? The work is making yourself realize that a vehicle is worth what someone will pay (or can pay elsewhere), not what we own it for and committing to sell it to someone.
  • Do you know your DSD?: http://www.dalepollak.com/2008/09/29/do-you-kno...

    If it doesn’t sparkle, it'll sit waiting for a grinder to chew you up.
  • Mat Koenig
    Dale,

    Thanks for sharing this email. After 15 years in this industry I am still amazed by dealerships that wholesale inventory that is retailable. I was speaking to a group of around 40 dealers yesterday and I reminded them of the same thing you said above. " Every vehicle should be sold in the retail market, even if is it at a wholesale price (unless it’s unsafe)".
    Common sense says you're better to lose money to a retail customer who may refer customers you CAN make money on. They also may actually return for service. The guy next to you at the chute isn't going to come service the car with you or refer friend.

    Another thing that's important to look at is why we are all willing to pay retail for cars at the sale yet we still try to rip the trade from a retail customer which many times results in losing a deal. (Another day for that topic though).

    I appreciate you posting things like this because we need to do a major paradigm shift in how we deal with inventory turn and loss related to it.

    Keep up the great work!

    Sincerely,
    Mat Koenig
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