A Tale of Tacomas: Look At How Velocity Helps Spin the Dealership “Wheel of Fortune”

September 13, 2012

Road to Reinvention Series


A couple weeks ago, used vehicle manager Betty Ballantyne started thinking about the “wheel of fortune” at Irwin Automotive Group’s Ford and Toyota stores in Laconia, N.H.

“We sold four trades against what could have been a mini new vehicle deal,” Ballantyne says. “It was unusual that we had that many. It triggered a thought—‘I wonder what the true impact of the original deal looks like?’”

In my next book, Velocity Overdrive: The Road To Reinvention, I make the case that dealers should fixate less on average front-end gross and focus more on the totality of the business their used vehicle departments generate. As they do so, dealers begin to reap the “wheel of fortune” benefits used vehicle deals create in their F&I, parts and service departments.

To their credit, Ballantyne and the Irwin team came to this “wheel of fortune” understanding on their own. The following is a closer look at the series of deals that led Ballantyne to track down how a single vehicle sale and trade can set the “wheel of fortune” in motion and boost the dealership’s overall profitability:

Date:              Vehicle Sold                Trade-in                  Front/Back Profit         Shop

March 14:      2012 Tacoma             2009 Tacoma                   $4,737                    $286

April 28:        2009 Tacoma             2004 Tacoma                   $7,336                    $534

May 17:         2004 Tacoma             2007 Tacoma                   $2,502                    $677

July 10:         2007 Tacoma             2010 Mazda 6                  $3,861                    $949

August 22:     2010 Mazda 6             1998 Saab 900                 $2,568                 $1,217

Totals:                                                                                 $21,004               $3,663

Note: The dealership wholesaled the ’98 Saab, given it had 136,000 miles and multiple New Hampshire winters.

“It just so happens that everything we took on trade, except for the ’98 Saab, was a nice retail unit,” Ballantyne says. “More often than not, the trail ends after two or three cars.”

She shared the results with the dealership’s sales team to help them understand the “wheel of fortune” that can result from a single car deal—even if it’s what they’d consider a “mini.”

To me, this is the stuff it takes to be successful retailers in today’s environment. In the past, dealers would refuse today’s low-gross deal in the hope that something better might come tomorrow. Velocity dealers like Ballantyne recognize it’s much better to maintain the velocity of your inventory turn to put the “wheel of fortune” in motion.

A final point: I asked Ballantyne about the range of reconditioning costs she noted in her analysis. Some of the lower figures owe to a cost control effort that brings more work in-house. She’s now questioning whether every car needs the degree of reconditioning work the dealership customarily offers.

“It’s another door that’s opened up for me,” Ballantyne says. “I’m going to track this. Some of the vehicles that had less reconditioning work were good sellers.”

Kudos to Ballantyne and the Irwin team for sharing their findings and helping other dealers recognize how the “wheel of fortune” gains momentum and keeps giving.