I had the privilege of attending my first National Automobile Dealers Association (NIADA) convention this week in Las Vegas.

Quite honestly, I wasn’t sure what to expect, but I pleased to discover many similarities with my experiences at 47 National Automobile Dealers Association (NADA) conventions for franshise dealers.

First, many of the dealers I met are as astute and keen about their business as many franchise dealers. They understand the wholesale and retail marketplaces are changing fast, and they are wisely seeking new ideas, tools and ways to make their businesses more profitable and successful.

Second, like many franchise dealers, the independent dealers are deeply committed to their businesses. It’s their money on the line every day. They are hands-on, pragmatic operators, some of whom are likely to pick up a wrench or a chamois cloth to get a car ready for retail.

Third, I was struck by the family nature of the event itself. I met dealers, their wives and their children on the NIADA floor—a reminder that many, if not most, dealers of all types are, by their nature a family affair.

Finally, I was pleased to be a part of Cox Automotive’s impressive presence on the NIADA floor—a testimony to our commitment to serve independent dealers as we collectively transform the way the world buys and sells cars.

My hat’s off to NIADA’s Steve Jordan, CEO, and Joe Lescota, director of dealer development, for hosting an enlightening, productive and well-run event.

This year’s NIADA convention may have been my first, but it most definitely won’t be my last.

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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 spread, and set the stage for a healthy front-end gross.

I’ve been thinking about this age-old axiom of our business as I hear and read about declining used vehicle profitability.

This past spring, public dealer groups reported front-end gross profits on used vehicskoda superb 300x169 5 Pointers To Preserve and Protect Profitability As You Acquire Used Vehiclesles declined $100 or more on a per-unit basis compared to the prior year. The drop runs consistent with the results I hear from private dealers. Even worse, the diminished profitability comes in spite of dealers buying and retailing more expensive used vehicles.

Astute dealers know the decline in used vehicle profitability isn’t just a one-off occurrence. It’s been a persistent feature of used vehicles for the past several years, thanks to the rise of internet-driven transparency and increased competition.

skoda superb space 5 Pointers To Preserve and Protect Profitability As You Acquire Used VehiclesGiven this backdrop, I thought it would be useful to revisit Ground Zero for used vehicle profitability—the moment when you own an auction or trade-in vehicle. I asked several top-performing dealers to share how they make their money when they acquire a vehicle. They offered five pointers:

A clear view of the “right” cars. The “right” cars are different for every dealer, given individual objectives for profit and inventory turns, and local market conditions. Dealers say it’s imperative to know, with exacting precision, the cars that are “right” for you, and to prioritize your auction and trade-in purchases around them.

“When we go to auction, we don’t buy 50 cars because we sold 50 cars,” says the general sales manager for a Southwest Toyota store. “That’s how we used to do it. Now, it’s always about the ‘right’ car. We’re sticklers for the right equipment, color, condition and mileage. We’ll sometimes pay more than we’d like for the ‘right’ car, but we’ll do it because it’s the ‘right’ car and know it’ll sell in our market.”

Exit strategy-minded acquisitions. The sharpest dealers use technology and tools to know each vehicle’s opportunities and risks before they book a trade or buy at auction. They know their costs (the price of the car, reconditioning, a pack, transportation/other costs). They compare those costs to prevailing retail values to determine a vehicle’s front-end profit potential. They evaluate each vehicle’s Market Days Supply to determine how long it will take to retail the unit.

A Southeast Chrysler dealer summarizes his exit-minded acquisition strategy this way: “Before I buy a vehicle, I know what I can make, and how long I have to retail it before it’s a break-even unit. From there, it’s a question of retailing the car quickly to maximize our gross and minimize a potential loss.”

Accountability. Dealers say they’re holding appraisers, buyers and managers more accountable for buying vehicles “on the money.” For example, a Northeast Honda dealer expects appraisers and auction buyers to purchase vehicles at or near a respective cost to market ratio of 80 percent and 85 percent. “If they land above the benchmark, there’s always a conversation,” the dealer says. “The market’s too competitive and our margins are too thin to give up our profit potential unnecessarily.”

Wider reach. For wholesale vehicles, dealers are tapping a larger, more diverse group of online and physical auctions than in the past. “Given the competition, you almost have to have eyes everywhere to get the cars at the prices you need,” says the used vehicle director for a Midwest dealer group. More and more, dealers rely on technology and tools to minimize the time required to find and evaluate vehicles, enabling them to focus on buying the “right” ones on the money.

