Dale Pollak is a former Dealer, Author, and the Founder and CEO of vAuto.

Chapter 1: Margin Compression

• The automotive industry is in worse shape than anyone cares to admit
• The way OEM's are operating is harmful in many ways
• Our industry is plagued by lack of transparency
• Every dealer is out for themselves causing a lack of co-operation and growth
• The last 10 years has been easy in the automotive industry, skewed profits
• Inefficiency and lack of transparency from the top (OEM) 
• Margin Compression - Why selling more cars isn't the answer
• Sales are going to flatline at best, more likely to decline
• New Vehicle Stats according to NADA:
  •     In 2005 Dealers sold 852 units/year on average with a $1,420 front-end gross
  •     In 2009 Dealers sold 615 units/year on average with a $1,049 front-end gross (26% decline from 2005)
  •     In 2014 Dealers sold 1,003 units/year on average with a $808 front-end gross (43% decline from 2005)
  • During this time period, dealers had to pay 20% more for their new inventory due to increased invoices from factory
  • Dealers investing more money in new and used inventory and making less money, and it's getting worse
• Used Vehicle Stats:
  •     In 2005 the average used vehicle sold for $14,925 with an average profit of $1,791 (12% of retail)
  •     In 2014 the average used vehicle sold for $18,700 with an average profit of $1,608 (8.6% of retail)
• 5 Factors that will hold dealers back from profitability:
  •     1. Volume Limits - a coming downturn in the economy
  •     2. Interest Expense - odds are it will increase, floor plan will increase as well
  •     3. F&I Regulations - in 2005, F&I profit was 25%. In 2016 it was 40%. The Commercial Financial Protection Bureau is working on     putting strict limits on markup in the F&I departments
  •     4. Competition - 3 categories: Top 10%, Middle 20%, and Bottom 70%
  •     5. Ongoing Margin Compression - Internet making it harder to make money
• Those who operate with the "more sales more money" mindset (VCD, BCD) are in serious long-term trouble
• There's no guarantee that we will continue to receive VPA and stair-step support - Where would we be without it?
• I'd say were in the 20% category with room for improvement and potential to hit the top 10% in terms of operations effectiveness
• Don't structure goals or plan for year over year growth
• Make up the decline by selling more cars more efficiently
• 4 Assets for Dealers:
  •     1. Clients - use tech to our advantage, have them spend less time at dealership, be transparent
  •     2. Inventory - be smart when ordering, with dealer transfers, and turnover on how long our new inventory sits on ground
  •     3. People - strive for low turnover, hire slow but fire fast, higher turnover is costly
  •     4. Facilities - first impression, keep them clean and up to date
• In 2o16 the average dealer sat on a new vehicle for 100 days before selling it, the top 10% sold theirs in 70 days
• The best dealers retailed 55% of their used vehicles in 30 days (if they had 10 come in on trade, they sold 5.5 of them in a month)

Chapter 2: The Quiet Killer of the Automotive Industry

• Don't become dependent on factory incentives
• OEM's are promoting a negative culture in dealers with bonus money
• Dealers used to get paid on every unit, now it's a pyramid where it's all or nothing for dealers now
• The VPA has become operationally necessary for a lot of dealers (67%)
• Dealers make money by pleasing the OEM more than the client
• VPA and other forms of incentives make dealers do stupid things due to its all or nothing structure
• Month-end is the worst because one dealer needs VPA more than the other, forcing our hands to make a tough decision.  Match their price when we aren't in the same situation, or let the client walk.  The client doesn't understand why the other dealer can beat us by $3,000 which can have a negative impact on our reputation
• Dealers are now saying this is a no-win situation where the tail always wags the dog
• New vehicle buyers don't trust dealers, they become dependent on Edmunds and TrueCars for confirmation of what they should be paying.  But those prices are skewed because of the month-end aggressiveness dealers have to operate by in order to get their VPA bonus, so they are selling cars at a loss which misleads the consumer who's researching online
• It's ironic that the OEM incentive is meant to help dealers but actually it hurts the profit on the front-end
• Higher volume dealers have an advantage because they get higher bonus money, essentially lowering the invoice prices on new vehicles when they hit and exceed their VPA.  They are getting paid on 40 new vehicles compared to us at 20.  They get double the money to work with to buy down trades

