I had the opportunity to take in a speech this week from former Ambassador Dennis Ross.

Ross is a unique person. He’s served as a diplomat under three presidential administrations. He was a key player in Middle East peace talks for Presidents George W. Bush and Bill Clinton. He also served under President Barack Obama’s administration on the National Security Council as a special assistant and senior director for the Central Region, which includes the Middle East, the Persian Gulf region and Southeast Asia.

Dale and Dennis Ross 225x300 A Key Problem Solving Lesson From A Respected Diplomat

Ross spoke to offer his perspective on the challenges President Donald Trump will face in foreign policy, specifically related to countries in the Central Region, and promote his latest book, “Doomed to Succeed: The U.S.-Israel Relationship from Truman to Obama.”

Ross said President Trump will “confront the greatest set of challenges (in the region) than any of his predecessors.” He went through the list of currently unstable states—Syria, Iraq, Yemen, Egypt, Libya and others. He highlighted the complexity of the competing interests and players involved in each.

But Ross’ perspective on how President Trump, or anyone, should approach these problems struck me as the most compelling take-away from the presentation.

His central point boiled down to this: Today’s solutions can easily become tomorrow’s problems—a scenario that’s more likely to prove true if you don’t at least consider and try to think through the unanticipated and unintended consequences before today’s decision becomes final.

For example, in Syria, Ross believes the extremist group ISIS will eventually be defeated, and the conflict over current President Bashar al-Assad’s rule ultimately resolved. But those developments are only the first steps. The real work, and “victory” as Ross put it, comes when you’ve rebuilt a stable society with proper government, laws, resources and security that ensure the safety and welfare of the people. If any one of those rebuilding efforts fails, conditions are once again ripe for instability and unrest.

I found Ross’ point highly relevant, both for myself and dealers at large. As a group, we pride ourselves on our instincts and abilities to make quick decisions. We thrive in the moment, and don’t often consider consequences until they arrive at our desks.

But we’re working in an increasingly complex, fast-changing and inter-connected business. To be sure, it’s less volatile and consequential than any of the situations Ross described in the Middle East.

Still, as I left the auditorium, I found myself thinking: Have snap judgments outlived their usefulness?

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I was intrigued by an Automotive News article this week that highlights pricing disparities among dealers as the new Chevrolet Bolt EV arrives in showrooms in select markets.

The story notes a mix of price discounts and mark-ups across the seven states where General Motors is introducing the vehicle. Some dealers are discounting by as much as $4,000 or more, while others are asking $5,000 above the sticker price.

The article suggests the pricing dynamic is “what happens when a new kind of vehicle meets a sprawling, old-line retail network that’s only beginning to feel out the market for it.”

But I’d take a different view.

To me, the pricing dynamic with the Chevy Bolt isn’t all that different than what you see in most markets, with most new vehicles, on any given day of the year. It’s rare to find a local market, and a specific set of similarly equipped new vehicle models, where the prevailing prices are not all over the board.

In my experience, these pricing disparities are a direct reflection of how dealers choose to price their vehicles, whether it’s a brand new model or not. In the end, most dealers do not account for competitive supply and demand insights as they decide their asking prices. These decisions typically reflect a dealer’s or manager’s instinct more than an assessment of competitive market insights and intelligence.

The end result is often the same as we’re apparently seeing with the Chevy Bolt. Some dealers ask too much, others ask too little, and those in the market “sweet spot” will consistently sell more vehicles and make more money.

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Let’s imagine there are two dealers in the auction lane, bidding for the same car.

The first dealer wants the car because he’s sold a few of the same units recently, and did pretty well in terms of front-end gross. The three-year-old car has about 40,000 miles, and looks/smells pretty good. The CARFAX notes the car is “clean,” with “one owner.” The dealer’s checked NADA and MRR values, and thinks he can bid up to $17,300 for the vehicle, essentially the mid-point between the wholesale benchmarks, and make an estimated $2,000 front-end gross profit.

The second dealer has similar past experience with the vehicle, and also thinks it’s a decent car. Like the first dealer, he knows the vehicle’s retailing for roughly $19,500 in his market. But he also knows something else about the car the other dealer doesn’t. The vehicle has a respectable Market Days Supply of 55—a semi-fast seller if he prices it right.

The bidding starts at $16,500. It quickly climbs to $17,500. 2014Scion 300x150 Two Perspectives On Sourcing Auction VehiclesThe first dealer bails out when the auctioneer asks for $17,700. The second dealer raises his hand and owns the car.

