When Phillip Gill took over the used vehicle department about four years ago at Tom Gill Chevrolet, Florence, KY, he had a singular goal—expand the Velocity Method of Management mindset and principles to all parts of the dealership.
“Our used car manager moved to a desking and sales position. He understood Velocity,” Gill says. “But we just weren’t able to get it cranked up.”
Today, “used cars have become something the dealership has started to live and breathe across all departments,” Gill says. “It’s one of those things. Our success is showing but it’s been four years in the making.”
In that time, the store has more than doubled its used vehicle sales to nearly 170 a month. Annualized inventory turns have improved to 12 times or better. The service department’s profitability is expected to grow by double digits for the fourth consecutive year—a success that owes in part to an in-house Advantage program that provides free oil changes and tire rotations for all used vehicle buyers, and a powertrain warranty for eligible vehicles.
“Our retention numbers are pretty significant from a service standpoint,” Gill says. “We’re now starting to see those people cycle back through sales.”
This week’s Automotive News includes a piece that chronicles Gill’s turnaround story. I was delighted to see the coverage, and called Gill to get a bit more detail on some of the foundational drivers of the dealership’s success.
Here are some questions I asked Gill and his answers:
Q: The story mentions your used vehicle strategy starts with a ‘great purchase.’ What appraising and buying parameters do you use to make sure this happens?
A: The main factor is the adjusted percentage Cost to Market. That’s number one. We have a standard for all purchases. No one’s allowed to go above that standard unless you can show me a business reason we can push the Cost to Market percentage a percentage point or so higher.
That’s where we start. More than looking at profit, more than looking at where that car can be priced, we start by looking at our cost.
We’ll look at Market Days Supply but we don’t have a firm standard. If a vehicle has a 120-day Market Days Supply, we know it’s 120 days. We know we’ll need to be more aggressive with the car. But if the buy is still right, it can still be a good car if we buy it. We know then that we just need to sell it.
Q: How does your focus on Cost to Market percentages differ, if at all, between auction and trade-in purchases?
A: Our Cost to Market percentages on purchases are higher than in-store acquisitions—not significantly higher, but higher. That’s the nature of the game. We’re buying those cars, which are often turn and burn vehicles that follow our perspective of viewing each vehicle as a means to generate income for the total dealership.
If we’re looking at a trade, and it’s a car we normally buy from auction, and the price we need to pay is essentially a wholesale price and we need to pay it, so be it.
Q: So you’re striking a balance there when circumstances call for it?
A: Correct. Guess what? If I can get the car on trade, I don’t have to buy it from the auction. It’s here. I don’t have to pay auction fees, transportation or anything else. I don’t have to wait for anything.
Q: That’s a good segue. The article talks about how speed is critical to your used vehicle operation. How do you manage speed as it relates to getting auction vehicles to your dealership, completing the reconditioning and getting them online?
A: It’s been a process. With auction vehicles, we’re a big user of Central Dispatch, which helps a ton. It’s evolved to where I’ve got some really good transportation partners now that, in most locations, I know I’m getting them quick. If the car’s coming from more than 300 miles, we’ll typically have it within three days. If it’s closer, we’ll have it in a day and a half.
If it’s a new auction we haven’t used before, the great thing is that I can get is a basic cost estimate and go from there. If the cost makes sense, I’m bringing it here.
Q: What’s your breakdown of online versus physical auction purchases?
A: The funny note there is that we have now run a used car department the past four or five years without anyone going to a live physical auction. We use tools to evaluate vehicles to know what it’ll cost to buy the car, transport that car, recondition that car based on what we’re running for those types of cars. If the car still makes sense, based on Cost to Market and we need that car, I buy it.
Q: What’s your goal for reconditioning a vehicle and getting it online once the car gets to your dealership?
A: We track our reconditioning times. We’ve been running close to three days for the past year and a half. We put the vehicle information online within a day or so of the purchase. We typically have the vehicles detailed within a day of arriving at the store, and that’s when we get them pictured and posted online.
Q: That’s impressive, and a sign that there’s solid collaboration between your used vehicle and service departments. One last thing: What do you view as the next chapter for your used vehicle operations?
A: We’re starting to play with Provision ProfitTime, and it’s been fun. Over the next year, the Investment Score will play a bigger role, I think, in helping us decide whether we want a car or not, and how we can push the opportunity to turn the car and still make a decent profit. To me, ProfitTime offers more data to help me optimize profit across my inventory.
Q: That’s great to hear, Phillip. Let us know how we can help you, and thank you for taking time to speak with me and share your perspective.
A: Thank you, Dale. I appreciate the opportunity.