Having been in the car business since I was a young kid, I have had the benefit of selling used cars in New Zealand, Australia, Japan, England and The United States. My Father drilled into my 3 brothers and I from the beginning of time that you made your profit when you bought the car. I have found that to be a time tested piece of advice that is still relevant today if you know what to buy.

The latest addition to the revolutionary vAuto system has been the Stocking Tool and I have had the pleasure of seeing some dealers really take a hold and grasp the opportunity that this remarkable piece of technology can offer. If you are able to park ones tender ego in the garage for just a moment and look and what is being revealed, your ego will be able to relax in a cushion of cash that you have been able to make when others are crying the blues.

So, I’m studying the Stocking Tool, making notes and adding cars to the Buy List so I know what to look for. Out and about doing my errands I find a 2003 VW Jetta GLS 1.8T for sale. Looking at my Buy List I see that 2003 Jettas were on the list with a 68 day supply. I gather the VIN and all the equipment info and when I get back to my office I do an appraisal on this exact car with the exact options.

I have found a gem: Total of 85 2003 Jetta’s within 100 miles, only 8 exactly like mine with a 45 day supply. I figure if I can sell this car for $10,500 or less, I will rank 4 out of 8. Anything less, I own the market. I double check the exact model on the Stocking Tool again and see there is 9 available, real close to 8, and 6 have sold in the last 45 days.

So I conclude that this little car has a niche market, not a high volume piece, but very desirable to the right crowd and will actually sell quite fast if priced correctly in the market.

Knowing this my potential profit is going to be based on my buying abilities, I know upfront before I even own it how much profit I will have depending on how good a buyer I am. A little extra time spent in verifying your recon. estimates will saves a ton.

Bottom line, I paid $6000, spent $567 on reconditioning including new windshield, advertised the car for $9978 and was ranked 2 out of 8 and sold the car 5 days later.

Click on the picture to listen to the interview

Literally, every day, we are all watching gas prices skyrocket. There couldn’t be any environment that more dramatically highlights the fact that the theory of dealers stocking based on their “core inventory” is just plain wrong. If any dealer today stocked their lot based on their past core inventory, they’d be purchasing gas guzzlers and, quite possibly, avoiding the purchase of today’s hot selling, gas-sipping vehicles.

We are now seeing reports of both Ford and GM shutting down manufacturing plants that build their large SUV’s and pickup trucks and shifting production to more fuel-efficient models. What if Ford and GM were, instead, using the same philosophy that some companies are promoting to dealers for their used vehicle stocking? In other words, what if Ford and GM kept producing and stocking their dealers with “core inventory,” (i.e., lots of trucks and SUV’s)? They and their dealers would be guilty of the worst management malpractice imaginable.

Today, I spoke to a highly successful used car director of a large multi-franchise organization. His comments made me realize that the absurdity of “core inventory” goes well beyond the issue of gas prices. He said that, as an experiment, they stopped stocking used Infiniti’s at their Infiniti dealership. They experimented with high volume, off-brand vehicles, such as Impala’s and Malibu’s. I asked him if he was sure he knew what he was doing, and he told me that they were selling like “hotcakes.”

He said that we all get hung up on the notion that we should stock according to our past sales and/or in accordance with, our franchise brand. Yes, it may be true, he told me, that there is some natural traffic for these vehicles, but that does not necessarily mean that they are the most demanded products in the market. Properly used, the internet allows dealers to be successful with products that are hot, but not necessarily their brand or part of their past core. Remember, he said, that no used car manager ever got fired for not selling the right mix of used makes and models.

So why is it hard for many dealerships to do what my friend has done at his Infiniti store? I think that the answer lies in the fact that we are all more comfortable operating in a zone of comfort and familiarity. Think about how hard it would be for someone very knowledgeable and familiar with Infiniti’s to say, “there might be something better out there, and I’m gonna give it a try.” It must have been really hard for that Infiniti manager to go out and pull the trigger and buy a bunch of Impala’s and Malibu’s. It would be like waking up one day and putting your watch on your other wrist and deciding to part your hair on the other side. It’s just really hard to do! So we don’t do it, even if there’s a chance that it might work out better. It’s a lot easier for us to go with the inventory that we know, rather than venturing out and taking the risk associated with buying something different.

