A recent Automotive News article discussed how, even among top dealer groups, it’s difficult for some dealers to achieve a 1:1 used-to-new-vehicle sales ratio.

The article noted that among the top 100 dealership groups ranked by used vehicle sales, less than 20 groups achieved a 1:1 used-to-new ratio and, among those, only nine achieved a 1.25:1 ratio. The findings mirror National Automobile Dealers Association (NADA) data that says the average dealer achieves a roughly .75:1 used-to-new sales ratio.

I’ve long advocated that dealers should strive to achieve at least a 1:1 ratio for three reasons.

First, dealers have more direct control of their used vehicle business. They can typically choose the vehicles they want to sell, and price them the way they prefer, without too much factory intrusion.

Second, used vehicles typically generate more gross profit on a per-car basis than new vehicles, particularly when dealers make cost and time efficiencies top priorities.

Third, the used vehicle department is the hub of what I call the “wheel of fortune”—every used vehicle represents an opportunity to generate gross in parts/service, F&I and the used vehicle department itself. Best of all, the wheel spins faster as you sell more used vehicles more quickly.

I was curious to better understand how these and other factors may fit the operational strategy of the Delavan, WI-based Kunes Country Auto Group, which ranked as the top performer on the Automotive News list. The Kunes group achieves an impressive 1.7:1 used-to-new-vehicle sales ratio, according to the article.

My conversation with Jennifer Myers, the Kunes group’s director of marketing, touched on three pillars of the 15-store group’s used vehicle success that I thought would be useful to share more broadly.

Pillar 1: A “used car”-minded dealer principal. Dealer Gregg Kunes makes used vehicles a higher operational priority than new vehicles. “Gregg’s philosophy is that if we have a Ford store, everybody knows we have Fords. So we highlight used cars. On our front lines, you’re always going to see used cars, not new Fords or Chevys or the franchise brand,” Myers says.

She shared a story about the group’s acquisition of a Honda store a year ago. It typically sold used Hondas, and a few Toyotas. Today, you’ll see almost any brand in the dealership’s used vehicle inventory. “We kind of shocked the team there by putting used Fords and whatever else in the inventory,” Myers says. “They’ve been doing really well.

Pillar 2: A “serve your customers first” philosophy. This philosophy manifests in an offer the Kunes group advertises in each store and beyond: If a customer can’t find the exact used vehicle they want in inventory, Kunes will get it in 72 hours. “We want to be our customer’s dealer,” Myers says. “We don’t want to lose them for silly things like we don’t have the exact red Ford Focus they want today. If that’s the case, we’ll go get it.”

The philosophy also extends to credit-challenged customers, who make up about half of the group’s used vehicle buyers. “Gregg imparts to the whole team that we take a different approach with subprime. He’s always looking for the next sale in the relationship. Can we do a good enough job today to get a brother, sister or neighbor in here? For us, the subprime market is an opportunity to really take care of people when they’re down. They’re usually not treated well by other dealers and used car lots. Our philosophy is that we’re helping people out of a bad situation that sometimes isn’t their fault. They have credit problems because Mom got sick and they had to quit their job, or they’ve got a lot of medical bills.”

(A quick side note: Kunes’ customer-first philosophy has an interesting history—perhaps owing to dealer Gregg Kunes’ very first car deal, which he discusses in a Q&A here.)

Pillar 3: Highly efficient sourcing. In addition to capturing as many trade-ins as they can, the group’s used vehicle managers have taken advantage of technology and tools in recent years to efficiently acquire a larger share of their inventory online. The group will go to physical auctions in Chicago and Milwaukee because they’re close. But the group recognizes that more efficient sourcing allows managers to be in stores, working with customers and their teams. “Our stores are in more rural, smaller markets,” Myers says. “You can’t take that person away from the store for that long.”

My hat’s off to dealer Gregg Kunes and his team for their stellar achievement—and for demonstrating that with the right approach and philosophy, a dealer’s used vehicle department can be an effective engine for significant growth and success.

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A Dealer in Distress

by dpollak on 05/04/2018 · 1 comment

I received the below note from a dealer experiencing a very stressful Spring selling season, but probably not for the reason you think.

Note from dealer:

Hey Mr. Pollak, hope all is well and you are having a blast doing what you do.