While this scenario is fictional, it represents three important facets of sourcing auction vehicles in today’s market:

  1. Cars are won/lost by fairly narrow margins. You could credit the first dealer with a decent degree of bidding discipline. He stayed in the hunt, and even went past his original bid maximum, to try and get the car. But the extra $400 was too rich for his blood. He probably looked at the other dealer and thought, “That guy’s crazy. He over-paid and he’s not going to make any gross when he tries to retail it.”
  2. Market insights make a key difference. To be sure, the second dealer would have loved to acquire the car for less than $17,700. But for him, it made all the sense in the world, even with a likely retail selling point of $19,500. Why? First, the dealer knows all the math. His auction-buying tool calculates roughly $800 in fees, reconditioning and other costs—leaving roughly $1,000 in potential gross. While not ideal, the dealer also knows that the vehicle’s Market Days Supply of 55 means he can likely make the $1,000 in the next 10-15 days and, in two to three weeks, he’ll redeploy the same capital on another unit.
  3. The rise of a “total gross” perspective. The second dealer’s decision reflects an understanding that in today’s margin-compressed environment, it’s just as, if not more, important to acquire and retail vehicles that help you achieve a faster through-put of retail sales than focus solely on front-end gross profit. By doing so, dealers effectively ring the cash register more frequently—in used vehicles, parts, service and F&I. Indeed, the success of the second dealer’s decision to purchase the vehicle for $17,700 will fully depend on his ability to properly merchandise and price the vehicle for a fast retail exit. But chances are good he’ll get the job done, and make twice as much money in the time it takes the first dealer to find, acquire and retail a vehicle that passes his test for a front-end gross objectives.

In the months ahead, dealers will likely see even more competition in the lanes and online. The reason: As new vehicle sales decline, and draw even fewer trade-ins, dealers will turn their attention to auctions for the inventory they need to achieve their goals for increased sales and profitability in used vehicles and beyond.

This outlook begs a question for every dealer: What new insights, perspective and tools will you use to ensure you know the exact auction vehicles to pursue and make your money every time you acquire one?

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4 Reasons To Rethink How You Source Auction Vehicles

03.02.2017

“How has your auction-sourcing process changed in the past 12 to 18 months?” I’ve been asking dealers and used vehicle managers this question a lot lately. It’s interesting to note the four most-common responses: “Not much has changed.” About a third of dealers say things are pretty much the same when it comes to sourcing [...]

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3 Troubling Auction Sourcing Inefficiencies

02.27.2017

I’ve recently gained a deeper appreciation for the tireless efforts of used vehicle managers and buyers charged with acquiring inventory from auctions. Many spend half their time at work, plus uncounted hours at home, away from their families, to find and vet auction vehicles for an upcoming sale. This reality has given to a belief [...]

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Advancing The “No Barriers” Approach To Life

02.17.2017

I can still remember tearing up at the 2014 Access: Velocity event as Erik Weihenmayer shared his “No Barriers” approach to life and perspective at the meeting. Since that special time in Chicago, Erik’s been busy. He’s just released a new book, No Barriers: A Blind Man’s Journey to Kayak the Grand Canyon. As always, [...]

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An Afterglow That Shines Strong

02.12.2017

It’s hard to pinpoint the proper word. Moved. Uplifted. Changed. Inspired. The reality is I’m feeling a combination of all of these as I bask in the afterglow of meeting Pope Francis last week. To be sure, I’m very touched by all the kind words, love and support from all of you who followed my [...]

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Day 3 in Rome: A Truly Magical Moment

02.10.2017

Moving. Inspiring. Mystical. Powerful. Spiritual. Those were the words running through my mind after speaking one-on-one with Pope Francis earlier today. Thankfully, I woke up this morning with a clear idea of what I would say to the leader of the world’s largest faith. “Your Holiness. I want to thank you for the light that [...]

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Day 2 in Rome: Two-Way Diplomacy, Pasta and Nerves

02.09.2017

I’ve gained a far deeper appreciation of the day-to-day work of diplomats during my time here. Prior to this visit, my experience with diplomacy and foreign affairs largely came from books. I’ve wondered what it was like, in older days, to be an ambassador to another country, entrusted to look after the interests of your [...]

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Day 1 in Rome: Hope, Concern, History—And Gelato

02.07.2017

My first full day of planned group activities in Rome got off to an extremely inspiring start. We met with the Sisters of Sion, a group of nuns who are committed to fostering unity among peoples of different religions, and celebrating diversity of thought. The Sisters have outposts around the world. They work tirelessly as [...]

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