The auto industry has recognized the used car department as the cornerstone of variable profitability.  However, there are significant challenges facing dealers today due to a more transparent, Internet-driven marketplace.  Dale Pollak, a leading used car expert and best selling author, will present Pixel Management, conditions and metrics necessary for effective used car on-line merchandising. Title:  Pixel Management Presented by Dale Pollak Date:  Monday, August 23, 2010 Time:  11:00am – 12:00pm CDT Reserve your Webinar seat now: https://www2.gotomeeting.com/register/136769186 After registering you will receive a confirmation email containing information about joining the Webinar. ...

Below is a note that I received this afternoon from a vAuto client and friend.  I thought my response would be constructive as I think it addresses a common concern.      Dale/Tom,   I was just putting a few numbers together from January-April for the last 3 years at our store:                 New Chevrolet   Used Vehicle  New Loss  Used Profit 2008        128 Units              196 Units        -18,000        $48,000   2009          70 Units              208 Units        -62,000        $63,000 (Includ...

The lead article in this week’s Automotive News is entitled “Shaking up the pricing model.”  In this article, reporters Amy Wilson and Donna Harris profile the new pricing strategies of some of our largest automotive retailers.  The profiled dealers are piloting pricing strategies that specifically and deliberately limit negotiation.  While I applaud these large retailers for arriving at the conclusion that vehicles need to be priced to sell, not to negotiate, I believe they are still not “quite there” in terms of understanding or implementing the most effective pricing practices. Proper pricing begins with putting the right price on the car in order to attract a customer.  This is the approach that many large retailers are now testing.  However, putting the right price on the car is just the first act of a two-act show.  The second act must be to convey the appropriateness of that price to an interested consumer.&nb...

Lately I've become very frustrated with dealer's Internet departments.  It's not because the people who staff these departments aren't with it or on their game, quite the contrary.  These people tend to be some of the most progressive, smartest individuals in the dealership.  I think that many of them are the general managers of the future.  What I hate is the department, not the people.  The Internet department implies that every other department of the dealership isn't the Internet, what a joke.    Specifically, the used car department is most certainly the Internet department.  Too often, used car managers and GM’s don't take responsibility for the quality of their Internet merchandising because it is the "job of the Internet department".  This is a serious error.  I’m sorry, but if your name is attached to the used car department's performance, the quality of your virtual disp...

The perception of not being able to source hot vehicles for the right money is understandable but wrong.  The reason that it’s understandable is that we never knew how good we had it.  When the market delivered 17 million new cars, dealers stood on their lots and people threw trade-ins at them.  If they didn’t get enough of the right trade-ins, dealers went to their local auctions where the fleet, lease, rental and manufacturers dumped large quantities of vehicles upon them.  How hard did dealers really need to work?  Basically if they showed up on their lot or at the auction with common sense and a check book, they bought cars.   Today, however, the flow of trade-ins on the used car lot and vehicles at the auction has been substantially reduced.  Once these two common means of sourcing vehicles have been taken away, the perception of not being able to buy a car is completely understandable.    The conclusion that it c...

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....

For the past several years, I've been making a case for a new method of used car management that I call "Velocity." The basis for needing a new strategy for making money in used cars is that fact that the Internet has transformed the used car market into an efficient market.

In an efficient market, buyers and sellers have relatively equal knowledge of choices and alternatives. With the Internet providing shoppers the ability to see every vehicle in the market and how they are priced, why should we believe that we will get lucky as often as we used to? Do we believe that better negotiating tactics will overcome customer's knowledge of identical choices and alternatives? Do we think that blowing up more balloons in the showroom or putting a bigger gorilla on the roof will make the difference? Simply stated, the business has changed, average front end grosses will not be what they once were, and we need to change the way we are operating to remain profitable.

The need for such a pr...

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 cu...

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 ...

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-chan...

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.

Update...

Thanks to Sean Snyder at NADA, below you'll find the table containing both the '08 and '09 used retail sales by category along with their variance.  As you will see, franchise dealers were off a bit, independents were almost even and the private party (casual) sales took the biggest hit.

2008                 2009           Sales Difference         % Difference

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

Independent        11,741,997       11,712,216   

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 perf...

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 a...

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 ...

Yesterday I participated in an Automotive News webinar with Tom Kontos, the Economist from Adesa Auto Auction.  This seminar can be purchased and downloaded from the Automotive News website.  I think that you would find it informative and instructive.  I have a few thoughts from the seminar that I’d like to share. 
First, I concur with Tom Kontos’ prognosis that dealers will experience further tightening of used vehicle supplies in the coming year.  Further, prices will continue to be strong.  Obviously there will be some ebbs and flows throughout the year in specific segments based on fleet and lease maturities.  There are also always risks of the unknown based on volatile factors such as oil prices, weather patterns and similar phenomenon’s.  Further tightening of supply and continuing high wholesale prices will create stress for dealers in two respects.  First, they will find it difficult to purchase vehicles for prices that allow for a traditional profit margin.  ...