Wanted to say hi and give you an update from your biggest supporters from Pinconning. Life is good for us as we keep plugging along, after 5 years of growth and records by applying the “Velocity philosophy” we rolled into 2018 hopeful but understood that these increases would not last. For us to maintain our 2017 sales level would be a big win for us. We kept analyzing and looking for ways to improve to keep pace with the ever-changing market.

2018 has been a struggle to say the least, we have run out of facility and man power! We have delivered 853 used cars in the first four months of 2018 by applying the Velocity philosophy, setting all-time records in both sales and net. I called Russell early this month and told him we need to back it down…can you believe that? I should also let you know we have sold 40 new Chevys which equates to 150% sales effective by Chevy standards.

We will keep struggling in Pinconning until we get this all figured out.  Thanks for all that you have done and continue to do.

Brad Gross, Schafer Chevrolet

My reply:

Hey pal, keep your chin up.  I’m so sorry to learn of your struggles operating a Chevy dealership and used car operation in Pinconning, Michigan, population of 1307. Retailing 853 used vehicles in 4 months, or an average of 213 per month is a marginal performance at best when you consider the potential addressable market of 300 million Americans.  You obviously have much more upside potential, and with just a little more effort and resources of human capital and facility you might claw your way to a respectable level of performance. Stay focused, keep your head down and pass my best regards on to Russell and Darlene. 😊

 

 

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This week’s Automotive News includes an article that addresses the very real problem of ongoing margin compression in used vehicles.

The piece quotes my colleague, Cox Automotive economist Jonathan Smoke, and me sharing our views on the factors behind the -$2 average net profit per used vehicle retailed that dealers achieved in 2017, a figure recently reported by the National Automobile Dealers Association (NADA).

As the article says, the downward trend in used vehicles profitability is scary.

But it also points out that top-performing dealers mitigate this troubling trend, and the moves by some manufacturers that make it worse, by achieving greater cost, process and time efficiencies in their used vehicle operations.

You can read the full article here.

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Three Pointers To Maximize Purchased Unit Profitability

05.02.2018

I’ve heard more complaints lately from dealers that it seems impossible to acquire wholesale inventory and make the front-end gross profit they expect. Indeed, if you compare the typical Cost to Market metrics for purchased and trade-in units, you can see why some dealers are complaining. The typical Cost to Market range for auction-purchased units […]

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4 Corollaries From the Facebook, Dealer Data Fronts

04.16.2018

I’ve been following the controversy involving Facebook and its user data. The debate and discussion remind me of an issue that’s very familiar to dealers—how dealership data is handled and monetized by some technology partners. To be sure, the particulars of the issues facing Facebook and dealers are different. But there are four apparent corollaries […]

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3 Opportunity Costs You Should Consider Trimming

04.10.2018

As more dealers think of ways to adjust to today’s margin-compressed environment, cutting costs becomes a primary topic of conversation, if not decisions. It’s a good exercise. It points your attention to how you’re spending money. It prompts you to examine whether these investments deliver the return on investment (ROI) they should. But I caution […]

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Margin Compression Takes A Bite—How Will You Bite Back?

04.02.2018

For many dealers, margin compression in used vehicles has been a bit like a leaky water line. The truth is, the line’s been slowly dripping for years. But no one really noticed it until now—after a ceiling or wall has started to bubble, crack or crumble. Dealers’ awareness of margin compression seems to have taken […]

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NADA Day 3: Final Thoughts On A Great Convention

03.26.2018

I heard that there were more than 100 new products offered and promoted through press releases at this year’s NADA—almost double the number from last year. Among them, there were multiple companies offering a variety of solutions you could categorize as part of “digital retailing,” which is intended to help dealers engage and transact more […]

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NADA Day 2: A Telling Conversation and Other Nuggets

03.25.2018

I had the honor and privilege of spending time this week with Thomas “Mack” McLarty, a highly successful third-generation dealer from Arkansas who has also had a remarkable political career, including his service as chief of staff for former President Bill Clinton. I was curious to get McLarty’s perspective on the differences between running a […]

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NADA Day 1: Four Themes To Consider

03.24.2018

I took a fair amount of notes during the American Financial Services Association’s annual conference, and Automotive News Retail Forum events here in Las Vegas. Then, I compared the notes with take-aways from my conversations with dealers on the opening day of the NADA convention. I was curious if the comparison might yield any big […]

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