The good news for the industry is that there is now technology that can analyze any market and tell a manager, at the level of year, make, model and specific equipment, which are the hottest vehicles at the moment, based on volume and/or gross. It can even show you where to go to buy those vehicles. This takes much of the risk and uncertainty out of the equation. So if you haven’t seen this, you need to. In my opinion, it’s the only way to stay in tune with the market. And, to those that continue to advocate the message of “core” I say, “What in the world are you thinking?”

For the first 100+ years of the used car business, we’ve always adjusted our prices based on how long we’ve owned the vehicle. But I say its time to stop doing this. OK, maybe I don’t really mean that completely, but listen to what I’m about to say.

What if you had to choose: you could either pay attention to the age of the vehicle in inventory or its day’s supply in the market, but not both? My professional opinion is that you’d be way better off knowing the vehicle’s day’s supply in the market rather than how long you’ve had it in your inventory. Think about it. If you knew from the first day that you had a vehicle in stock that it had a market day’s supply of over 100 days, how long would you be proud of it? Answer this question: how long would you be willing to advertise a new vehicle for over market money if there was 100 day’s supply of identically equipped vehicles in your market? I think the answer is that you probably wouldn’t do it at all. So why are you doing it in your used car operations today? I can show any dealer that they have vehicles with 100+ market day’s supply being advertised for over market money.

The reason that our industry is willing to do this with used vehicles is that they don’t understand what it means to do business in an efficient market. An efficient market is one where buyers and sellers have relatively equal knowledge about their choices and alternatives. Given this definition, was the used car market efficient before the internet? No. We often got buyers to take cars home for more money than they would have if they’d only known where other similar ones could be found around town for less money. There were always such vehicles; it was just that they were not easily found. Today, is the used car market efficient and getting more so every day? Yes. The internet gives shoppers access to the information they need to be aware of all of the available choices and alternatives for every vehicle.

Now, think about this. Any market that’s efficient is governed by the same forces and principles. It doesn’t matter whether it is the oil, grain, cattle or automobile markets. If they’re efficient, they’re governed by the forces of supply, demand and price sensitivity.

In other words, now that the used car business has become an efficient market, dealers are either sailing on the seas with the wind at their back or in their face, on a unit-by-unit basis, depending on the vehicle’s supply and demand. When I say the vehicle’s supply and demand, I mean its current availability (exact year, make, model and specific equipment) divided by its average daily retail sales rate over the last 45 days.

Simply stated, if you have a vehicle whose demand outpaces its supply, shoppers will beat your door down, even if you price the car over the market and call it “ugly.” Conversely, the market will punish you if you take a vehicle whose supply outstrips its demand and price it over the market. The simple time-tested principles of supply and demand never mattered when the market was inefficient and customers didn’t know where other similar vehicles and better deals were to be found. Now that the market is efficient, I say that the vehicle’s day’s supply is actually a much better determiner of how proud your asking price should be rather than the calendar that marks the age of your vehicle in inventory.

I would appreciate your comments on this view (pro or con).

If you asked any three top used car managers in the same market to produce a list of the best used vehicles for stock, would these lists look alike? The answer is, probably not. What does this say about the vehicles that are being purchased for our used vehicle inventories? It tells us that our lots are stocked with vehicles that represent the best units based on the opinion and judgment of the acquiring manager. Without a doubt, many used car managers possess excellent skills of judgment. The bottom line, however, is that these critical decisions are just that - judgments and opinions

New technology has been introduced that shows you what, in fact, are the best used vehicles in your market without any judgment, opinion or debate. What makes this new technology different from existing stocking tools is that it incorporates information from the live local market rather than simply relying on a dealership’s own past performance history.

