For the past several years, I’ve been a vocal advocate of the Velocity Method of Management—a market-based inventory management strategy that pushes dealers to turn their used vehicle inventories to maximize return on investment and minimize risk.

My advocacy flows from a firm belief that today’s market penalizes dealers who do not make a concerted effort to sell more used vehicles in less time. In today’s market, the longer a dealer futuristic car wallpaper 110155 300x160 3 Reasons A “Turn And Earn” Strategy Eludes Some Dealers hangs on to a vehicle, the less likely it will generate a sufficient return on investment. This reality owes to a combination of competition, pricing transparency and volatility—all of which contribute to margin compression.

My faith in a “turn and earn” retailing strategy also flows from the successes of dealers who adopt this approach. In a matter of months, the best “turn and earn” dealers double their monthly sales volumes and see record-setting levels of profitability in their used vehicle, service/parts and F&I departments. The big pay-off comes a bit later, when the higher level of performance and profitability become standard operating procedure, and dealers achieve a level of financial return and reward they hadn’t considered possible.

But for every Velocity success story, there are dealers who can’t successfully adopt a “turn and earn” inventory management strategy. I’ve seen enough of these implementation failures to identify three key reasons the dealers came up short:

1. They lose faith. A few years ago, I coached a New York dealer as he adopted a “turn and earn” strategy. His first course of action: Take accountability for all the aged vehicles in his inventory. This wasn’t easy because it required taking a $500,000 loss in the early months as the dealer retailed cars that had sat too long to offer a positive return.

This day of reckoning is a prerequisite for dealers who adopt a Velocity strategy and, for some, it’s too painful to accept. These dealers will blame the “turn and earn” strategy for the loss and ditch the strategy altogether. Of course, the strategy didn’t create the loss; rather, it exposed a “water problem” the dealer would rather ignore.

I compare the initial stage of Velocity strategy implementation to the experience anyone undergoes as they try to rid themselves of an addiction. At first, it feels terrible and, for some, this initial pain proves too much. But those with more persistence realize that, over time, they actually feel better as the addiction loses its grip.

The same is true for dealers adopting a “turn and earn” strategy. Their addiction is aged vehicles, and it’s a difficult habit to break. Those who have the faith to withstand and work through the initial pain, often wonder why they ever thought an aged unit was OK.

2. They can’t break the resistance. When dealers adopt a Velocity strategy, all the goal posts move closer. Dealers must put used vehicles online as soon as they purchase them. Likewise, reconditioning/detailing must be completed in day or two, not a week or more. Appraisals and asking prices must continually align and re-align with the market. Managers must make speedier decisions about each vehicle’s exit strategy.

In other words, a true “turn and earn” dealership requires a much higher level of collaboration among dealership departments, and everyone must understand that efficiency and speed drive the size of their paychecks and the dealership’s success. It’s not uncommon for dealers who adopt a Velocity strategy to find their skills as coaches and leaders put to the test.

“At times, it felt like I was herding cats,” says a Midwest dealer who adopted the Velocity strategy two years ago. “It’s tough to get everybody on the same page and we lost a couple people who couldn’t make the adjustment.”

3. The old habits never really go away. It’s common to hear dealers say that their average front-end gross profits decline as they adopt a “turn and earn” strategy. I address this complaint by showing dealers how their average gross profits have really normalized to the market. I also encourage them to focus on the “total” gross profit each vehicle, and their inventory as a whole, now generates for the dealership.

But some dealers have a hard time seeing the whole picture, and they end up undermining the “turn and earn” strategy with decisions that draw from a more traditional average front-end gross-focused playbook.

For example, dealers will set used vehicle asking prices well above the market in an effort to maximize average front-end gross profits—irrespective of whether the unit deserves the asking price, based on market data. This knee-jerk, control-the-gross impulse inevitably puts the dealer’s vehicles at a price disadvantage and slows their rate of sale.

Some “turn and earn” dealers also see diminished front-end profitability due to sales process “leaks.” This scenario occurs when dealers set market-competitive asking prices, and then allow sales associates to discount the price by $500 or more. The solution, of course, is a compensation plan that rewards sales associates when they stand firm on price and help sustain each vehicle’s front-end profit potential.

I advise dealers who want to adopt a “turn and earn” strategy that the transition will be a difficult, sometimes painful journey. I let them know they’ll face each of the challenges noted above, and probably a few more.

