The Lifeblood To Your Profitability

September 2006, Auto Dealer Today - WebXclusive

by Greg Goebel - Also by this author

This month I start out with a promised follow-up from last month. Many of you might remember that I was once again in the market to replace a vehicle in the Goebel fleet. I was lamenting the fact that the biggest challenge, in buying one over the Internet, still remained to be getting someone to call me. Unfortunately it didn’t get any better. I was high bidder in seven eBay auctions (in most every case willing to spend more than I bid), and the only way I ever talked to one of them was to call them myself (of course one out of three didn’t take the time to return my call).

I finally did manage to make my acquisition, but not after a frustrating month-long experience. Changing the scenery by relocating to the Sarasota market didn’t help the issue either. After giving up on the Internet process, I took to bricks and mortar, visiting five different stores. After hearing such things from sales personnel as “I haven’t got time now, can you come back later?,” “I just came from the Toyota store so I know the used Lexus we have here is a good vehicle, but I don’t know much about the Audis we sell,” and “I just put the cars on the Internet to attract attention, but you know we really can’t sell them for that,” I finally managed to get a vehicle bought, in spite of the personnel.

The most frustrating part was that since I have precious little time, and I really couldn’t come back later for that particular sales person that didn’t have time, I worked with the GSM and the finance manager. When they were having a hard time trying to come up with a trading difference, I gave them my cell phone number (and a copy of Auto Dealer Monthly) and asked them to call me. Of course they never did. I am sure they preach follow-up in their training meetings though…

When I did buy my car, it was truly in spite of the sales personnel’s attempts to not sell me a car.

After a 18 years as a dealer principal with a heavy focus on the sale of used vehicles, as well as my travel around the country as I work with our 20 Group members and clients, admittedly I am spoiled. I am used to working with some of the best retailers of used vehicles. The common thread that runs through all 20 Groups is the dealers’ focus on the sale of used vehicles. Whether franchise or independent dealer, whether exotic car dealer or buy-here pay-here, they all depend on the sale of used vehicles to drive their generally significant profits.

These retailers don’t get excited unless their average gross profit is above $2500 per vehicle sold; with the best averaging double that. It isn’t until I work with folks that have a heavy focus on new vehicles that I realize how good some of our clients are.

Don’t get me wrong, having been had four new car franchises, I certainly understand the importance of new vehicles sales. It both keeps the factory happy as well as feeds your fixed operations. My issue is that when someone tells me that they are retailing 200 vehicles per month, and only 25 percent are used, I recoil as I think of the lost opportunity.

I have had some dealers (who fall into the above example) tell me that their focus just simply isn’t on used vehicles. The “issues” that come with the sale of them don’t outweigh the potential profits. They are also typically the ones with gross profits averaging about $1000 or so a copy. Still others lock themselves into a particular brand – either due to allegiance to a manufacturer, or personal preference – and wholesale excellent vehicles they take in trade that don’t fit that mold. Unfortunately, by doing so they often back themselves into a corner by selling only what a small percentage of the market is actually buying.

At the end of the day, it is just hard for me to fathom that with annual retail sales of approximately 42 million used vehicles compared to only 17 million new vehicles, why every dealer shouldn’t be more focused on the sale of used vehicles. All you have to do is examine the gross profits available and compare it to the dollars you have invested in the inventory. Ask the veteran sales personnel, at most franchise dealerships, which types of vehicles they wish to sell, and they almost always will say “used”. They know where the commission dollars exist.

What is amazing is the lack of attention focused on the inventory itself. I just cringe when I visit most dealerships and look at the presentation of the used vehicles. If they have FTC Buyer’s Guides present, they are often torn or faded (easy to find the aged inventory!), and sometimes you will find an extra one wadded up on the floor in the back seat. You can often find extra “pieces” lying in the floor, missing equipment and, oh yeah, dead batteries. Nothing takes the “zing” out of looking at a $40,000 used vehicle like opening up the door to – nothing … except apologies. Heck, you can sometimes even find the sale documents of the previous owner (?!) or the last rental agreement. Nice.

The biggest problem is that they are just dirty. Used vehicles have to sparkle. They automatically come with the stigma of being a used car. They start out suspect, and have to overcome that mindset. I don’t care if your vehicle is a current year highline vehicle, or a 10 year old unit for your BHPH operation – they still have to be clean. Dealer principals and general managers, take me up on my challenge – go out and walk your lot, open the cars, and see what the customer is seeing. Drive the 90 day old used cars. There is a good chance that you will be disappointed.

The car business, in particular the used car business, is not rocket science. It does, however, take contact with the buying customer, follow-up and the need to not to have to apologize for your vehicles. I will get off my soapbox, but there are a number of dealers that are missing the opportunity with their used vehicles. They can be your lifeblood, and the foundation of your profits. They can also be an embarrassment and a source of ongoing frustration. Which do you choose?

Vol 2, Issue 5

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