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I have an Idea. Don't know if it's out there yet but...I have often said it would be awesome if there was a program that told me where I could purchase vehicles, what auction. etc. for under average market value. A system like the stock market. When the market is down it tells me. When a certain vehicle is less than normal at a certian auction it tells me. Vise vera when a market is up it tells me. I could take my aged inventory to that market. etc. Does this exsist or could it be done. 419-217-0973...Thanks, Mike.

More insight for Mike

Mike,

The approach that you’re describing is one that is frequently called arbitrage. The auctions definitely don’t want dealers to arbitrage their vehicles among the various auctions because that is an approach that they themselves want to do. You see, their big customers are large fleets, and they want to get as much as possible for the big fleet companies by performing arbitrage themselves. If they made data available to the buyers to do the same thing, that would negate their ability to arbitrage. So, he/she who has superior knowledge of a market has a distinct advantage.

Now let’s consider a different approach, one where you, the dealer can in fact win using superior knowledge. This approach is one where the dealer can recognize moments in the market where particular vehicles have high demand and a significant spread between wholesale and retail market values. These are typical vehicles, but when identified are surprising. In other words, they tend not to be cars like Honda Accords, or Chevy Trailblazers. The desirability of such vehicles are commonly understood by most wholesale buyers and therefore they draw a lot of money from the wholesale marketplace. The type of vehicle that I’m talking about that might surprise you are vehicles that are a little bit oddball and not so well understood by the wholesale market, something like an ‘08 Kia Rondo. Did you know, for example, that this vehicle has an unusually low day’s supply in Denver and carries one of the largest spreads between wholesale and retail? You see, just like the auctions at the wholesale level, when you have special knowledge of the retail market that’s not generally shared by others, and you can act upon it, that’s true advantage. This is the underpinning of the velocity method of stocking management. Does this make sense?

Dale

Makes perfect sense...kinda like the guy who has a special sense for a market or a stock can make call when one vehicle will spike or a stock will drop...I have this gift...I want the software to go along with it...

Mike,

Thanks so much for the question. I'm on the road at the moment, and I don't have enough time to properly respond. Your question is good, however I think that you're looking for the answer in the wrong place. Soon I would like to write a post that more fully responds to your question with a slightly different approach, one that I think is more on target with the reality of today's market. Please be patient with me, I'll be back to you soon on this question.

Thanks
Dale

As I mentioned to you on our phone call earlier today we are having great results the velocity model. I would love to steal a few minutes of your time on a teleconference with my management staff to discuss the sourcing infastructure we spoke briefly about. Let me know if this is possible?

Hi Dale,

As you know I have drank the Kool Aid regarding Vauto.

I have my inventory running 16-18 turns.
My cost to market is 74%
My price to marekt is 90%
My recon is at warranty labor rates and warranty times (I'm sure my shop fudges a little on labor hours)
My parts mark up is 40% and I'm trying to get away from all OEM to aftermarket parts especially on higher mile units.
My detail is in house at 169.00 per unit.My detail shop ran a profit last year.If I netted out the "subsidy" of used cars "overpaying" I'd save 47.00 per retail used vehicle.

My reconditioning costs were $225,195 on 388 used or $580.00 per retail used(parts and labor).If my parts and labor split was 50/50 I bought 1294 hours of my shop in labor @ $87.00 per hour.

If I had a reduced labor rate for recon say $50.00 vs the $87.00 I pay the shop, - I'd simply transfer profit - not create it ($37.00 times 1294 hours=$47,878)which would most likely put my shop in the red.The net per unit savings would be $123.00.

So unless I go to pay cuts to my people (which I'm not entertaining),Icould reduce my per retail unit cost of recon by about 123.00 labor and detail of 47.00 = 170.00.Parts savings could perhaps get me to a 200.00 per unit recon savings if I took out all of the profit and ran things super squeaky clean and tight(to maximize used vehicle profit.

Once again this would not be a wind fall - it would be interdepartmental shifting of gross profit. I do have a team that works together well and we don't argue about each department helping each department - I'm very proud of that.

I set my Vauto up for $800.00 recon and $1700.00 gross.I attend 3-4 auctions weekly and am on the road 60% of the time.I know where the market is - when and if it moves.

I also know when at the auction,my model is stopping me from buying the low day supply vehicles that are very nice - you know the easy to wash and sell low mile cream puffs.

At this stage of my development,with inventory turns suggesting I could increase my inventory,I'm at a cross road.

Alternative 1:
Start buying over a wider sales perimeter(with an acquisition specialist) and having the logistics head aches and additional transportation costs-(which may be offset by better buys).I am blessed having 2 of the countries largest cities close to me (Dallas and Houston)so auctions and cars are in good supply(relative to any one else at least).This approach would get me more of the same type of profitable vehicle or better yet ,more of a larger more diversified inventory.I view that as a big plus.

Alternative 2:
Pay up for the cream puffs and know that the gross on these will be less.I know they can bring me trades and F&I backends, but how much is somewhat of an intangible.

I can do this buy adjusting my 1700 gross to zero and add to my recon bogie of $800.00(which is a bit inflated for the supporting departments benefit): the average auction fee paid: $300 ,and my transportation cost(which is less than 100.00 and my vehicles arrive within 24 hours or less).In summary bump recon to $1200.00.My safety valve here would be: never pay more than 97-98% of the market(with 1200 recon built in).

I'm thinking of trying this on 5-10 units.If those units turn as fast as my normal buying pattern,I'm adding some very upscale units with low miles and higher prices to my inventory.I suspect there is some" halo" advantage to having cream puffs mixed in with higher mileage units as well.These incremental units would not cost any more,other than the higher price paid and would simply add to the inventory with the same level of effort currently being expended.

