Velocity in the Used Car Dept

If you know who Robert Hollenshead is, it’s only because you’re a hard core used car manager. If you don’t know who he is, you will very soon. Hollenshead is the largest customer of the Manheim auction in Pennsylvania. He is an extraordinary wholesaler that prides himself on being a buyer for any car, anywhere, at any moment. In short, he is a wholesaler’s wholesaler.

Hollenshead recently started a company called Buy Book Technologies. If you know the old saying that “the book doesn’t buy a car”, this one actually does. Buy Book Technologies is the engine behind AutoTrader’s new Trade In Market Place. The Trade In Market Place is a program that AutoTrader is rolling out across the country where both consumers and dealers can get a firm buy figure for any vehicle. Although this product is not currently available in all markets, it will be soon. It is definitely a paradigm changing product, and one to watch closely.

I’ve asked members of our data department to analyze the effect of Toyota’s recent troubles on the used vehicle market.  I expect to have the results posted shortly.

The preliminary analysis, however, definitely shows that Toyota’s market day’s supply began decreasing in November and December, and that rate has really picked up in January.  Unfortunately the decrease in day’s supply, however, does not represent faster retail movement, but rather vehicles being removed from the market for sale.  I’ll have more detail on this matter soon.

I think it’s worthy to note that Toyota’s recent problems support the general premise that dealers should diversify their inventory.  This strategy is analogist to diversification in an investment portfolio.  No matter how solid a given brand or investment vehicle may be, it is unwise to have too much concentration in any single sector.

Over the past two days I’ve received numerous inquiries regarding the effect of the recall on used Toyota values.  The initial information that I received suggested that the problem could be resolved in a 30-45 day time span.  This conclusion was based on the fact that Toyota has the capacity to produce 200,000 new gas pedal assemblies per day. At that rate, repair kits would begin to enter the market rapidly.

The latest news that I’ve heard is that the NHTSA is currently reviewing the gas pedal assembly solution.  If approved, and there should be some word on this very soon, the problem will be temporary. If, however the problem is determined to be larger and the acceleration module has to be replaced, as NHTSA is currently analyzing, then this is a very different situation.  Based on a limited amount of information that I’ve obtained, the acceleration module component cannot be rapidly manufactured, and may take as long as 12-18 months to correct the problem on existing customers’ vehicles.  This sort of delay will have a much greater impact on the value of used Toyota vehicles.  The bottom line is to watch very carefully for the imminent announcement from the NHTSA as to whether they approve the gas pedal assembly solution, or whether it will require replacement of the accelerator module.

I would appreciate any additional information that you have, or as it may become available.

The chairman of a major international media company recently asked me if I believed that a dealer’s personal image still mattered given the dynamics of today’s Internet driven market place.  The question was of interest to the CEO because decades earlier he had sold classified advertising to a start-up automobile dealer that eventually went on to achieve great success, both professionally and personally.

The question resonated with me because my father is Len Pollak and, in his home town of Gary, Indiana, almost everyone knew his name and the name of his dealership, Len Pollak Buick.  His name appeared on the back of thousands of vehicles in town, in newspapers, bill boards, bus banners, city benches and a multitude of other high visibility locations.  My father was also involved in dozens of community organizations, both civic and charitable.  In short, the names Len Pollak and Len Pollak Buick were institutions in Gary, Indiana from 1960-1980.  Even today, on my occasional trips back to the old ‘hood, people still stop and ask me about my father. 

I think that the question about the value of a dealers’ personal brand image is also a relevant question for all automobile dealers to consider in light of the large investments they make in developing brand images for their dealership. But, wait a minute– is the assumption that dealers are making large investments in building brand images for their dealerships still accurate?  Well, they certainly make large investments in advertising and marketing in both traditional and on-line media.  But does that guarantee that these investments are creating a meaningful “brand image”?  If you consider the brand images “the low priced leader”, “discount king” or “mega dealer” then the answer is maybe not.

This is not the type of personal branding that made my father’s business a success and was the subject of the chairman’s question.  Today there are still many dealerships around the country that maintain and work hard on developing similar personal dealer brand images in their community.  The question today is how much does that really matter and does it warrant investment at the cost of other branding opportunities?   I think that a positive personal image is always a benefit to any business.  It is certainly important, if not obligatory for a business owner to return value and service to their community.  These are immutable truths of business, past, present and future.

