General sales manager Sean Hevener of Dennis Eakin Kia, Killeen, TX, had a hefty slice of humble pie last summer.

It happened at a Velocity 20 Group meeting in August in Chicago. Hevener traveled to the meeting with a sense of anticipation.

“I went into this meeting thinking, ‘I wonder what I’m going to be able to teach these guys,’” he says. “I literally thought I was using vAuto and Velocity the right way.”

But when his turn at the table came around, it didn’t go well.

“To say I was humbled would be an understatement,” Hevener says. “I was turning my inventory 5.9 times a year. I remember the 5.9 number because when I said it out loud, the entire group at the meeting turned white. It was like all the oxygen went out of the room.”

Hat in hand, Hevener went home and went to work.

“I came back, and I took a really deep look at this deal,” Hevener says. “I thought I was committed to it, but I wasn’t. I still had the 1990s used car dealer mentality. I thought I could go to the auction, buy cars, and mark them up $3,000. I saw the profits going down. I saw the cars sitting on the lot. I had more than 50 units that were 60 days old and older out of my 100-car inventory. I blamed everything but myself.”

The soul-searching, and a renewed commitment to Velocity, led to an impressive turnaround.

“I basically became obsessed with Velocity,” Hevener says. “I went from a 5.9 annualized turn to 14 in two months. I went from more than 50 cars that were 60 days or older to just five cars. I got the managing inventory by days in inventory down. I delivered 93 cars in August 2018, and I think we did 52 cars in August 2017. We were cooking.”

But, even as he was enjoying the new-found success, Hevener didn’t like what he saw on the financials—specifically his front-end gross profits.

“Being a 1990s/2000s car guy, I was thinking, ‘I’m loving the volume but this gross profit is just awful,’” he says. “Then I got to thinking…I’m making money in service, and I’m not paying as much floorplan interest, and I’m not having to pay curtailments every month. I convinced myself we were doing it right.

“And we were doing it right,” Hevener continues. “We were turning our inventory. We didn’t have an aging problem. We were buying the right inventory. We were paying attention to Cost to Market, and so on and so forth. But the gross profits? It was hard to take.”

That’s why Provision ProfitTime seemed like a winner when Hevener first saw it.

“The whole time I was on Velocity, I always thought I was leaving money on the table, but I was happy with my turn,” he says. “With ProfitTime, I know I’m not leaving money on the table anymore.”

I asked for an example, and Hevener shared the story of a 70-day-old Kia Forte he’d sold a few days earlier.

“It was just a cookie-cutter Forte,” he says. “But for some reason, it hit all the right buttons, and clicked all the right boxes. It was a Platinum car.

“Before ProfitTime, I would have already sold that car. I would have panicked and sold that car in 30 days and made no money. But with ProfitTime, I held on to it. I made $2,800 on the front, and $1500 on the back. That car would have never been in my inventory had it not been for ProfitTime.”

Since he started with ProfitTime about three months ago, Hevener’s front-end gross profit average has doubled, to about $2,000 per vehicle, and his retail sales volume remains steady at 75 to 85 units a month.

I asked Hevener to distill what he considers the big difference-makers in ProfitTime. Here’s what he offered:

It takes the emotion out of decision-making. Take the Kia Forte example above. Hevener’s itchy trigger finger at 30 days is tied to emotion. But ProfitTime’s precious metal designation, in this case, Platinum, gave him a clear-cut understanding that he could, and probably should, continue to hold onto the vehicle and its asking price.

It affirms what you see, and don’t see. Like many dealers, Hevener takes pride in knowing a good or bad car when he sees it. Not long ago, he took in a white, 2015 Toyota Tundra. To his eye, it wasn’t really a vehicle he’d want to retail.

“It was an ugly truck that you probably wouldn’t want on your lot,” Hevener says. “Without ProfitTime, I would have been happy to make $500 just to get rid of it. But ProfitTime told me otherwise. I made $2,000 on it.”

It helps you buy better. Hevener and his appraisers are tuned into ProfitTime’s trifecta—the Money, Market and Mix metrics that tell you if the car makes sense for your market, whether you need the vehicle or not, and the money you stand to make.

“I just had a conversation with an appraiser yesterday,” Hevener says. “We talked about the trifecta. If ProfitTime says it’s a gold car, and that I need two and it’s a C grade, we know we can easily put more money in it to put a deal together, or buy the car at auction or off the street.

