Confessions of a failed car dealer

What follows is a note that I received from a dealer who wishes to remain anonymous. I applaud him for the willingness to share his story, as well as his tenacity to survive. I have very strong feelings about how we as dealers allow this sort of thing to occur, and I’ll be writing more about it in the near future. In the meantime, take a few minutes, read the following and reflect.

Dale,

I am writing this to you in hopes that it can help others in the same or similar situation see clear to another day.

Seven years ago I was a 4.5% Chevrolet dealer selling around 70 new and 35 used units per month, at or near the top of my 20 Group, 300% sales effective, 80% absorbed, and fully convinced it was because of my great skills and leadership. I owned my building (with a 65% debt to equity mortgage), owned my used, had $1mm in my offset account, and was sitting very comfortably for age 36.

So what does every arrogant car dealer do when the market is handing out success like ice cream? Why, buy another dealership of course! So I purchased a Chrysler/Jeep/Dodge dealership close to my Chevrolet dealership (you know, economy of scale and all) for ALL THE MONEY, mortgage the blue-sky ($2mm) at 6% with the previous dealer, tap my cash in my Chevrolet store to capitalize it, and proceed to turn one 4.5% dealership in to 2 dealerships doing 2% combined! Oh yeah, I set up flooring with Chrysler Financial because ‘you should always be loyal to the manufacturer’ after all.

Fast forward to January 2009, GMAC calls the note on my building because ‘they are getting out of the real estate business’, CFC turns the screws up on flooring due to ‘my ratios being out of tolerance’ and send me a forbearance letter along with a recap agreement.

March 2009 comes along and sales are in the toilet, used cars are out of control because I cannot afford the losses liquidation would force, and rumor of Bankruptcy for BOTH of my manufacturers is looming. Flooring pressure from both GMAC and CFC mounts; I am discovering there is no ‘appetite’ for financing ANY car dealership, let alone a GM or Chrysler. The banks that will be honest tell me even at 40% equity they could not get a domestic dealership past their credit committees, I am burning cash at a record rate and aging continues to burden.

With April comes spring and the bankruptcy of Chrysler. This news arrives with the bonus that CFC is going away and GMAC will take over as the flooring arm of ‘the new Chrysler’. I am starting the feel (not look) like George Clooney in ‘The Perfect Storm’, engines at full power and climbing the mother of all waves!

May, the beginning of the spring selling season, and GM files bankruptcy. Come mid-month we receive the news; we will all learn our fate for both dealerships via overnight mail! It seems to me the franchise ‘ticket’ I held and was protected by my state laws was now worthless. Being now only 200% sales effective, 90% CSI, and Five Star Elite I am still worried; did I take enough inventory when asked? Did I shake the right hands; did I ask too many questions in Dealer meetings? I toy with the idea of waiting on the roof of each store with a hunting rifle to shoot the tires out of any arriving FedEx trucks but that does not seem like the right thing to do. I also receive my 10th and 11th turndown letter from banks regarding my mortgage.

What, they might take my franchises? Time to get in to gear; after all I have bills to pay and the future ahead of me. I do a pro-forma, gutting my New Vehicle expenses out, reducing headcount associated with New, and analyze what I do best and what the needs are. Used has always been the back-bone of a New Vehicle franchise, my fixed are strong, and I have facilities. If they take my franchises I will make it selling and servicing Used Vehicles in my community. A glimpse at a future with no manufacturer, no flooring, no warranty, and no charades; I can make this work.

June and I get ‘the good letter’ from both GM and Chrysler, why am I feeling disappointed? Shouldn’t I be dancing in the street? Maybe it is the fact that GMAC has made clear that if I do not get them off the real estate mortgage, recapitalize both dealerships, and put $500k in an offset account at both I will not have flooring. Time to make some sale inquiries for both dealerships; that is right, they are Chevrolet and Chrysler, not much appetite for those right now.

Meantime I park my tail on the Sales desk and work vAuto like there is no tomorrow (and there may not be), I start working the proxy bids, Smartauction, and other dealers. We catch the wave of a returning used car market and stay disciplined with 45 day supply or less, 80% cost to market or less, and watching the rBook. Keep every trade we can that will be recon safe and turn that cash over. Roll from a 4.1 turn to 10 turn in 30 days and blow through 90-day plus units at a record pace. I am now starting to remember why I got into this business, to sell cars and have fun!

July, Cash for Clunkers (but not for Dealers) hits and we clean out many of the ‘old age’ new. No good news on the mortgage but I am hopeful that increased sales and revenue will make some banks feel better. After all I am the eternal optimist, I am a car dealer!

August brings the ‘Final Demand’ from GMAC; no mortgage, no flooring. Sale of building and its assets is the only option (barring a miracle of course, I am looking for Doug Flutie somewhere). Still spinning used, still working vAuto, and still having fun. Everyday I have a pit in my stomach but everyday I arrive ready to do what I do best.

August 15th I make my decision to terminate my franchises. I send an email to my closest business mentors laying out my options. All agree that termination, liquidation, and a sale of my building and its assets are the right thing. One mentor asks me ‘what are you going to do next?’, seems I forget about that part being caught up in ‘making everyone whole’, ‘doing right by my employees’, and ‘not being a car dealer anymore’. What am I going to do?

I broke down the answer to that poignant question in 3 parts: What does the next 20 years of the car business look like? What am I good at? What do I enjoy doing? For the sake of time and space I won’t go through all the gyrations, this is what I came up with:

The next 20 years of the ‘NEW CAR’ business includes less dealers, lower margins, more capital, less warranty work, and even less control of your franchise. I love buying and selling cars. I love servicing cars. I love owning my own business. I love good employees. I love customers. I have a passion for used cars and since vAuto I have tremendous confidence in turning them. I dust off my contingency plan from May, it looks better than ever.

The plan is formed; I will set a business plan for a Used Vehicle dealership that can offer maintenance service, tires, wheels, and details. I can use the Service and detail area to feed the Used business at a $20 less effective labor rate! I get to take the best parts of both Dealerships, combine them into one tightly run Dealership, and start to enjoy life again. All this with no flooring, no control from manufacturer, no expense attributed to new vehicle sales, and best of all no more selling cars for little or no margin.

On August 30th my wife and I sat with our young children and let them know what is going to happen. August 31st I send my termination notice to both GM and Chrysler; I also send an email to my closest friends telling them my plans. The next day I address my employees with my intentions and set about calling my closest Dealer friends, all of whom wish me luck and offer whatever help they can.

The last week has been tough, maybe the toughest in business ever; I have 45 days of winding down my franchises and getting my ‘new’ business off the ground ahead of me. I am full of enthusiasm and grounded by the plan. My whole life I have been successful and I refuse to be defined by what has happened; I am not without fault, but I am not embarrassed, I am just disappointed.

In the end the only thing I have lost is the one thing that is easiest to replace, money. What I never lost was the love of my family, my friends, my health, my character, my integrity, my good name, or my sense of humor. I believe that being a ‘failed Dealer’ may suit me after all!

Regards,

Back in Control