I had an eye-opening conversation the other day with used vehicle manager Jim Mason of Steven Toyota, Harrisonburg, VA.

We were discussing how the dealership’s average front-end gross profit was lagging its target by about $300 for the current month.

Mason knew exactly why: The store’s average days in inventory had crept up about four to five days, and the average price to market at the time of retail sale had dropped to 90 percent.

“There’s a combination of factors at work,” Mason says. “But the biggest hurdle is the incentives being offered on new cars. The incentives are huge, and they’re across the board in terms of manufacturers. It means that the ’16 and ‘17 model year cars become ‘new car bait,’ for lack of a better term.”

In this scenario, Mason explains, customers ultimately end up purchasing a new vehicle because there isn’t enough difference between the payment and price of the used vehicle—a problem that’s most profound on the certified pre-owned vehicles that make up about 30 percent of Mason’s monthly retail sales.

“Our grosses on certified cars are anemic,” he says. “We have to be a lot more aggressive on these cars than what we have been, and that has a direct impact on gross profit.”

I asked Mason how he’s tackling the problem. He offered three tips that seem relevant to share with other dealers:

1. Source more near-new inventory from trade-ins. “There’s about a $2,000 spread between MMR and retail asking prices on 2016 and 2017 used Toyotas,” he says. “By the time you get it here, by the time you pay to certify, and by the time you pay the other costs, there’s nothing left. These are not cars I should be acquiring from auction unless I absolutely have to fill a hole in my inventory.”

2. Price the vehicles more aggressively. Mason notes that the current market doesn’t allow you to initially price near-new vehicles at or near a Price to Market ratio of 100 percent. “You have to start at 90 percent because that’s where you can sell it,” he says. The danger, Mason adds, is “getting it in your head that you’ve got to make $1,200 or $1,500 a copy. That’s not going to happen.”

There is a silver lining, though. Mason correctly notes that while you won’t make as much in front-end gross profit as you might like on these vehicles, they are available and in-demand, which offers the opportunity for a repeatable, quick-turn retail cycle.

3. Diversify your inventory mix. Like many dealers, Mason is looking to auctions to source slightly older, higher-mileage vehicles to diversify his inventory. “Those cars are expensive today, relatively speaking,” he says. “It’s like the expensive cars are cheap and the cheap cars are expensive right now.”

Mason shares my sense that there will be more market volatility in the months ahead, particularly as rental companies unload their fleets and wholesale prices adjust.

The good news is Mason and other managers will be ready. They’ll know that time isn’t on their side. They’ll make the necessary adjustments to fare the best and suffer the least.

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Dealers often have an “all or nothing” view of digital retailing.

That is, to them, digital retailing represents the full monte of selling a new or used vehicle online. You’d have a “buy it now” button on every vehicle details page (VDP) for every vehicle, customers would work their deals, and dealers would deliver “sold” cars to customers at their homes.

These dealers also often dismiss this concept of digital retailing as unrealistic-as something too few customers are willing to do today. In turn, the dealers then make a critical mistake: They put the whole idea of digital retailing on the shelf until the time comes when they’re fully convinced more customers would actually “buy it now” for their next vehicle.

mmd 300x289 A Longer Term View Of Digital Retailing For Dealers This viewpoint isn’t necessarily wrong. In fact, the dealers are absolutely correct that a majority of new/used vehicle buyers today wouldn’t want to buy their next vehicle completely online. Studies show that maybe 10 to 15 out of every hundred people might be ready for this kind of vehicle purchase experience. It does seem a bit ill-advised to invest in an end-to-end digital retailing experience when the vast majority of buyers wouldn’t use it.

But here’s the big miss for dealers who shelve digital retailing on these grounds: The “all or nothing” view is a bit short-sighted. It undercuts your ability to serve the remaining 85 percent to 90 percent of customers who are, in fact, receptive right now to taking part in at least a piece or two of a digital retailing experience.

These are customers who want more convenience, and a greater sense of control as they purchase a new or used vehicle. They don’t want to spend hours in a dealership to complete a purchase transaction. They might even pay more for the privilege of completing some part of a deal-whether it’s negotiating a payment or purchase price or trade-in value-from the comfort of their own homes.

“I’m getting an additional eight to 10 deals a month because I offer the option of working out deal terms online,” says the general manager of a Southeast Volkswagen store. “We do things differently than other dealers and we’re getting better at telling the world about it.”

I hear similar stories from other dealers. Even if they aren’t adding a “buy it now” option to their website, they are fostering a different type of engagement that speaks to the needs of today’s increasingly me-focused and time-addled buyers. In other words, they’re working deals while “all or nothing” dealers aren’t getting any of the action.