“On the flip side, if my ProfitTime Strategy Action says we need to get rid of four or five cars, and it’s a Silver car, and it’s a D grade, then we know we need to be extra cautious about what we buy or trade for the car.”

It’s a fresh, and fun, approach. Hevener isn’t the first ProfitTime dealer to share the sentiment that the investment value-based management methodology feels like a breath of fresh air for a business that sorely needs it.

“The car business got really, really stagnant for me,” Hevener says. “ProfitTime has made it exciting and fun again. It’s given me a completely different way to manage. And I love it.”

In my next ProfitTime in Practice post, I’ll dig deeper into how dealers like Hevener are using ProfitTime to improve the overall investment value and mix of vehicles in their inventories.

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Franchised dealers are in a bit of pickle these days.

As Automotive News reported this week, new vehicle inventories have risen to their highest level since July 2017. The estimated tally of 4.2 million unsold vehicles is just 114,300 units shy of the industry’s  inventory record set in 2004.

The inventory levels are tied to declining demand for new vehicles, a softening that owes, at least in part, to ever-higher new vehicle purchase prices. I’ve heard more than one dealer marvel at the number of 84-month new vehicle loans they’re now writing in their F&I offices.

This supply/demand imbalance has also lit up a floorplan problem. Not so long ago, when sales were growing, dealers were making money from their floorplan programs. Now, most dealers are writing four-, five-, and sometimes six-figure checks every month to cover floorplan interest expenses.

I spend the bulk of my time every day working with dealers to improve their used vehicle performance.

But lately, these conversations have included discussions about new vehicles, and how dealers might work their way out of the current pickle, or at least make it less problematic.

Here are three best practices I’ve gleaned from top-performing dealers who are proactively attacking the performance and profit slow-down in new vehicles:

1. Identify and address your aged inventory. Age management has been a growing discipline for top-performing dealers for some time. Many set performance benchmarks, such as no more than 15 percent or 20 percent of new vehicle inventory older than 90 days. I’m told that when dealers don’t pay close attention to new vehicle inventory age, as much as 40 percent of their vehicles qualify as “aged” or distressed units.

A key principle in new vehicle inventory age management aligns exactly with the way dealers manage age in used vehicles—once vehicles cross a specific time threshold, say 30, 45, 60, 75, 90 days or more, they tweak the vehicle’s price, positioning and promotion to speed its retail sale.

The absence of an age management strategy in new vehicles is at least one reason why, as the Automotive News article indicates, many dealers don’t know they’ve got an inventory and floorplan problem until they run into trouble finding parking spaces for their cars.

2. Stop making your situation worse. Once dealers begin managing their aged inventory, they can start asking why it’s there in the first place. Several dealers noted that force of habit and personal preferences, when ordering cars, approving vehicle allocations and making dealer trades, are primary root causes of aged inventory problems.

A general sales manager at a California Toyota dealership shared that he started paying closee attention to his aged inventory, he’d find multiple copies of the exact vehicle, often in striking colors like salsa red, that suggested someone played a hunch about a hot color/equipment combination that proved to be incorrect. “There’s a lot of ego in ordering that we’ve had to unwind,” the manager says.

Similarly, the vice president of operations at a 13-store group says he found had a “mind-boggling” number of vehicles that were nearly a year old and older when he focused on reducing aged inventory. He traced the problem to managers repeatedly ordering, and trading for, the wrong cars.

“There was no attention to it,” he says. “The managers knew they were cars that were ordered wrong and would never sell. So they’d just park them out back and let them get dusty and that was it. Some of them didn’t even have photos and weren’t online.”

Both of these dealers now take a much more circumspect approach to new vehicle stocking decisions.  They’re using data to inform and configure their factory orders and dealer trades to bring in a larger share of vehicles the market deems desirable. And, when they’re forced to take inventory the data reveals as less than desirable, they more immediate steps to retail or trade away the vehicles before they become aged and costly to carry.

3. Push back with proof. When you’re using market data to optimize your new vehicle inventory, you know the cars that sell quickly and those that won’t. Dealers say this data is becoming more valuable when factory reps press them to add less-desirable vehicles to their inventories.

I liked how the 13-store group vice president puts it: “Documentation is negotiation on the OEM side, just like it is in retail sales,” he says. “If I want to keep my great relationships, I can’t just say, ‘no, I won’t take those cars.’ All my conversations are data-driven so I can say no, or not so many, and they can love me when they leave the room.”