However, while automobile shoppers continue to be concerned about getting a good vehicle for a great price, I believe that they draw conclusions based on different data today.  In the past, the personality of the dealer and his or her popularity in the community signaled the fact that they offered reliable transportation for a fair value.  The implication was that they could not have achieved such prominence if these basic values were not present.  Under such circumstances, dealers could effectively bolster their image through personal brand marketing.  

Today, the question of what constitutes reliable transportation and fair prices are validated through other means, and arguably from the perspective of consumers, ones that are more reliable and trustworthy.  For example, there are a multitude of third-party web sites that review and rate both new and used automobiles.  There is a burgeoning community of social media sites that allow consumers to reference information about a vehicle’s reliability, operating costs as well as dealership sales and service experiences.  Companies like CARFAX provide consumers with additional third-party information about a vehicle’s history.  Most of these heavily used, trusted sources were not available in the years between 1960 and 1980.  As such, dealer investments and personal brand image building were important and necessary.

In pondering my response to the chairman, I couldn’t help but reflect on my father and his reputation in Gary, Indiana.  I knew that the response that I was about to give was sad, but nevertheless, truthful.  I do not think that a dealer’s personal brand image means as much to automobile buyers as it did in the past.  Rather, a dealership’s reputation and brand is created by their processes as opposed to their personalities.  The Internet has conditioned today’s shoppers to get what they want, when they want it, the way the want it.  These are the needs of the automobile shopper and those dealerships that create brands that address these needs will prevail over those that pursue lower priorities.  The large investments in brand advertising need to focus on effective messaging that differentiate processes and properly address these new priorities.

Cliff, thank you so much for the review.

Pollak Publishes New Book
by Cliff Banks

The other day, I was talking with Mark Thomas, a fourth generation dealer in Pennsylvania when he mentioned the word “velocity.”

In the automotive retail industry, that word has become synonymous with Dale Pollak, founder and chairman of vAuto Inc.

When you use the word “velocity” in this business, you’re immediately identified as being a disciple of Pollak’s.

More than 2,000 dealers currently use vAuto’s software to help determine which used vehicles to stock and how to price them. Dealers I talk to swear by Pollak’s thinking.

vAuto was not the first company to offer such a product. That was American Auto Exchange, started by Bruce Thompson several years ago. Now it’s AAX and owned by DealerTrack. There’s also FirstLook, founded by Pat Ryan.

All three men, and their companies, helped redefine our thinking about the used car business. When you talk about game-changing ideas and software, these three companies nailed it.

But Pollak has become the visionary and leading evangelist for how dealers need to view their used car operations.

This is where “velocity” comes into play. That was the title of his first book (Velocity: From the Front Line to the Bottom Line) written a couple of years ago (by the way, it sold 10,000 copies). It might be the best book ever written about the automotive retail business.

We say first book, because Pollak has just released his second book, Velocity 2.0: Paint, Pixels & Profitability.

The book introduces ROI-based management metrics and processes dealers can use to operate more efficient and profitable used vehicle departments. Velocity 2.0 begins with the recognition that today’s used vehicle marketplace is more challenging and volatile than it’s ever been – a tough reality driven by the power of the Internet and a troubled economy. The book offers a playbook of best practices to help dealers overcome obstacles and outpace their competition.

If you’re using vAuto, AAX or FirstLook, or considering one of them, Pollak’s books are a must read. They’ll change everything you thought you knew about the used car business.

Velocity 2.0: Paint, Pixels, & Profitability is available at Amazon.com or on vAuto’s website.

Thanks to Tom Kontos of Adesa Auto Auction, here is the breakdown of US used retail car sales in 2009: 

Franchised: 12,819,758

Independent:  11,712,216

Private: 10,959,787

Total:  35,491,761

I’m curious if anyone has these same numbers for 2008.  Are they up or down by category and in total?

Tommy Gibbs, thank you for forwarding this information to me.