Chapter 3: Today's Transparency Challenge - Dealers, Factories, and Fuzzy Math

• Let's face it, consumers don't like to buy cars from Dealers
• Only 17 out of 4,000 buyers enjoy the current buying process from dealerships according to AutoTrader
• 99% of Consumers expect to negotiate or haggle on price according to Driving Sales
• Why is this so bad, and how do we fix it?
• We have inherited a poor historical reputation for various reasons
• There was no regulation on advertised prices so dealers could charge whatever they wanted for a new vehicle
• Dealers manipulate their prices in marketing due to VPA and Fast-Start programs, making it confusing to buyers

Chapter 4: From the Upper Hand to the Giving Hand

• It used to be less transparent so consumers were easily taken advantage of and they were none the wiser
• Perhaps if today's consumer understood the old way of selling, they would appreciate how it's done today.  At the very least, it's a little transparent
• Traditional selling isn't meeting today's consumer expectations
• It's imperative to keep pricing consistent across all channels
• Buyers want transparency yet dealers are reluctant to provide it. Those who do, have an advantage
• Information from AutoTrader for BidzAuto:
  • 72% of Consumers want to spend less time at the dealership
  • 56% want to start the process online
  • 45% want to remain anonymous until completely necessary
• Trust and responsiveness trump price according to Driving Sales
• 56% of consumers would buy from the same dealership again if this preferred way of dealing was met
• Consumers want dealers to give the price first, they want us to make the first move
• 3 Steps to lend a helping hand:
  • 1. Engage
  • 2. Communicate
  • 3. Automate
• What's the goal with your website? To get an appointment, sell a vehicle, start a conversation? How is your website aligned with your goal now?
• Let the consumer structure the deal without providing personal information for optimal success (payments, price, term, finance rates, etc. available without providing info)
• 85% of consumers want the F&I information before getting a quote
• 66% of consumers say they would purchase if they had the appropriate information ahead of time
• At some dealers in the States now, they are making more per transaction and closing at a higher rate online for F&I than they are at the dealership

Chapter 5: Buying a car in the not so distant future

• Client in and out of the dealership within 45 minutes total, start to finish
• Consumers can make up majority of deal through dealer tools
• One price model coming on strong in the industry
• Lexus has a "No Haggle Price" Program, Cadillac does as well "Platinum"
• Autonation and Sonic Automotive are major supporters of change 
• In 15 years we'll be a glorified delivery service
• Online sales gross more than in-house
• Traditional beliefs will increasingly become barriers to future success

Chapter 6: Making your people a higher priority

• Dealers invest high in people but manage poorly
• Human Capital Management is the largest inefficiency in the industry today
• Employee pay is the highest expense but still have a 37% turnover rate due to poor management
• It's an industry embarrassment
• Hire slow, fire fast
• Depend too much on intuition in the hiring process instead of a system
• Dealers are becoming more flexible with hours, wage, and improving culture to keep turnover down
• The Top 10% have happy employees which translates to happy clients
• The Top 10%: 1) Assess themselves - where can we improve? 2) Be consistent - structure to everything 3) Investment - ongoing training, defined career paths for employees
• Need to have a people first organization

Chapter 7: Automotive Retail Regulation

• CFPB is out to lower markup on F&I profits but NADA is pushing back
• Want flat fees instead of markup
• Public views CFPB as a noble business so not likely to go away
• Compares current dealer F&I situation as the housing bubble (long-term loans, easy approvals) and CFPB is here to protect the people
• $2,000 average back-end profit for dealers
• Autonation doesn't sell used (retail) vehicles with open recalls without a window sticker notifying the client
• Look for open recalls on potential trade-ins before providing a value because it can lower the value of the unit and take longer to sell if you are waiting on parts

Chapter 8: Dream Homes and Dealership Data Streams

• Dream home developer metaphor: you pay more for a reputable contractor but you find out later that you have to buy fixtures, faucets, etc. through them. They control the price so you pay more.  This is what dealers face with DMS providers.  They charge you unnecessary fees but you have no choice to pay them. 
• The data that flows through the dealership is being surcharged unnecessarily
• The bulk of data in our system hackers don't want, so security backup is irrelevant, yet we pay for it
• We are being taken advantage of by solution providers
• "Pay to play" data access isn't sustainable

Chapter 9: A kindly call for OEM efficiency on the production

• OEM's could pay more attention to consumer demand when it comes to producing vehicles
• Dealers are ones who suffer due to interest, changes in incentives, slow moving cars, used vehicle prices
• Out of a 200 unit inventory, 1/2 are dead stock (3 months or older)
• Used vehicle inventories are higher in price because they are only a few years old. This trend also has a negative effect on parts and service (lower safeties)
• 45% of inventory is less than 3 years old
• Near new vehicles are more difficult to sell
• Just as dealers have to become more operationally efficient, the same goes for OEM's
• OEM's are after short-term profits, no long-term thinking

Chapter 10: Do it yourself or pay someone else?

