I thought I’d put out a plug for my friend, Tommy Gibbs, who is hosting a half-day Used Car Workshop on Wednesday, Oct. 19, in Chicago.

Tommy doesn’t do many public workshops. He’s normally busy traveling the country and meeting with dealers/dealer groups in private sessions where he helps them tune up their used vehicle operations.

Over the years, Tommy’s been a respected friend and teacher for me. Every time we talk, I come away with an insight or pearl of wisdom that makes me smarter about the business of retailing used vehicles.

I’m told seats are limited for Tommy’s upcoming Chicago workshop. I’d recommend it for dealers and used vehicle managers looking to take their used vehicle operations to the next level and set the stage for a strong performance in 2017.

You can get more information on Tommy’s workshop here.

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It’s not uncommon for dealers and used vehicle managers to complain that “we have to pay too much” to acquire auction vehicles.

ManheimAuction 300x225 3 Reasons A Chief Complaint About Auction Purchases Falls FlatOn one hand, I get it. The auction environment is one where complaints about cost are a natural reaction: It’s your imperative to acquire a vehicle for as little money as possible. Then, bidding starts and your numbers just don’t add up to what’s happening in the lane. On top of that, if you do make a purchase, you’ve got other costs for the actual transaction, inspections, transportation and other factors.

In some ways, it’s no wonder that nearly every dealer I talk to believes “we have to pay too much” for auction vehicles.

But the complaint starts to ring hollow when you drill into the specific ways many dealers determine what they should pay for an auction vehicle, and how effectively they stick to their acquisition game plan when they’re in the lanes and online. In my conversations with dealers, I’m often able to find three areas where dealers could do a better job identifying and sizing up potential auction purchases and making more investment-astute purchase decisions.

The size/scale of your sourcing network. An independent dealer outside Minneapolis recently shared that he’s cut his acquisition costs auction cars by about 10 percent in the past six months. How? The dealer is looking for specific units across a wider network of auction sources. “I never really looked beyond our local auctions,” says the dealer, who retails about 80 units a month. But, with the help of technology that shows him available vehicles across the country, he’s buying vehicles from auctions he never previously considered. “I bought a mini-van from Phoenix the other day for 15 percent less than I could have acquired it here, even with transportation,” he says. “I used to think I didn’t need to go beyond my backyard, until I saw the cars.”

Vehicle financials. It’s increasingly common for dealers to use a “retail-back” approach to determine how much they can pay for a particular auction vehicle. That is, they’ll assess the current retail market, the competing cars and prevailing retail prices, and then subtract their expected gross profit and related costs (e.g., buy fees, recondition, packs, transportation, etc.) to figure out how much they can pay.

When dealers complain “we have to pay too much” for auction vehicles, I’ll ask to unpack their formula to assess an auction vehicle’s financials. In many cases, I’ll find sizable allowances for front-end profit, reconditioning and packs. For example, a used vehicle manager at a Southwest Toyota store approached every car with a $2,000 front-end gross profit, $900 for reconditioning and an $800 pack. I asked the obvious question: “How often do you find vehicles where these numbers actually pencil out?” His response: “Rarely, if ever.”

After some discussion, the manager agreed that his formula for auction vehicle financials needed a make-over. For starters, we aligned his front-end profit expectations with his current front-end retail average (a $450 difference). We did the same thing with reconditioning (a $200 difference). We also agreed that he’d be better off with a lower pack for auction vehicles, something he pledged to negotiate with his dealer. In the end, the manager agreed that if he’d been using his revised formula, he’d likely be complaining less that “we have to pay too much” and he’d be a more efficient and productive auction buyer.

Purchase discipline. “I’d get so impatient, and tired of losing cars, I’d just buy them.” So goes the reaction of many dealers and used vehicle managers to today’s auction-buying experience. The problem, of course, is this frame of mind often results in paying too much for auction vehicles. The key? Sticking too your guns, even if it causes anxiety and heartburn. The fact is, used vehicle margins in today’s market are too thin to let emotions cloud a good investment decision. In addition, it’s important that dealers recognize there are, in fact, perfectly good reasons to seemingly “pay too much” for a particular car. “I’ll pay extra for a vehicle with a Market Days Supply below 70,” says the used vehicle director at a three-store group. “I’ll make a little less on the front-end, but I’ll sell the car quickly and pick up back-end and service gross. I’ll take that deal all day long.”