An opportunistic eye. As students of the market, the dealers each noted that they keep their eyes open for opportunities to stock and retail vehicles they don’t typically sell. “I try to keep about 20 percent of my auction purchases for stuff I wouldn’t normally stock,” says the general sales manager at the Southwest Toyota store. “I won’t really know if a vehicle doesn’t work unless I try it.” To minimize the risk, he pursues vehicles with a relatively low market days supply (70 or less), and aims to purchase them at/near an 85 percent cost to market ratio.

In my next article, we’ll examine how dealers can preserve and protect used vehicle profitability after they’ve acquired the “right” cars on the money.

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You won’t find newspaper ads, radio spots or TV commercials promoting Cardinale Automotive Group.

The 19-store group, headquartered on the Monterey Peninsula in California, ditched traditional advertising in 2010 as it began its transformation to become an all-digital retailer.

Since then, the group has made incredible progress. This year, Cardinale ranks 2nd on the Ward’s e-Dealer 100 list, retailing a combined 14,182 new/used vehicles via the internet. In 2013, the group ranked 7th with a combined 5,431 new/used internet sales.

I caught up recently with Erich K. Gail, COO of the Cardinale Group of Companies, to better understand the how’s and why’s behind their automotive group’s impressive achievement. The conversation revealed an organization that left no stone unturned as it climbed from near-bankruptcy in 2009 to become one of our industry’s top digitally focused dealer groups.

“The bottom line is when we looked at ourselves financially back then, we should not have survived,” Gail says. “It is truly by the grace of God that we are here today.”

Cardinale’s rebirth included several strategic initiatives:

Brand promise: Cardinale companies center on a singular commitment, known as the CardinaleWay: “We Develop Outstanding Relationships Where Everybody Wins.” This brand promise “guides every single decision we make, in everything we do, every single day,” Gail says. The organization-wide commitment to the CardinaleWay translates to daily expectations for leaders, managers and associates to coach, mentor and train to provide consistently positive experiences for their guests, communities, manufacturer partners as well as each other.

Management- vs. market-driven culture. “Throughout the entirety of this organization, which was founded in 1979, up and through 2009, we were market-driven,” Gail says. “If the market was up, we needed more people. We needed more stuff. We needed more locations. Life is great, the market is up and we need to grow.”

“Yet management-driven is the complete opposite,” he continues. “It says, ‘We don’t care what the market is doing, and whether it’s up or down.’ We will determine our goals and objectives. We define our growth and performance goals every month, every quarter and every year based upon specific objectives. If you are disciplined enough to do it, you will remove the condition of market subjectivity. You will not chase market share at a future cost or erosion of disciplines. You will not bloat your operation to an unsustainable level if the market turns. And you will manage around your worst month.”

Non-negotiables: Cardinale Automotive Group has established a minimum water-line of 20 percent net to gross profit ratio across all rooftops. To achieve this goal, Gail and other leaders established what they term as “non-negotiables” for performance in five key areas: CRM (the “center-nucleus of retail operations,” as Gail calls it); inventory management (with specific Cost to Market, inventory turn and merchandising disciplines); phone skill mastery (with real-time monitoring by managers); daily training (including three daily, one-on-one meetings between in-store managers and department associates), and a strict commitment to ZERO MOMENT Retail (where the emphasis is targeting in-Market vehicle buyers as opposed to just shoppers).

I asked Gail to dive in a little deeper on their commitment to the ZERO MOMENT Retail philosophy. It’s born, he says, from science that details specific shopper behaviors that signal shifts from initial stimulus, consideration and product research to an ‘I want it now’ buyer mindset.

“Our truth, from both an operational and investment standpoint, is that we target in-Market buyers who are 12 days or less from purchasing a vehicle. We’re not on the ‘hope-plan’ that chases someone who is 30 days, 60 days or 90 days out. They’re not at their ZERO MOMENT,” Gail says. “The ZERO MOMENT, or in-Market buyers, have done their research. They know what they want, and why they want it. As a direct result, they select their dealer of choice with every emotional trigger and intention to make a purchase provided they receive an Xperiential retail moment.”

Extending the reach of this ZERO MOMENT Retail science, the Cardinale-Group developed a dealer to dealer investment management and retail performance company, ZMOT Auto. The company, which serves dealers in the United States, Canada and Mexico with regional exclusivity, combines business intelligence and Cardinale retail process disciplines to integrate a dealer’s digital retail strategy to target, identify and serve in-Market buyers.