• Metaphor: Change own oil, cut own grass.  Could do it yourself better than the hire could. But what's the value on productivity in another area and your time?
• Used Vehicle Reconditioning:
  • Takes 7+ days to get vehicle reconditioned
  • $85/day in holding costs = $600 per week in lost profit
  • Measure delays in service and tech efficiency - how is this negatively affecting our profit
  • Look into outsourcing for quicker turnaround, saves money in the end (safety and detail)
  • 1st impression is crucial, have detail department keep current inventory clean at all times

Chapter 11: A taxing problem that goes unaddressed

• Packing used is no longer relevant
• High packs are high taxes on used inventory
• Charge added to good or service that can't be recuperated is a tax.  If you pack $500 to a unit but don't make up that revenue, it's essentially a tax
• Packs were put into place to lower commission to managers and salespeople, cover unexpected costs on used, customer loyalty programs, etc.
• Be more effective in trade values to lower risk of surprises
• If you have a $1,000 pack and take $300 to apply for customer loyalty program, you're taxing $700
• Higher packs are nothing but problematic
• What's your true inventory cost on used after taking out pack and retail reconditioning costs (versus internal)
• Near impossible to make a good profit on used between pack and retail safety/reconditioning work
• 2 Dealer Scenario: Dealer #1 has a $1,000 pack plus charges retail for reconditioning.  Dealer #2 has a $250 pack and charges internal for reconditioning. Dealer #2 ended up with an average of $500 more on the front-end profit and sold 2x as much inventory as dealer #1
• Dealers with $1,000 pack and retail charged more for their inventory to make up profit which became counterproductive, resulting in lower sales. They were selling from the bottom up
• "I contend that for a dealership to tax itself into prosperity is like a man standing in a bucket and trying to lift himself by the handle"

Chapter 12: A call for investment minded inventory management

• If I needed investment advice, the last person I'd talk to is a Used Vehicle Manager
• Aged units are bad investments that get worse with time
• Look at your used inventory as an "Investment Portfolio"
• Hope indicates lack of control. "I hope someone comes along that doesn't know any better and pays too much for this unit" You don't want to hear "hope" from your investment advisor, you want a sure thing
• Take the 1st opportunity to get out of a bad investment
• Manage investment quality not age
• Age is the wrong metric to manage.  It's the money or quality of vehicle that matters. If it's bad at Day 1, it will only get worse as time goes on
• Vehicle Assessment:
  • Is it wholesale, auction, or retail
• • What's the investment number versus sure to get money gap (ROI)
  • What's the current supply and demand of the trade
• Set a hard cap on your used inventory investment portfolio
• Here's $800,000 to work with, can't go over. Have a budget
• Used vehicle managers are like "trust babies", they can make financial mistakes but the trust is there from the dealer to always bail them out, giving the impression there's an endless supply of money and it forms terrible habits/thinking
• Maximize ROI on every used vehicle

Chapter 13: Operational Efficiency Imperative for Dealers

• Dealer groups are getting bigger through more acquisitions
• Used - sell 55% of their inventory in less than 30 days, 45% in 45 days
• New - sell 50% of their inventory in less than 30 days, 40% in 90 days
• * Less than 10% past the 90 day mark - How much of our inventory new and used is past 90 days?
• Dealers must meet client expectations through full transparency and convenience
• $600 is the average acquisition cost for new vehicles according to NADA
• Have to get the most out of our tech.  Like a smartphone, we're probably only using 20% of its true capability
• Have to track KPI's (Key Performance Indicators) to maximize operations
• Small dealers have a "David" (david and goliath) advantage over larger dealers
• Dealers who are most open-minded and willing to adapt to change will be the ones who succeed regardless of size

Chapter 14: A Kodak moment for our industry

• Ride-sharing companies are on the rise
• Operation costs are on the rise
• People are headed to urban areas where cheap public transportation is available
• Self-driving vehicles are the future, they can act as a personal chauffeur
• Pay as you go services for vehicles will become more common
• The auto industry could be the next Kodak

Chapter 15: Farmer Todd finds his Blue Ocean

• He bought more land, specialized in certain crops, and cut expenses
• He specialized in christmas trees
• What is our Blue Ocean strategy at Woodworth?
• How are we making the competition irrelevant?
• Blue ocean strategy generally refers to the creation by a company of a new, uncontested market space that makes competitors irrelevant and that creates new consumer value often while decreasing costs