By Gregory Arroyo
Remember the period between late 2007 and 2009, when the housing crash that caused the credit crisis led to the Great Recession? The market was tough to read, and the used-car guides were all over the map.
Dealers that bulked up on big trucks and SUVs were stuck with a lot full of them, as gas prices reached $4 a gallon and finance sources tightened up. Any car buyer with below-prime credit couldn’t get approved, as banks weren’t sure where car buyers — particularly those with investment properties — would land and finance companies were dead in the water.
The good news right now is we’re not experiencing any of those market dynamics. But news surrounding COVID-19 (a.k.a. the Coronavirus) has certainly heated up in recent days.
Hearing about Tom Hanks was disconcerting. So was hearing about the National Basketball Association’s decision to suspend the season, after Utah Jazz center Rudy Gobert became the first major professional athlete to test positive for the virus. Now his teammate, star Donovan Mitchell, has tested positive.
As of March 10, there have been at least 116,000 coronavirus cases worldwide. About 64,000 people have recovered, and 4,000 have died. Here in the United States, multiple states are under a state of emergency.
With all that said, the one thing I love about this business is how opposed it is to doom-and-gloom talk. In fact, just yesterday, the founder of a car dealer Facebook group I belong to urged all admins not to allow panic to take over the group.
“I don’t want negative talk about this affecting us,” he wrote.
It made me think of this great line from the first Avengers movie: “Until such time as the world ends, we will act as though it intends to spin on.”
Hey, consumers who need a new car (or used) today will still need it tomorrow. Still, it’s not business as usual, so preparation is vital.
So, if you’ve loaded up with inventory the past couple of months to take advantage of tax season, monitoring aging will be key. And if you’re part of a group that engages in group trading, it’s time to dig into your inventory management systems to ensure vehicles are on the right lots. It’s not time to panic, but you should have exit plans in place.
I recall a story told to me back in 2009. A dealer in the Northeast took on a bulk of pickups in trades just before things got bad. Having dumped $5,000 to $7,000 into the vehicles, he refused to take a loss at auction when things did — even though he was losing money each day those vehicles sat on his lot. His patience was rewarded, however, as he ended up grossing $2,000 to $5,000 by waiting out the storm for a couple of months. Americans do love their trucks and SUVs.
You also need to fire up that CRM. Hey, you know you have customers reaching the end of their finance, lease, or warranty term. Vehicles also need to be serviced. Maybe it’s an excellent time to offer free service pickup and return.
And if you’re a dealer that dipped your toe in the digital retail waters — or maybe offer test-drive deliveries — today’s uncertainty represents an opportunity to really test those strategies.
So, start promoting those customer conveniences, and make sure your digital retail button stands out. In other words, remove any conflicting calls to action on your vehicle details and dedicated landing pages. Banner promotions on your search results pages and VDPs are a must.
Now, when it comes to your employees, I suggest not sticking your head in the sand. Management teams need to get educated on this virus, and communication will be critical. Care also needs to be taken when it comes to the cleanliness of your showroom, employee offices, and common areas.
With all that said, here’s what I do know in all this uncertainty: Every time this business faces a severe hardship, it always seems to come out the other side a better industry. I’m sure that will be the case once again.
Gregory Arroyo is the former editor of “F&I and Showroom” and “Auto Dealer Today” magazines. He now serves as senior manager of strategic content for DealerSocket. Email him at firstname.lastname@example.org.
By Gregory Arroyo
I was fooled, at least during my days covering the F&I trade for an industry publication. And I was reminded of that on Jan. 27. That’s when Automotive News published an article on Dale Pollak’s “new truth of used-car profitability.”
My excuse is I covered F&I, which meant I was limited to “drive-by” reporting when it came to the inventory-management space. What I needed was a connection, and, well, the credit crisis that preceded the Great Recession of 2009 and its impact on inventory-management strategies provided just that. That led to this December 2009 article: Stock Up/Stock Down.
The piece quotes the two leading voices in the inventory space at the time: Pollak and the team at Inventory+. Both were leading the charge in turning inventory-management solutions into pricing tools. Inventory+, according to my sources, was the choice of many of the industry’s big dealer groups, while Pollak was the newcomer. And, yes, he was making a lot of noise at the time.
I remember the blog he wrote in May 2008 (The Core is Rotten), where he bashed Inventory+ and the Ideal Inventory Model that serves as its foundation. So you can imagine my reaction when I saw the video Dale posted in late 2018, the one in which he semi-admits that maybe he was wrong. And you can imagine my reaction when he doubled-downed in that recent Automotive News article, blaming dealers for not paying to get his fix for a problem his software created.
What troubles me is my brethren on the media side have decided to let Mr. Pollak off the hook, allowing him to pin margin compression on some “dramatic turn” in the spring of 2016.
Interestingly, Dale rolled out Stockwave in March 2016, but, as you guessed it, his press release and Automotive News failed to mention that. Instead, Dale uses both platforms to tell dealers to adopt his new software “if they want to be profitable.”
Well, Dale, I’m not sure your customers ever fully embraced your now-debunked theory. “I’d never use [vAuto] the way Dale Pollak … recommends you use it,” wrote Jim Ziegler in a July 2015 column in F&I and Showroom magazine. “I suggest using it as a buying and selling guide, but not a pricing guide. I just believe every used car should have a chance to make a decent profit.”
Now, Pollak has gone from managing inventory like trading stocks to managing it like trading precious metals. And according to his team’s analysis, dealers wrongly managed their best investments, their platinum cars, like their worst investments, and vice-versa. So, the trick is to hold onto those profit drivers and rid your lots of those bronze cars.
In other words, find your core inventory.
So, how will you determine your bronze and platinum vehicles? Well, Dale and his team have gone and developed a new secret algorithm that weighs three main factors — cost of goods being one of them. I singled out that factor because Dale never mentioned cost of goods before, but the Inventory+ rep I spoke to for my 2009 article did: “Simply turning vehicles and selling them quickly is not the answer, because it’s a balance between cost of goods, profitability, and how quickly you can sell it.”
He then added this: “The internet is an incredibly powerful and wonderful thing, but it can also be a wasteland of information.”
See, like Pollak’s software, Inventory+ does show users how competitively priced the market is on a specific vehicle based on how other dealers are advertising that vehicle or a similar vehicle online. But we take it a step further by displaying a market’s actual transactional data. That means the dealer doesn’t have to wonder if the price advertised online is outdated because the vehicle was sent to auction.
What really separates Inventory+ is our algorithm (yes, we have one, too) analyzes a dealer’s transactional history — about 90 days’ worth — to determine the dealership’s core inventory, or vehicles that deliver above-average grosses in below-average turn times.
So, we base our recommendations on your dealership’s unique DNA. The reason that’s important is relying on market data alone — like Pollak’s solution does — means other dealers in the same region are getting the same recommendations, which increases wholesale costs for the same vehicle (I’m sure Cox loves that). That leads to those profit-squeezing, race-to-the-bottom pricing wars. Sound familiar?
And by analyzing your historical transactional data, Inventory+ tells you what your customers are buying — not what your competitors’ customers are buying 25 miles down the road. And if you do well on a particular vehicle, there’s no reason to get down in the gutter with every other dealership engaged in a pricing war. You simply need to differentiate your profit driver with the photos you take and the description you write.
See, Dale, it’s always been “profit time” at DealerSocket.
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