I also note that every successful Velocity dealer has been there. They’d be the first to tell you that adopting a “turn and earn” strategy isn’t easy. They’d let you know it takes an extraordinary level of commitment and courage to confront and contain the adversity that inevitably arrives.

But they’d also say the journey, for all its pain, has been well worth the gain.

 

{ 0 comments }

 

A quick test: What percentage of your used vehicle inventory do you retail in the first 10 days or less?

Infiniti emerg e 300x160 Drilling Down Into Overlooked Used Vehicle OpportunitiesOK. Time’s up. Do you know the correct answer for your inventory?

Relax. I wouldn’t necessarily expect that you’d be able to ace the test. In fact, only a few dealers actually monitor their inventories at this level of granularity.

I’d also submit that one could make a case that dealers don’t really need to know how many vehicles you retail within the initial 10-day timeframe. If they’re paying attention to other, broad inventory metrics—like Market Days Supply, Cost to Market, Price To Market and Average Age (in days) of Inventory—they’ll do just fine in terms of inventory turns and profitability.

More and more, however, “just fine” really isn’t enough to maximize used vehicle department performance, not to mention the “total gross” potential of the dealership.

This realization has spurred bright-minded used vehicle managers to drill deeper into their inventory data.

Here’s an example shared during this month’s Access: Velocity event: Trent Waybright, director of used vehicle operations for Kelley Automotive Group, Fort Wayne, Ind., took a close look at his 10-day-or-less tally and found less than 20 percent of the group’s used vehicles sold in this timeframe. No surprise, the cars in this segment also produced the highest average gross profit when they sold, and they had the lowest average cost of all inventory units.

Next, Waybright calculated what his departmental gross would look like if he sold 5 percent more units in 10 days or less, a task that would require a 1 percent lowering of the transactional Price to Market average for vehicles in this age segment to 99 percent, and pulling forward sales that typically occur after 30 days. His exercise revealed an opportunity to increase departmental gross by $36,000/month.

Waybright is currently looking to address the challenges beyond price changes necessary to realize the improved results, with tighter reconditioning times first on the list.

I believe other dealers would benefit by examining how/why their inventory performs when it’s fresh and isn’t. Between these two poles, I suspect you’ll find opportunities that can make a “just fine” performance in used vehicles even better.

{ 0 comments }

We’re still getting feedback from last week’s Access: Velocity conference here in Chicago. So far, the vast majority of dealer attendees consider the two days spent here as well worth the effort and expense.

We also gained insights to make the next Access: Velocity event even better—with a particular emphasis on the real-life dealer-led workshops that address current management challenges for all dealers.

Not surprisingly, as I think ahead to the next event, I’m reminded of some of the insights I gleaned from the final-half day of this year’s Access: Velocity:

Retail margin coAccessVelocity 200x300 Access: Velocity Wrap Up: Dealer Take Aways For The Not So Distant Futurempression. Dealer presenters Dan Hodges and Joe Humphrey of the Scott-McRae Automotive Group detailed their top-to-bottom efforts to deconstruct their traditional dealership structure to address a problem all dealers confront—declining margins. “We had to push cost out of the system, given the margins we found ourselves operating with,” Hodges says.

The deconstruction, which began in January of this year, included elimination of store GMs, new/used vehicle managers, F&I directors and separate Internet departments. The new structure now features centralized corporate management, with two vice presidents focused on fixed and variable operations, working directly with team leads in individual stores, and a centralized inventory acquisition team and business development center. The new structure also compensates corporate and in-store personnel on meeting volume targets at each location.

Hodges says the structure and compensation allow the execution of consistent processes across the platform, and emphasizes ongoing mentoring/training to create the same experience for customers, no matter the location. Rather than focusing on maximizing gross profit on a per-deal basis, employees in the dealership “are totally focused on how much business can I do today. The team leaders are focused on coaching and efficiencies.”

Humphrey shared how the centralized inventory acquisition team helps each store meet its goals by acquiring and distributing used vehicle inventory where it makes the most sense, based on current market data and recent sales trends. As stores sell more, they get more cars. “We’re trying to maximize our gross profits and inventory turns,” Humphrey says.

Perhaps most striking, the team has essentially eliminated auctions as it sources used vehicles, acquiring less than 15 percent of its inventory from these traditional wholesale outlets. “We’re buying from RV parks, estate sales and probate courts,” Humphrey says. “We’re trying to buy where no one else is buying.”

