A Dealer’s Evolutionary Velocity Journey In Used Vehicles
Nearly a decade ago, I met Brian Benstock, general manager and vice president of Paragon Honda and Paragon Acura in Queens, N.Y.
At the time, Benstock thought he was doing pretty well in used vehicles. He retailed 80 units a month, and boasted a front-end gross profit that beat many other dealers.
But I wasn’t particularly impressed.
I was concerned about the cars Benstock wasn’t selling—the roughly 200 units that had aged well past 90 or 120 days in his inventory. With his pace of sales, Benstock turned his inventory less than three times a year, and carried $1.5 million in wholesale losses and uncounted opportunity cost. Yet, it didn’t seem to matter.
Today, Benstock and his team retail 300 vehicles a month. He consistently turns his inventory a remarkable 25 times a year. He sells more than half of these units within 15 days after he owns them. Front-end gross still matters, but Benstock uses a different formula to measure his performance–dollars-per-inventory-space-per-day. With that yardstick, Benstock’s used vehicle department generates $153/space/day now, compared to $60 back then.
“We used to have substantial gross per used vehicle retailed and little concern for the masked cost of aged units,” Benstock says. “Today, our front-end grosses are still healthy for the market, and there’s no water. We’ve also seen a big lift in gross profit, plus a 10-fold increase in internal labor profit for reconditioning. On top of that, we’ve got a lot more customers.”
Benstock describes his prior approach to retailing used vehicles with an iceberg analogy: “Usually, about three-quarters or more of an iceberg is underwater. We were quickly turning the small portion of the iceberg above water. Every month, the portion under water would get bigger and bigger and bigger. ”
I asked Benstock to share insights from his turnaround story to help other dealers increase the pace and profitability of their used vehicle sales.
Take the pain. “The pain is correcting the price of the cars that are underwater and to putting in strategies, habits, behaviors and disciplines to prevent your current cars from becoming old cars,” Benstock says. “We took the medicine over a 10-12 month period. At times, we had to price the old cars at several thousand dollars below cost. We told everyone it was going to hurt and, in the end, you’ll do better. It did hurt and, in the end, we got much, much better.”
Dump traditional pricing. “The mistake that we used to make, and many dealers still make, is putting the car out there high in the first 30 days to see if they can get lucky. With the efficiency in the market today, there is no getting lucky. I’ll ask the question: If oil is $30 a barrel, how much oil could you sell at $32 a barrel? The answer is not a drop. The same thing has happened with cars. The dealer who says, I’m going to get some gross and put my cars, or oil, out there at $35 a barrel, isn’t going to sell any. All he’s going to do is age his cars and play catch-up to the market.”
Revise your rulers. “If you asked how I measured aged units in 2007, I would have told you it’s a 100-days. If you asked today, I would tell you it’s 29 days,” Benstock says. This thinking reflects the reality of today’s more efficient, price-transparent and volatile market. The retail shelf-life of vehicles isn’t what it used to be. To manage this challenge, Benstock tracks vehicle age by buckets, and prices accordingly. Initially, the oldest bucket included units aged 120 days or more. Over time, the oldest age bucket became 90 days. Then 60. Then 45. Now, it’s 30 days.
“We moved the moat,” he says. “When we made 30 days the cut-off, we moved the moat to 18 days. That’s when the yellow warning sign starts flashing and you really look at the vehicles and ask, ‘what’s wrong with this car?’”
Keeping pressing for improvement. A couple years ago, I had the pleasure of a morning run with Benstock in Central Park. He set a persistent pace, one that picked up the longer we ran. He applies the same approach to managing used vehicles. Not long ago, I challenged Benstock and his team to maintain a benchmark of no less no less than 25 percent of their inventory in the 30-day-plus bucket (it had been hovering above 35 percent). Sure enough, within a month or two, Benstock had only 15 percent of his inventory in the 30-day-plus bucket, a standard he’s impressively maintained ever since.
If there’s one thing that underscores Benstock’s Velocity journey, it’s his persistent drive for ever-greater return on investment and success for his dealership and team.
“We strive to be above the top performers,” he says. “The used car business is really a business of math and metrics. If you have it all set up correctly and you execute, everything falls into line.”