In the end, my goal in sharing these points isn’t to diminish the difficulty of properly (and profitably) acquiring auction vehicles. It’s really to suggest that when you consistently hear the “we have to pay too much” for auction cars complaint, it’s likely a symptom of a self-inflicted problem.

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I do a fair number of interviews with analysts, reporters, students and others interested in the automotive industry.

As a general rule, the best interviews are really conversations, marked by a healthy exchange of ideas and perspectives. Likewise, the best interviewers are those whose curiosities, interests and personalities produce open-ended, thoughtful questions that inspire meaningful responses. A journalist friend describes the interview process as “peeling the onion.”

A few weeks ago, I was the “onion” on Performance Matters with Garrett Jorewicz, senior director of operations for NextGear Capital.

Some background: Garrett’s podcast is his brainchild. He launched it as a way to primarily help his NextGear colleagues better understand their business and its connective tissue to other parts of Cox Automotive. The podcast struck me as a cool idea, and I made time for it on my calendar.

During the interview, Garrett proved to be a good interviewer. We discussed Stockwave, my books and a few personal things.

Here’s a link to have a listen:

 

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3 Tips To Tune Up Your Used Vehicle Performance and Profitability

08.23.2016

It’d be wise for dealers to take a deeper look at three aspects of their used vehicle inventories: What percentage of your used vehicles are less than three years old? How does this figure compare to a year ago? For many dealers, 52 percent of their used vehicle inventory is less than three years old, [...]

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Sacred Cows That Merit Scrutiny, And Maybe The Sword

08.03.2016

I recently asked a group of about 20 dealers and used vehicle managers a series of questions: How many of you mow your own lawns? No one raised a hand. After some discussion, it was clear that each individual felt their time was better spent doing something else. How many of you get your groceries [...]

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A Dealer’s Evolutionary Velocity Journey In Used Vehicles

07.29.2016

Nearly a decade ago, I met Brian Benstock, general manager and vice president of Paragon Honda and Paragon Acura in Queens, N.Y. At the time, Benstock thought he was doing pretty well in used vehicles. He retailed 80 units a month, and boasted a front-end gross profit that beat many other dealers. But I wasn’t [...]

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A Call For Improved Effectiveness and Efficiencies In Human Capital Management

07.26.2016

If a new or used car manager made the wrong decision nearly 75 percent of the time, chances are pretty good that individual wouldn’t be working very long at your dealership. Most dealers would agree with this statement. Yet, according to National Automobile Dealers Association (NADA) stats from last year, dealers and their managers appear [...]

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Sourcing Auction Vehicles: What You See Is What You Get

07.19.2016

It’s still fairly common for dealers to offer two complaints about buying wholesale vehicles from auctions—it’s tough to find the right cars, and even more difficult to buy them on the money. The complaints seem somewhat surprising, given there are more wholesale vehicles on the market than we’ve seen in recent years. In 2016, industry [...]

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Reflections On My First NIADA Convention

06.18.2016

I had the privilege of attending my first National Independent Automobile Dealers Association (NIADA) convention this week in Las Vegas. Quite honestly, I wasn’t sure what to expect, but I was pleased to discover many similarities with my experiences at 47 National Automobile Dealers Association (NADA) conventions for franshise dealers. First, many of the dealers [...]

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5 Pointers To Preserve and Protect Profitability As You Acquire Used Vehicles

06.14.2016

Most dealers would agree that you make your money in used vehicles when you acquire a car. If you pay too much for an auction or trade-in vehicle, you’ve shrunk the spread between your costs to acquire and recondition the unit, and its retail selling point. Conversely, if you “steal” a car, you’ve widened the [...]

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