2008                 2009           Sales Difference         % Difference

Franchised          13,189,892      12,819,758            -370,134                       -2.89

Independent        11,741,997       11,712,216             -29,781                       -0.25

Private                11,597,516       10,959,787            -637,729                      -5.82

Total                   36,529,405       35,491,761         -1,037,644                      -2.92

I’m curious what your thoughts are as to why private party/casual sales got hurt the worst in ‘09.  Do you think that these people were simply too buried to get out without the help of a dealer?  The fact that independents were almost unchanged probably lends credence to Tommy Gibbs’ theory that lower price point units represent more stable and solid results.  I’d be interested in any other thoughts that you might have.

Over the course of the past two years, I’ve written frequently about the success of Finishline Ford in Peoria, Illinois.  Over the weekend I got a call from dealer Bill Pearson of Finishline Ford, and he was anxious to tell me about his success in the past year.  According to Bill, Finishline Ford ended the year of 2009 with over 3200 used retail sales. This week, they are opening across the street a warehouse type facility dedicated to used vehicle sales.  Bill believes that this investment will further increase production.

 December’s results at Finishline Ford were particularly strong.  Used retail units were well over 300 (also a record net profit) and his total SRPs for December were approximately 1.25 million, with 62,000 VDPs.  The last week of the month yielded 12,500 VDPs, with Christmas day alone accounting for about half of the weekly total.    It is no coincidence that Finishline Ford’s extraordinary sales success is accompanied by an equally impressive performance in SRPs and VDPs on AutoTrader. 

 I’ve written extensively on the subject of the relationship between SRPs, VDPs and sales in my new book Velocity 2.0:  Paint, Pixels and Profitability.  I’ve also included recent postings on this subject, because I understand the fact that dealers will not achieve significant sales results without also achieving significant results in the areas of SRPs and VDPs.  Importantly, the factors that drive SRPs and VDPs are under the dealer’s control but they are largely ignored.  Every dealer should track SRPs and VDPs week-to-week if not day-to-day because they are the leading indicators of sales success. 

A couple weeks ago vAuto announced the release of our new Life Cycle Management system.  I thought it would be helpful to share a bit about the thinking and design that went into this new system.  In particular, what is its relevance.  I would appreciate your input and suggestions after you read this posting. 

For many years clients have requested that we create a suite of tools that helps them publish vehicle listings and photos to the internet.  In addition, they have requested tools to create various window stickers and vehicle descriptions. For a long time, we resisted creating such tools because there are many fine companies that all ready offer tools that do these very things.  So what was the justification behind so many dealer requests?  Well, as I listen to you, I heard two things.  First, there is a general drum beat from dealers to reduce the number of tools that they need to use.  Underlying this reoccurring theme is the need for convenience, time efficiency and accountability.  I found it increasingly difficult to ignore these factors.  As always, however, when and if we create tools, we strive to do so in such a way so as to improve the state of the art for the given functionality.  How did we attempt to advance the process of managing your dealerhship’s physical and virtual presence?   

Well, the answer begins with the recognition that vAuto’s live market technology has the ability to see every vehicle listing in America, in its complete form and substance.  We also time and date stamp the moment that we first see the vehicle listing appear, changes made, and precisely when the vehicle listing no longer appears on each site.  This technology first allowed us to create our Merchandising tool that we call “Virtual View”.  With our Virtual View product, dealers were able to see  for the first time how their vehicles appear, or in some cases didn’t appear, in the virtual realm as clearly as they could see how tall their vehicles were standing on their physical lot.  Prior to the introduction of our new tool suite, we could only report the errors, inconsistencies and incompleteness of vehicle listings. The next logical step was to create a set of integrated tools that allowed dealers to take control of how their vehicles appear and importantly do so with complete visibility and accountability.  Taking control and providing dealers with the ability to manage the process just seemed to be the next logical step.    But, as they say, “wait, there’s more”!   

The more, the big idea, the one that advances the state of the art for managing on-line presence, is the new Life Cycle Management component of our tool suite.   So what is Life Cycle Management all about?  