First, however, we must decide what the term “best used cars” means. For one dealership, best may mean vehicles that sell in the highest quantity in the local market. To another, best may mean vehicles that make the highest gross profit. This new technology allows dealers to solve the problem of what “best” means by simply using a slider bar and a scale of 1 to 5. With the setting at 1, the system produces a list of the highest volume used vehicles in the local market based on current sales. When the slider bar is set at 5, the system produces a list of vehicles that will generate the highest gross profit. Furthermore, this information is derived from a true “live market view” which sees every vehicle in every market, every second of every day. And perhaps most importantly, the technology quantifies the current supply and travel rate of every vehicle in real time. It even identifies vehicles that are sold as wholesale versus retail units. With this understanding of current supply and demand, sellers of used vehicles have a perfect view of what’s hot and what’s not.

Let me give you an example. With the slider bar set at 1 (high-volume) and the model year criteria set between 2003 and 2007, the 10 highest volume selling used vehicles in the Chicago market are listed below:

Now, using the same 2003 to 2007 parameters, let’s see the top 10 highest grossing vehicles today in the Chicago market by setting the slider bar to 5:

If you’re wondering why this second list represents the highest grossing vehicles, simply examine the relationship between the number of vehicles available for sale and the number of vehicles sold over the past 45 days. For example, on the first vehicle, the 2003 Hyundai Santa Fe, there are 47 currently available for sale, yet 48 have sold over the last 45 days. When you have a vehicle with high demand and limited supply, the vehicle becomes less sensitive to pricing pressure. Simply stated, when there is a greater demand than supply, you can price a vehicle high and it will still draw a crowd.

As revolutionary as this technology is, it goes even further. It is not enough to simply know that the #1 volume and gross vehicles today in the Chicago market are the 2006-2007 Chevrolet Impala and the 2003 Hyundai Santa Fe respectively. You must also know the specific trim and equipment configurations within each year, make, and model. For example, consider the following possible configurations of the 2006-2007 Chevrolet Impala.

Can you tell which one of these possible configurations is the highest volume selling vehicle within the 2006-2007 Chevrolet Impala category? If not, you’re likely to acquire the wrong vehicle even if you know that you want to purchase 2006-2007 Impala’s. This new technology reveals that in order of volume the best to worst configurations of the 2006-2007 Chevrolet Impala are as follows:

The ability to see the vehicles in proper rank order beyond year, make, model, trim and equipment configuration is the key to making this technology pay off. It is not enough to compare apples to apples when you have the ability to compare granny smith apples to granny smith apples. And, when the technology also shows you which dealerships and private parties have these vehicles currently for sale in your market, managers can zero in on the specific vehicles that meet their profit objectives and purchasing criteria.

This technology is already changing the used car industry. As we know all too well, every dealer has investment capitol tied up in used vehicles that could be re-deployed in better performing ones. Reallocating dollars from lower performing investments to more productive ones unleashes value for those dealers who are using this new technology as well as for the industry at large.

Call out:

What makes this new technology different…is that it incorporates information from the live local market…

As I work with my used car departments, I often wonder why we used managers and in many cases GM’s refuse to accept new and relevant ideas to this business. Of course I have to stop and laugh at the times I have said “That won’t work here, not in my market!” And I was serious. And yet the evidence was right in front of me that stated it does work, does create a faster market and turn for my inventory. So, why not? Faith or fear is what it always come down to. Do I go with my captured and static knowledge or do I finally venture into the deep water?

We must consider going into the deep end of the pool because the water is fine and the lifeguards are all from Baywatch. Today’s live market view and the ability to price to sell for all the available gross is a powerful tool but one we have to practice with. Do you know that if the market view states I can price this car at $24,350 there is a good chance I will price it at $23,995 because it just looks better. Notwithstanding, I may be giving away $354 in gross profit. Developing convictions about what we do to manage our departments is the opportunity, the opportunity to sit under someone who may be able to teach us a way that works more than it fails; a way that is foreign to us.

This does not require anything more than a little openmindedness and some perseverence in the face of flak from our peers. But when you arise from the ashes of this Phoenix, you will emerge with both faith and confidence that there is a way to be better at what we do.

At present I have 10 dealers on vAuto for 12 months. Fought all the battles of screwed up data, books not accurate, takes too much time(sound familiar) etc., and so on. But we persevered and now we are up 26% used sales year over year and the gross is up %175. But you know, I still have 3 dealers that fight the fear. One spends his time creating excel spreadsheets to show me that vAuto doesn’t work and why. This dealer now has the lowest grosses and sales are falling off the charts. My 3 smallest stores, you know the ones that would wear tu-tu’s and slippers to do better, are now the kings of the hill. Turn rates from 4.5 to over 8 and grosses up $380 a car and the shop brings them lunch once a week in these tough times.