“With proper integration, all of our digital retail environments communicate together,” Gail says. “We can see that someone is looking at a specific pre-owned Accord at one of our dealerships. Further, we can see specific behavior within our digital footprint, such as reading our reviews. We can see they watched 46 seconds of a video in either English or Spanish and, four hours later, watched the entire video and forwarded it to someone. Based upon these and many other actions undertaken by in-Market buyers, should they not have engaged our stores or brands in what we consider an attributable direct-action (telephone call, chat, sms text or form-fill), we initiate a dealer-branded call to action to drive the needed direct-action engagement.”

Gail says this inMarket-buyer-focused digital retail strategy and process yields several positives for their automotive group. The average duration from initial contact-to-sold is 9.7 days, compared to a 50.3 day average for the industry. Additionally, the average direct-investment for advertising or marketing per unit sold runs less than $200 for Cardinale, compared to $600-plus for other dealers, according to National Automobile Dealers Association data.

“The Xperiential shift in our culture is that we don’t just sell cars, we help people buy cars,” Gail says. “We know exactly what our in-Market buyers want, and we serve them to fulfill their specific intentions. It’s just a shift in focus. But that’s the world we now live in. If we’re serving you as a guest in our home as opposed to just ‘one-and-done’ selling, we need to be gracious, convincing and ensure our entire culture and the experience you receive is persuasive about why our family-team represents great value for you.”

This precision-focused approach also advances Gail’s responsibility to efficiently and wisely manage not only the Cardinale investments, but those of the external dealers served through ZMOT Auto. “As dealers, we have finite resources, and we are 100 percent responsible for determining how to invest these resources every month to produce the best return,” he says. “We have chosen to invest all of our resources into what we know we can measure with attribution, as opposed to the old adage that says, ‘I know half my marketing is working I just can’t tell you which half.’”

In our conversation, Gail referred to Cardinale as a “laser-focused digital retailer.” The term seems fitting, both as a description for the way they operate and as an explanation for their rapid rise as a formidable e-focused dealer group.

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3 Ways to Maximize Your New Car Sales With Improved New Vehicle Management

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It’s sometimes startling to see the disparity in the ways dealers manage their new and used vehicle inventories. As a dealer recently put it, “I have $1.4 million in used vehicle inventory, and we pay attention to it every day. We track VDPs (vehicle detail pages), our price position and our merchandising. But I have $13 million [...]

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Two Product Launches, Two Decidedly Different Timelines

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I’m both a little amazed and humbled by the success of Stockwave, a tool that helps dealers efficiently source wholesale vehicles. In less than 30 days after the product’s official launch at the National Automobile Dealers Association (NADA) convention last month, more than 1,000 franchise and independent dealers have signed up for Stockwave. Frankly, I’m [...]

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4 Operational Pearls From Roger Penske

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I had the privilege of hearing Roger Penske, head of Penske Automotive Group, share his perspective on the car business today during a Q&A session with Cox Automotive president Sandy Schwartz. The session is part of a Cox leadership team meeting this week in Fort Lauderdale, where we’re gathered to sharpen our knowledge and understanding [...]

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3 Essential Steps To Maximize Gross Profits On Auction Cars

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If you ask dealers for their top complaint about the used car business, many will say it’s difficult, if not impossible, to acquire wholesale vehicles “on the money.” Dig a little deeper, and the root of the complaint becomes clear—dealers believe they can’t make the gross profit they would like to see in their used [...]

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An Independent Perspective On The Used Car Business

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TJ Riley isn’t your typical independent car dealer. For one thing, he’s a lot more disciplined than many franchise and independent dealers when it comes to buying vehicles at auctions. “If you walk out to the Dallas Auto Auction on a Wednesday, it’s just eye-opening the amount of dollars changing hands, based solely on the [...]

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vAuto’s Mandi Fang Earns An Automotive Honor

04.19.2016

I love it when somebody I know gets recognition they deserve. Many years ago, I found myself on the opposite side of a table with a very impressive woman. I remember her tenacity as a negotiator, as well as her command of minute details related to the deal at hand. She stood tall at a [...]

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4 Ways To Turn Auction Cars Into Advantage At Your Store

04.13.2016

You could say auction cars offer a blessing and a curse for dealers. The blessing is that auction cars are always available—offering a way for dealers to acquire inventory they need that they can’t get through trade-ins. For most dealers, auction cars make up 30 percent or more of their used vehicle inventory. But auction [...]

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