Well, it should be clear that every vehicle in stock must move through many milestones in order to quickly get to both the physical and virtual front lines.  It’s also understood that frequently vehicles move too slowly, get hung up, mysteriously disappear and then reappear without explanation.  At any given time, cars are in the shop too long, take too long in detail and body shop.  They don’t get prices, photos and window stickers in a prompt manner, and as if all of this isn’t challenging enough, once it’s all complete, it is assumed that all of the information appears on all of the required sites on the internet in a timely, complete and correct form.  Well, as those of you who have been using our Merchandising Virtual View tool know all too well, that is a big and often incorrect assumption.  The train makes a lot of stops and often doesn’t make it to the destination on time or at all. 

The result of this condition is dysfunction, inefficiency and leaks of profit. That’s right, when vehicles don’t move swiftly through the process and to the virtual and physical displays, time and money is lost.  Until now, there has been no other integrated system that allows dealers to perform all required acts and have complete visibility and accountability for the entire process.  Imagine how powerful it would be to be able to see an assembly line containing your dealerships milestones for each and every vehicle.  The assembly line graphically shows red, yellow and green indicating which milestones have been achieved in their required period of time.  Moreover the system will alert managers about vehicles that have either exceeded, or are at risk of exceeding the allowable time specified for each phase of milestone performance.  Dealerships and their enterprises can view performance of getting vehicles through milestones in a timely manner.  Users can track and see where glitches are occurring and over time whether or not improvement is occurring.   

So what I think is the big advancement in the art of managing vehicles is the ability for the first time to manage, track and view critical performance milestones in real time.  Performance that really matters for the purpose of creating more efficient and profitable operations.  This was the thinking behind the creation of this new suite of tools.  As we roll the new system out, I’ll be very eager to receive your feedback and suggestions as to what we can do to make the system even more valuable.  Please let me know your thoughts.

I just started reading a book called What Would Google Do by Jeff Jarvis.  Although I am not very far into it, Jarvis’ book really makes the point that companies need to create and maintain an open dialogue with their clients and customers.  I guess I got this idea a while ago, and that’s why I started writing this blog.  It wasn’t motivated by a desire to do the latest “marketing thing” of the day, but rather as a result of a genuine desire to listen and respond to the industry.

Jarvis’ book also caused me to do something that I had never done before.  I went to DrivingSales.com, a prominent car dealer social network site, and read what people wrote about vAuto.  It was extremely gratifying to see so many positive responses.  The themes of these responses seemed to be around the two areas of constant product innovation and very strong customer support.  These are really two fine points of distinction for any solutions company, and for this I’m especially proud of our team.

Notwithstanding these positive reviews, I would like everyone to know that we’re not satisfied.  I recognize that these are extremely difficult times for our dealers.  We need to do even more in the coming year to support those that support us.  I recently communicated this message to the entire vAuto team when they assembled last month in Chicago for a company-wide meeting.  Everyone seemed to rally around the message, and I therefore have high expectations for our performance in the coming year.  Count on us to bring you much more new and innovative products and practices.  I’m hoping that my new book, Velocity 2.0:  Paint, Pixels and Profitability will also contribute positively to our mission of improving results from used car operations.  I’m very excited about the new book and I’ll be looking forward to hearing your response.

I also think that success in the coming year will require a concerted effort by multiple dealer partners/vendors.  I would encourage dealers and managers to pull together their various solution providers and request that they work together in a concerted effort to ensure that their various solutions are tied together technically and philosophically.  In an era where headcount is cut  to the bare bone, dealerships must leverage the talent and skills of their vendor/partners.  I think that dealerships should view their solution’s representatives as extensions of their management team.  They should be treated with respect and held accountable to high standards as if they were on the dealerships payroll because, in fact, they are.

As we launch our new Velocity 2.0:  Paint, Pixels and Profitability blog site, I want to renew my commitment to providing the best product and customer service in the industry.  In the past, I tried to stay away from talking too much about the vAuto product, in favor of concentrating on the velocity strategy of management.  In the coming year I will continue to focus on the latest strategies and best practices, but I will also attempt to engage the industry and vAuto users with respect to their ideas and suggestions for improving our software and service. I invite you to please comment openly and candidly on all related subject matter.  I’m not too proud to receive criticism, and I trust that you won’t be shy about providing it.  Of course, anyone can feel free to call me at any time.

My personal cell phone number is 630-343-9016, or I can be emailed at dpollak [at] vauto.com.

Thank you for your friendship all that you’ve taught us and we look forward to being even better and stronger in the coming year.