The results of this transformation are impressive—a 32 percent increase in used vehicle volume, a 33 percent increase in used vehicle gross profit and a 5 percent increase in “net to gross” for the four-store platform.

Sales process optimization. Panel facilitator John Malishenko of the Germain Auto Group asked a really sharp question to leaders of Cox Automotive’s business units. He wanted to know what three things the executives would do if they were given the keys to a dealership. I thought AutoTrader.com president Jared Rowe offered a good answer.

In addition to ensuring a consistent messaging across all channels and integrating sales/service to seed customer loyalty, Rowe said he would “attack the time it takes to sell a car.” He correctly noted that the industry average of 2.5-plus hours to complete a transaction is a top source of customer dissatisfaction.

I also thought Duncan Scarry, founder of Haystak Digital, made a good point about optimizing the typical sales process. In today’s market, customers only visit one, maybe two, dealerships after they’ve done their online shopping and research. He shared a comment he heard from a dealer friend, “The only reason we don’t sell a car to a customer is because we got in their way.”

This year’s Access: Velocity raised $250,000 to aid the Foundation Fighting Blindness, an achievement that makes me humble and proud. It also provides inspiration and motivation to make sure the next Access: Velocity event is even better and more impactful. We certainly have much work to do to achieve this objective.

Thank you to all who participated this year’s Access: Velocity and helped fulfill its mission to deliver unprecedented access and insights for top-performing Velocity dealers.

 

{ 0 comments }

Access: Velocity Day 1: Integration, Insights and Inspiration

10.10.2014

I spoke to a couple dealers as yesterday’s Access: Velocity sessions ran down. A key sentiment: They, like me, felt a touch of information overload from today’s agenda. The following are some of the high-level take-aways I gleaned from today’s sessions with Cox Automotive executives and our dealer speakers, as well as in-the-hall conversations: A [...]

4 comments Read more from Dale →

Access: Velocity Kicks Off Tonight!

10.08.2014

I’ve just spent the past two hours with the vAuto team at the Peninsula Hotel in Chicago, working out final details for tonight’s kick-off of the second Access: Velocity event. I’m extremely excited. Two years ago, we hosted our first Access: Velocity, and this year’s gathering is bigger and better. We’ve brought together nearly 175 [...]

0 comments Read more from Dale →

Two Used Car Lessons From The Secret Service Snafu

10.07.2014

I wouldn’t think that I’d ever find commonality between used vehicles and the U.S. Secret Service. But last Thursday’s news of the White House security breach brought used vehicles to mind. To be sure, losing one’s focus on used vehicle management processes produces less dire potential consequences than lapses among the elite corps of men and [...]

0 comments Read more from Dale →

Say Hello To ListingLogic—A Tool That Drives Better Online Used Vehicle Performance

10.02.2014

Most dealers understand that today’s used vehicle business is an Internet business. That is, buyers size up your cars, prices and reputation online—before they get to your dealership. This reality has led the smartest dealers to recognize that the online performance of their used vehicles provides the single-best indicator of each vehicle’s appeal with potential [...]

1 comment Read more from Dale →

A New/Used Vehicle Parallel: The Devil (And Your Gross) Is In The Details

09.23.2014

Astute Velocity dealers have understood that the “car is the star” in used vehicles. That’s why they go to great lengths to make sure they acquire vehicles with the color, equipment and trim levels that market data affirms will matter most to potential buyers. To be sure, they still acquire and retail “bread and butter” [...]

0 comments Read more from Dale →

3 Reasons A Front-End Focused Strategy Falls Short In Used Vehicles

09.19.2014

I’ve been hearing more disenchantment and doubt from dealers about the value of a turn-and-earn strategy for retailing used vehicles, which I call the Velocity Method of Management. The most vocal detractors are typically dealers who have long taken pride in the average front-end gross profit they achieve in used vehicles. The dealers like seeing [...]

4 comments Read more from Dale →

A Look Ahead At Selling Tomorrow’s New/Used Vehicle Buyers

09.16.2014

Consider the following research findings about the up-and-coming generation of car buyers, known as Milennials or Generation Y: Theirs is a “kinship economy,” according to J. Walker Smith, chairman of The Futures Company, a marketing research firm. As Millennials engage retailers, a positive experience is paramount. “It’s all about how we resonate with people,” Smith [...]

3 comments Read more from Dale →