The general manager for a Midwest Lexus store notes that his dealership continues to see a growing number of customers take advantage of his digital retailing offerings. He adds that every one of the customers who negotiates a payment or trade-in value online still wants to “come in and take delivery in person.”

Such is the nature of digital retailing today. The vast majority of vehicle buyers aren’t really looking for a “buy it now”-based, end-to-end digital car deal. They simply want to carve out the parts of buying a car that they perceive as potentially problematic and time-consuming, and complete them in a way that’s more convenient and easier for them.

The take-away here for dealers is that digital retailing shouldn’t be viewed as an “all or nothing” proposition. Rather, it’s more of a “have it your way” approach, wherein dealers provide the digital retailing tools, and customers use as much, or as little, of them as they prefer.

I understand how and why some dealers have landed on an “all or nothing” view of digital retailing. I would simply encourage them to consider the business they’re probably missing as they hold out for a complete, end-to-end digital retailing solution that the majority of buyers may never want, and might never arrive.

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The other evening I had “a parma and pot.”

To explain, I was in a pub to take in a most quintessentially Australian experience. I was there to watch the first match of the annual best-of-three State of Origin series between the Queensland and New South Wales rugby teams. The Series tradition calls for eating chicken parmesan (a parma) and drinking brew, that they call “pot.”

The pub was a sea of light blue and maroon jerseys, and full of what must be called tribe-like passion for each team. I felt like I was witnessing a once-in-a-lifetime-type experience-a far more fierce, and ultimately friendly, rivalry than any I’ve seen at college campuses in the United States.

My travels the past couple days have included quality time with a fellow former dealer-turned-entrepreneur, Greg Duncan. He’s a well-known and highly respected retailer, who helped build the 23-store Trivett Group and founded Carsguide.com.au, which Cox Automotive has acquired. Duncan has also earned one of Australia’s highest honors, the Medal of the Order of Australia.

These days, Duncan provides strategic insight and counsel to Cox Automotive Australia, and serves as a principal dealer investor and chairman of its board of management. It was an honor and privilege to discuss the car business with Duncan, and to know that he’s helping steer the company forward.

Speaking of Cox Automotive Australia, I owe a special thanks to Matthew McAuley, the company’s communications director. In the past week, we’ve been to three airports, three cities, and in/out of countless cars and multiple meetings. It all went off without a hitch, thanks to McAuley’s advance planning and in-the-moment improvisation.

Through much of my trip, I’ve been asking people to repeat themselves. The reason: There’s something about Australian slang that’s like music to my ears. Here are a few words I gleaned from my discussions with dealers:

Reconditioning: The Aussies call it “rectification.”

Packs: The Aussies call them “loads.”

Larry Doyle: The Aussies call this type of customer a “wood duck.”

Used car lot: The Aussies call it “the yard.”

Some of these words came up in a lunch conversation with four very smart, and young, dealers. The group was led by Jonathan Hardwick, managing director of HFH Automotive Group.

I was struck by the group’s smarts and passion for the business and, among other things, their keen understanding of the necessity of Velocity principles in today’s margin-compressed market.

It turns out, I was basically talking to a table of ringers. Hardwick is a close friend of Sean Del Grande of the Del Grande Dealer Group, one of the brightest, progressive and up-and-coming dealers in the US today.

The same day, I presented a $50,000 check to David Blackhall, CEO of the Australian Automotive Dealer Association, the beneficiary of all proceeds from my speaking engagements here. The check presentation was a bit ironic. Nearly 20 years ago, Blackhall gave me checks as a Detroit-based executive at Ford Motor Company, one of the key clients for my former company, Digital Motorworks, Inc.

The interactions with Hardwick and Blackhall made me realize that my trip had essentially come full circle. I’d connected my current trip to my career back home.

Next up: A trip back to Sydney, where I’ll be joined by my family for more fun and exploration of the Outback.


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I received the following thoughtful note from Terry Wichmann, a retail solutions consultant at NCM Associates. Dale, Thanks for your continuing help when I ask you to send your books to current vAuto clients and vAuto prospects. When discussing “velocity” (in general) and vAuto (specifically) during NCM Associates “Profit Improvement Meetings” at dealerships, I always [...]

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It’s like a leaky faucet. Drip by drip, the retail profit you make on used vehicles goes down the drain.   But unlike a leaky faucet, the fix for margin compression in used vehicles isn’t as easy as calling a plumber. That’s because, more and more, ongoing margin compression in used vehicles is the nature [...]

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