I know that the disciplines your software has taught me are working .The low "price to market" on my inventory, brings me people from out of my market to buy.

My concern is adding theses higher priced units, which are very nice,but do not draw the low price buyer.

I'm OK with the concept of paying more and accepting less gross on these cream puffs.My experience with paying all the money for execptionally nice vehicles (my current definition of most Smart Auction purchases from GMAC) has taught me to price them light in gross from the very get go.The F&I and trades are an additional growth stream.

This is in many ways,the leap of faith in buying into your Vrank concept.No doubt low price sells cars.But does low miles/exceptional condition draw from a far as well?

Perhaps it is not as powerful as low price,but it might be a strong runner up.<smile>

I've seen others take the Nestea plunge into acquisition specialist procurement.I've seen inventory grow too fast at some places,and I've seen missed condition mistakes added to transportaion costs and that has hurt net gross also.

I'm not ducking the concept of acquisition specialists (I do have a Daryl in training right now).I'm more inclined to grow in controlled baby steps and certainly looking tfo grab all the low hanging fruit,before I rewrite our entire procedure book.

Proud of where I am,and acknowledging that I have learned much from your concepts.Looking for some directional advice as I want to grow the unit volume of the operation.

Do I jump into long distance buying or lever the efforts of existing procedures?

I lean towards adding the lower gross units first and then go on to bigger and better acquisition techniques.

Is this a normal transitional process or is my thinking taking me on a tangent?

P.S. If there is a new car deal in the mix-it is a no brainer -stretch to make the deal.My predicament concerns only the optional volountary acquisition.



As always "thank You" for all that you do.

Bob Furman

Bob,

Thank you for the question and the thorough analysis. Your post is a brilliant display of velocity analysis. It indicates that you've come a long way from that of a traditional dealer in terms of your understanding and approach to making money in the used car business. I'm really proud of you, and my limited contributions to the process.

Now with respect to your question, I think that it doesn't need to be an either/or approach. I think that there is merit in both alternatives. However, I completely agree with the "grow in control" methodology that you've described.

I would appreciate hearing the views of other velocity minded dealers and welcome questions for Bob about his approach and the experiences of his velocity journey.

Dale

Dale and Bob,

We have been on VAuto for about a year, at first we were not trying to be a velocity dealer, just trying to maximize profit in the market, then relying on price to market to sell old aged inventory, This has worked for some time for us but we have recently bought into the advantages of using it from the start,

I am having trouble finding our cost to market on any given car, much less on the inventory as a whole, I am finding cost to wholesale market when looking at water reports.. more on that later,

We have 2 dedicated desk managers (pre owned only) and a dedicated buyer, who is very smart and good at it. The three of us were just discussing stocking "cream puffs" vs. the alternatives, and now I have found this thread; Bob to me it looks like you are running an ideal store. Our philosophy has been for some time now to specialize in cream puffs and ultra low mileage auto's. Which obviously, for all the above reasons, does not work with a velocity store, So I think they are good to have in moderation to attract those buyers willing to pay a premium for them, At Bob's turn rate I wouldn’t see a problem with having some.

I am very interested in this discussion so I suppose this is more of a subscription than a question.

Thank you Dale for all that you do.

Jason

Hi Dale,
I was so excited about getting Velocity 2.0, that as soon as it was delivered I took the rest of the day off to go home and read it (I've read your first book four times so far). I am new to the car business, which is sometimes an advantage and other times a disadvantage. I am trying to understand the metrics of your methodology, so I have a question. On page 7 you write, “In five short months, he’s cranked volume to 300-plus units per month. He’s turning his 400-car inventory 17 times a year.”
400 cars times 17 turns = 6,800 vehicles sold per year.
6,800 cars divided by 12 months = 566.67 per month.
How did you come up with the 300-plus per month sales volume?
When does the clock start ticking on inventory? When you buy it? When transport delivers it? After it’s finished Recon? When you have it listed on the internet?
Sorry to be naïve.

Mike,

Thanks for the note and enthusiasm for the Velocity book. The numbers that I quoted for Pearson involve wholesale. Having said this let me share my perspective with you about wholesaling cars. First, I believe today that very few vehicles that you’ve reconditioned should be wholesaled. This is because the internet allows you to retail any car on any day if you’re willing to take what the retail market will bear. If you can’t make any money in a period of 45-60 days in the retail market, then it probably means that you own the car for too much money. Further, if you have to wholesale the car to meet an age limitation, then that means that you weren’t willing to do what it takes to move the car.

Now, let’s turn our attention to when wholesaling is advisable. First, there are going to be some vehicles that just aren’t safe or retailable given the dealerships brand profile. Such vehicles can and should be wholesaled immediately. On the opposite end of the spectrum, if you allow a car to be reconditioned and to go the distance to your age limit without a retail sale, then yes, wholesale it. Take the likely loss and happily apply it against the retail gross profit of the department that allowed the error to occur. The negative impact of the loss serves as an important reminder to the department managers about the errors of their ways. To this extent, and for these reasons, wholesale activity is expected, normal and needs to be measured.

Finally, with respect to your question about when the clock starts ticking, the answer is immediately. In the case of Bill Pearson at Finishline Ford, the process of getting the car to the front line begins before he leaves the auction lane from where he purchased the vehicle in question. There is a pit-crew mentality at Finishline Ford and other high velocity dealers about speed to market, both virtual and physical. Hope this helps, and please continue to communicate as you progress on your velocity journey.