If you take a step back, and view these best practices from a broader lens, they all amount to the same thing—dealers working harder and smarter to control what they can in their new car departments, and getting past the current new car pickle.

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“You’re saying the same thing Kenny Rogers did in that song, ‘The Gambler.’”

A used vehicle manager made this observation after I finished talking about how Provision ProfitTime offers a better, new way forward for dealers to manage the investment value of their used vehicles in today’s margin-compressed market.

I asked the manager what he meant, particularly since I’ve long made the case that dealers shouldn’t be speculators, but retailers.

The song talks about knowing when to hold ‘em, and knowing when to fold ‘em, the manager said. He viewed ProfitTime’s investment score and Bronze to Platinum precious metal designations as a better way to know exactly what to do with every car, from the moment you acquire it to the price(s) you set for its retail sale.

That’s interesting, I told him. I added that while I remembered the tune, it’d been years since I heard it.

On the way home, I played the tune on Spotify and found myself singing along to the chorus:

You’ve got to know when to hold ’em
Know when to fold ’em
Know when to walk away
And know when to run
You never count your money
When you’re sittin’ at the table
There’ll be time enough for countin’
When the dealin’s done

Indeed, I thought, the manager made an astute point. ProfitTime does tell you the very thing that you’d never really know without it—the cars that hold sufficient investment value and allow you to hold for gross, and the cars you should sell fast because they lack a meaningful gross opportunity.

The listen and lyrics also made me think the song offers another relevant take-away for dealers in today’s market: Perhaps the best time to count the money is when all the dealin’—from the trade-in appraisal value, to the payment and purchase price, to the F&I and the reconditioning RO—is done.

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Cox Automotive Buyer Journey Study: The Rise of Sharper Customers

04.19.2019

A read-through of the findings in Cox Automotive’s just-released 2019 Car Buyer Journey study made me think of a conversation with a dealer about two years ago. The dealer wasn’t doing well in used vehicles, and I was there to help him, and his team, discuss a better way forward. A fundamental problem, it seemed […]

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Changing Times: A Call For A Money-Making Operational Mindset

04.16.2019

If anyone needs evidence that car dealers can no longer simply sell cars to make money, I’d offer the following nuggets from the recently released, NADA Data 2018: Annual Financial Profile of America’s New-Car Franchised Dealerships. Nugget 1: In 2018, NADA reports the total operating profit for dealers, on average, dropped to -$13,338 in 2018—a […]

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ProfitTime in Practice: Pricing Used Cars Without a Calendar

04.05.2019

It’s long been a best practice of Velocity dealers to review the prices of their used vehicles every day to ensure the prices fall within the top three value rankings within a competitive set. The approach is intended to reflect how today’s online vehicle shoppers look for their next used vehicle purchase: After perusing vehicles […]

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Understanding The New Math of Today’s Used Car Business

03.28.2019

There was a time not long ago when selling used vehicles and making money were synonymous. Those were the days when you could take a used vehicle into inventory, price it to achieve your gross profit objective and reasonably expect to make your money, or at least a decent portion of it, even if it […]

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ProfitTime in Practice: The Right Time To Engineer Investment Value

03.19.2019

One of the key benefits Provision ProfitTime offers dealers is the ability to appraise an auction or trade-in vehicle, enter a potential purchase price and see, instantly, what kind of investment potential the vehicle offers as a retail unit. ProfitTime reveals the investment value by serving up investment scores and precious metal designations (1-3, Bronze; […]

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ProfitTime in Practice: Clarity Drives More Investment Value-Based Appraisals

03.11.2019

Since the dawn of the used car business, it’s always been true that the retail fate and fortune of every used vehicle starts with the appraisal. This is the moment, whether it’s an auction or trade-in unit, that gives dealers their sole opportunity to size up a vehicle, determine whether it’s a good fit for […]

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ProfitTime In Practice: Turning Two Initial Pricing Hurdles Into Opportunities

03.01.2019

Note: The following is the first in what I intend to be an ongoing series that details best practices, key insights, lessons learned and retail results of dealers who are putting ProfitTime into practice at their stores. There are typically two pricing hurdles dealers face right away when they implement Provision ProfitTime. The hurdles aren’t […]

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