You can hardly turn on the news or open a newspaper without hearing or seeing headlines about another government program to rectify the ills of the economy. I have to admit that as a somewhat conservative leaning person, I have found some comfort in government programs that are directed towards economic recovery. Lately, however, I've become increasingly uneasy about what it all means for the future.Last weekend I spent some time with a friend of mine that is a bankruptcy attorney. I asked him if his business was "off the charts strong". Surprisingly he said that it wasn't. He explained that although there are more people than ever who are upside down on their mortgages and various loan payments, relatively few were prepared to file for bankruptcy. The reason is that the government is providing so much assistance and encouragement for lenders to reform and forgive debt that people don't want to file for bankruptcy. He explained that this is a perfectly understandable response as bankru...

There is an article posted on my blog dalepollak.com from November 12 entitled, “What the best of the best do when they make a mistake.”  This post profiles the shared experience of two of the best used car operators I know, John Chalfant of Edmark Superstore, Idaho and Roy Greenblatt of Matt Blatt Dealerships, New Jersey.

Each of these operators tells the story of how their used car inventory and operational results have suffered in the third quarter of 2009.  Chalfant and Greenblatt both expected to continue their big sales volumes through the end of the year, not withstanding the historical slowdown that generally occurs.  Both of them acknowledged having made a mistake, finding themselves with more inventory than they needed to maintain their usually 15 to 18 annual turn rate.  To their credit, they both pursued an aggressive strategy to “come clean” by quickly reducing their overstock of vehicles at the expense of gross profit.

Their decision to dump excess inven...

Today’s used car business is varied and complex.  What you have to do in order to be successful spans a wide range of skills from traditional lot management to virtual marketing.  It is unreasonable to expect success to occur by simply working harder and faster.  Rather, specific conditions must exist for success.  So what are these conditions? 
 
The first set of conditions are called “paint metrics”.  Paint metrics refer to the more traditional physical side of used car management.  Today’s paint metrics, however, are new ones that most dealerships do not understand or use.
 
The first paint metric is the market day’s supply of the vehicle and to know it before you determine whether you want to own it, how much to pay and how to price it.  The relationship of the vehicle’s supply and demand in your live market is a powerful predictor of how fast it will sell, and how much gross it will generate.  Dealers understand how this supply and demand dynamic works...

Below is an interesting letter that I received earlier this week and my response. I'd be interested in your thoughts. Thanks

Hey, Dale. Enjoyed your article in Sept. and Oct. '09 issues of Auto Success about Volatility and Velocity. I agree. We don't broaden our horizons enough, and with a shrinking market share (domestics), we will have to do so in order to appeal to a big enough share of the buying public. Also agree with your discussion of hiding true wholesale loss. However, when talking to my sons regarding the broader topic of all "packs", and your feeling that charging retail in the fixed end to used car reconditioning is wrong. That battle was over long ago. NADA and twenty groups successfully justified the case for that on labor, and subsequently on parts, and won that batle and I disagree with you wholeheartedly on bringing up that old turd again.

You seem to be only for velocity at minimum gross. It is not sin to make money. If you prevail with your argument for removi...

On a previous posting entitled Two Old Timers Teach the Industry a New Trick on October 21, I wrote about 2 dealers in their late 60's that were starting up a centralized buying service company called SunStar, located in North Carolina. Scott Wood, Director - eCommerce/Digital Marketing at SunStar who leads this new company, recently wrote me the below note. With Scott's permission, I'm posting it on the blog with the hopes that others in the industry will provide input and response to Scott's questions.

My second purpose is to connect Scott and SunStar with dealers around the country that are looking for alternative ways to source vehicles. I'm certain that the old way of doing it won't work so well in the coming year. Please feel free to provide Scott with your thoughts and contact him directly (scott@sunstarautos.com) if you think that his model works for you. I have absolutely no personal or financial stake.

Thanks.

Hi Dale -

Glad to hear Nashville went well for you.

...

Over the past several weeks I've received numerous requests to meet with dealership personnel to review the basic fundamentals of velocity management. I'm finding it increasingly difficult to set dates and appointments in the near term. As a result I will be conducting periodic velocity training classes at our office in Oak Brook, Illinois on Sunday mornings. I realize that it's short notice, but the first one will be held this coming Sunday from 9am to noon at our office. There is no charge for the class other than your time and travel. There is a Marriott Courtyard across the street from our office, and if we plan correctly, there may be no need for a rental car.

Presently I have approximately 15 seats left for this Sunday and I'll be happy to work with anyone that would like to attend. Simply send me an email at dpollak@vauto.com with the subject line Sunday School Registration as well as your name and the name of the dealership in the body of the email. I'll confirm your reserv...

Thanks to the leadership of Nancy Pollak, Krista Lyons, Michelle Black and Susan Taft, yesterday our company kicked off its green initiative.  We’re on a path to achieve our Earth Flag. 
To this end, we have undertaken an aggressive initiative of conservation and sustainability.  We’re in the process of transitioning all of our cleaning chemicals to ones that are eco friendly, eliminating non-recyclable products and embarking on a significant energy and water conservation program.
This initiative reflects the commitment of our company and associates to give back to our community and earth.  We’re all extremely blessed with abundance, and we all vow not to take it for granted. 
I would be interested in hearing about ideas and methods that anyone else may be using to be better stewards of the environment....