One of these stores has no frontage and is located on less than 1 1/2 acres of ground and the other has less frontage and even has berns with plants to hide the retail store.

So, what is your choice my friends, faith or fear? Let me hear from you.

CaptGadget

This past Monday, I delivered the key note speech at the First Annual Certified Pre-Owned Conference sponsored by AutoRemarketing Magazine. The conference was held in Dearborn, Michigan and was attended by most every manufacturer’s highest ranking CPO executive. Each manufacturer recognized its top performing CPO dealer for calendar year 2007. It was an impressive demonstration of the significance of used vehicle certification in the retail automobile industry.

My speech began by challenging the audience to tell me when vehicle certification came into existence. I got several responses, ranging from 8 to 35 years. I also asked the audience who they thought was the first manufacturer to introduce certification. I heard many manufacturers’ names, most notably Toyota and Lexus. I then asked Ashley Antonio, the Certified Pre-Owned Manager/Internet guru of Paragon Honda, Honda’s No. 1 Certified Pre-Owned dealer in the nation, to read the following passage from a book that I held in my hand: “Some companies and dealers have established certain policies to insure fair dealing. For example, certain cars, usually the make handled by the dealer, are certified. That is, they are placed in such condition that the dealer can guarantee their performance for a given period just as a factory guarantees a new car”. I then revealed that this book was entitled “Marketing Used Cars” written by Paul G. Hoffman and published in 1929

Later in the conference I received some feedback suggesting that Hoffman’s use of the certified word may have been correct from a dealer’s perspective, but did not necessarily answer the question as to which manufacturer was the first to create a certified program. One particular CPO executive reminded me Ford had A#1 Used cars, Chevy had OK used cars and Studebaker had an ad that talks of Studecare used cars back from the 50-60’s. This information, in fact, raised genuine doubt in my mind as to who was the first manufacturer to use the “C” word.

Two days later, while having lunch with Mark Webster, the Certified Pre-Owned Manager of Mercedes-Benz USA, we discussed this issue. He told me of a Studebaker ad dating back to the 1950’s which touted the benefits of the certified program. Take a look at this Studebaker Commercial and tell me what you think. Unless anyone can come up with documentation that pre-dates this ad from the 1950’s, I think that the mystery is now solved.

In any event, I’d like to take my hat off to all the manufacturers that put resources behind this important program as well as AutoRemarketing Magazine for establishing the CPO Conference. As I stated in my speech, I think that the salvation of the retail business in the coming years depends on the success in both the used vehicle and fixed operation departments. Certification is the perfectly tailored program that enhances a dealer’s used vehicle sales and service departments. What could be more appropriate for this challenging moment in the retail automobile business?

There is, however, a very significant threat on the horizon that challenges the viability of certification. The threat comes in the form of claims that vehicles are “certified” when, in fact, they do not meet the requirements of the formal manufacturer’s certified program. What I’m talking about is the threat posed by independent dealers, and even a small number of franchise dealers that call their vehicles certified without being certified by their brand manufacturer. Vehicles that don’t meet the standards or bare the cost of real certification devalue those vehicles in the market that do. The losers are both the dealers who invest money to achieve genuine certification as well as the consumers who buy them with an expectation of having a factory backed warranty. Moreover, the manufacturers also lose because anything less than true certification does not achieve the objective of supporting the brands residual value and customer satisfaction objectives.

The word certification in our industry today, unlike 79 years ago carries a connotation of factory sponsorship. To allow claims of certification without official or factory endorsement serves only the interest of those retailers who would like to turn the hands of time back to the unscrupulous days that Hoffman describes in his manuscript of 1929. I’m calling for your comments and views on this issue so that we can make a case to NADA, state associations and manufacturers to impose ethical standards on the use of this very important term “certification”. These programs are critical to dealer survival and must be vigorously protected. Please tell me what you think and forward a link to this article to everyone you know that has a stake in the viability of our business.