March 2012, Auto Dealer Today - WebXclusive
Morrie’s Automotive Group has spent the last few years retooling its used vehicle operations. As a result, the group has significantly increased efficiency and inventory turn. “We declared 2010 as the year of the used car,” stated Karl Schmidt, chief operating officer for Morrie’s Automotive Group, which encompasses eight rooftops and 11 franchises in and around Minnetonka, Minn.
“We cleaned up inventory … and started managing [it] with a more centralized focus in the end of 2008, first part of 2009,” he recalled. “We did a lot of homework and research in 2009, went out to some dealers and looked at what their processes were, and talked with some industry experts.”
He said the group saw 50 percent growth in used vehicle sales volume in 2010 over 2009, adding, “We’re up another 25 percent on top of that this year.” Through October of 2011, the group was averaging slightly more than 800 used vehicle sales per month
Schmidt believed the improved performance is attributable to a couple of factors. The first is the group-wide effort to standardize processes and centralize certain functions of the used vehicle operation. “Standardization … is a big factor. The pricing is standardized. The process is standardized. All the inventory is in one shared pool, store-to-store,” he stated.
Through October of 2011, Morrie's Automotive Group was averaging slightly more than 800 used vehicle sales per month across all eight stores. Much of this success is a result of the group spending the last few years retooling its used vehicle operations to increase efficiency and inventory turn.
The second factor is the fundamental change in the group’s approach and attitude toward its used vehicle inventory
, a change Schmidt described as “moving away from intuition and focusing on the data, with the basic thought that data beats opinion.” Although the group had been using vAuto to manage its inventory for quite some time, he said they needed to take better advantage of its features and the data it provided. “We weren’t really utilizing it to its full potential,” he stated, adding that dealership management collectively worked to “develop a scalable plan and a set of metrics to look at and start to adjust.”
An important preliminary step in remodeling the used vehicle business at Morrie’s was the adoption of a non-negotiable, one-price/best-price policy in all stores in early 2009. Additionally, Schmidt said, “We have standardized pricing templates in place at all the stores.” Initial pricing of used inventory is handled by each store’s used vehicle manager using these templates. He noted that a lot of work and some trial-and-error were involved in “developing … and refining the model and pricing more efficiently and effectively.”
A designated individual was tasked to review used vehicle prices across all stores once a week and make adjustments as needed, according to market and other data. That person issues a weekly report with what Schmidt described as “the basic measurables.” He said, “It talks about everything from pricing to what’s happening on auctions,” as well as information on aged inventory and sales trends for each store.
Another important change was the appointment of a single wholesale manager to oversee the entire group. The wholesale manager handles the wholesaling of any aged inventory and unwanted trades and oversees the movement of used vehicles between stores. Schmidt noted that while this wholesale manager does handle some inventory purchasing for the group, “we also have a group of buyers … assigned to the stores [and] managed by the wholesale manager.” Presently, most of the store’s used inventory is purchased through online auctions.
He said that having a single wholesale manager for the group and taking a data-driven approach to the used inventory has helped the group move more used cars through retail and reduce the number of vehicles it wholesales. “Instead of wholesaling, we adjust retail price down to where the cars will … sell on a retail basis,” he said.
Since the addition of a group-wide wholesale manager, the individual stores’ used car managers are now free to handle more important in-store duties like merchandising vehicles and interacting with customers. “All that wholesale disposal runs through one person, so [used car managers] don’t have to do any of that outside-the-store activity anymore,” he said.
In terms of merchandising, each store’s used vehicle team is responsible for developing online descriptions and photographing vehicles, all according to standardized guidelines and processes that dictate everything from the information included in the vehicle description to the types and number of photographs taken per vehicle. He noted that the group also went to the expense of installing what he referred to as a “photo booth” at each store – an area specifically designed with an appropriate background and lighting – to make sure online listings have a uniform look.
Schmidt said it’s also important for each store to load inventory online as soon as possible. “We place a pretty strong emphasis on a 48-hour [to] 72-hour turn from the time that the car arrives to getting it up on the website,” he stated. Reports are issued to each store’s used car manager several times a week showing how many cars aren’t priced or photographed, the standard being that each store should always have 93 to 95 percent of used vehicles priced and photographed. “Simple things like that really make a big difference… [and] help the managers in the stores be able to drive activity,” he said.
"It's a constant movement towards ideal ... We want to continue to drive the growth and potential [in used vehicle operations]. We're looking for 25, 30 percent growth again in used car operations [in 2012]."
- Karl Schmidt, Chief Operating Officer, Morrie's Automotive Group
He explained that the dealership markets used vehicles in two distinct categories. “If you look at our website, we have really two different brands. We have our Buy Happy cars, which are later models, a little more expensive perhaps, within a certain mileage band. Then we have our PB4W [Public Before Wholesale] cars, we call them, which are older, higher mileage cars … more in that budget category.” These cars are sold as-is, without Morrie’s “Buy Happy” promise, which includes benefits like a return policy and six-month guaranteed repair or replacement coverage for batteries, brakes, tires and light bulbs.
Clicking the tab for “Inexpensive Used Cars (PB4W)” on the website will open a different URL in a new window which explains the distinction between PB4W cars and Buy Happy cars before the customer proceeds to a set of vehicle listings that are kept completely separate from the rest of the group’s inventory. Schmidt said it was important to represent the vehicles differently and keep them “out of the main stream of inventory, so there’s no confusion in terms of the customer’s expectation of that car.” The vehicles are only offered online for a limited time; if a PB4W car does not sell in two or three weeks, the dealership wholesales it. He noted, “That piece of business has really grown dramatically … so we do very little with wholesaling. We reduced our wholesale volume I think by almost 60 percent over the last two years.”
Focusing on market data and more closely monitoring all aspects of used vehicle operations has actually led to a larger and more diverse inventory. Schmidt said the dealership began “selling a broader range of cars in 2010 [and] keeping a lot of our older cars.” Although many aspects of the operation have become standardized, there is no typical profile for used vehicles in terms of years or mileage. “We have more diversity in our inventory than we ever have … We might buy a 104,000-mile car, where three years ago we wouldn’t have even considered that.”
Another benefit of the dealership’s careful and data-driven management of used inventory is a decreased vulnerability to price fluctuations. “When you’re turning 15 [to] 20 times a year … you’re less susceptible to price fluctuations,” he said. “Sure, it’s harder to buy sometimes when cars are higher-priced, but we don’t have issues of water, negative equity, because we’re buying a car and selling it in 30 days.”
He described the dealership’s used vehicle operation as a work-in-progress. “It’s a constant movement towards ideal,” he said, adding that he has a number of goals for Morrie’s used vehicle operations in 2012. “We want to continue to drive the growth and potential there. We’re looking for 25, 30 percent growth again in used car operations [in 2012]. We feel like we can accomplish that by going out and adding a few different buying components,” he stated. “We don’t do much live auction purchasing right now and that’s certainly still a viable element … We feel like if we added 25, 30 percent more inventory to the mix, we would sell them, so I think that’s really going to be the focus … acquiring more cars and feeding more cars into the system and then getting our growth that way.”
Vol. 9, Issue 1