On October 20th I posted Incoming wake up call. In this posting I spoke about dealer Keith Kocourek's impressive jump in used car market penetration relative to his competition.Just in case anyone thinks that improvement happens by accident, below I am posting another communication that I received from Kocourek yesterday. In Kocourek's latest note he celebrates the success of achieving 10,000 VDPs from his AutoTrader investment. Today, most dealerships don't know what a VDP is, or have any clue as to whether they should get 10, 10,000 or 10,000,000 per month. The fact that Kocourek is celebrating this achievement suggests that he is in control and command of the conditions that lead to online success. He knows what most dealers do not, and he's benefiting from his knowledge and control of the variables that really drive performance improvement.
I've come to understand that in the increased complexity of the used car business there are a multitude of new things that matter, many of whi...

I would appreciate thoughts from anyone that uses money-back policies. How effective do you think they really are, how much do you charge the car, how much does it really cost?Dale - could you please forward me contact information on Dealers that are successful at implementing a return policy. If you have any sample language that they use that would be helpful also. Thanks for your help and support!...

Today I received the below email from a new customer. Please read his message and my response. I welcome any input you might have on this subject.
Dale - upon return from my recent 20 group meeting, I sent an email to our GM's with a new plan to kick into gear and I would like your feed back as to whether this has been done, should be done or if we need to tweak it.
I will become responsible for all inventory over 90 days at all stores. I will take on the responsibility for the disposition of the old inventory (with the help of the store GM). Whatever loss or gain is realized with the disposition is put into a bucket during the month. At the end of the month, that amount (positive or negative......obviously it will be negative) will be:

A) spread evenly to all of the remaining used car inventory in stock at that store
B) *or* we will begin adding an additional pack of between $300-$500 per fresh used unit purchased or traded for, those dollars are put into a separate bucket and t...

Every day I become more convinced that the ability to source used vehicles is and will continue to be the core competency of a successful used car operation. Simply waiting for trades or going to the local auction won't get the job done.

As many of you know, I've been running stocking analyst training classes around the country. We performed one in Chicago last week and another yesterday and today in Charleston, South Carolina. These classes are well attended and the participants have given us tremendous feedback. Most importantly, these managers are going back to their dealerships and finding it much easier to identify and source vehicles that are right for their markets and their check books.

Unfortunately, the effort required to do the work necessary is not feasible in traditionally managed dealerships. Used car managers at such dealerships are too busy and unfamiliar with the technique and tools necessary to get the job done. This is why I'm absolutely convinced that it req...

Yesterday I had the privilege of spending time with Michael Lewis, the author of Liar’s Poker, Blind Side, Moneyball, and other fascinating books about business, sports and life. It was Lewis’s book Moneyball that inspired me to start vAuto.

In Moneyball, Lewis describes how Billy Bean, General Manager of the Oakland A’s, managed to beat almost every opposing team, including the Yankees, with relatively unknown and low-paid ball players. The key to his success was building a team based on new measurements and metrics that he found more relevant in predicting success than those that had been traditionally used by major league baseball.

My first book, Velocity: From the Front Line to the Bottom Line, launched the velocity movement to rethink and revise the metrics of used vehicle management based on the principles of supply, demand and price sensitivity. Although there were fundamental changes to the used car marketplace that triggered the need for new metrics (unlike in base...

All of the trade magazines have been reporting the continued escalation of wholesale used vehicle prices. In spite of these reports, I can’t help but question whether these trends will continue. I say this in light of what I perceive to be soft used vehicle retail activity throughout the entire country. With few exceptions, it seems that cash for clunkers has zapped the vitality out of the previously robust used car market.
To this extent, I asked Rich Kelley of the Germain Group in Columbus, Ohio and Cary Donovan of the Sam Swope Group in Louisville, Kentucky to assess the current and future state of the used vehicle wholesale marketplace. What follows is their assessment. While there are no guarantees of the future, the views of these two highly attuned used vehicle directors represent a realistic and reliable forecast.
From Rich Kelley:
I have felt a softening for the few weeks primarily in what I refer to as filler units. Retail sales have been slowing since the end of Augus...

For most dealers, getting cars displayed on their physical and virtual front lines is a linear process. Typically, a vehicle moves through the traditional physical reconditioning and retailing phases, and once complete, photos, descriptions and pricing are sent to the internet. I’ve come to realize that this practice is extremely slow and inefficient.

We should recognize that there are in fact two front lines, one physical and one virtual. There is absolutely no justification whatsoever to wait for the vehicle to be physically prepared in order for it to be sent to the front virtual line. Therefore, vehicles should move to the physical and virtual front line simultaneously on parallel tracks.

Initial pictures from the auction, appraisal or stock photos can be used with a banner or caption saying, “coming soon”.  The price of the vehicle should not depend at all on the reconditioning cost as it must be placed appropriately in the market. If your reconditioning costs end up ...