Join Dale Pollak for a Webinar on December 15

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While it’s understandable that dealers are having a difficult time finding the right cars that can be purchased for the right money, the perception that it can’t be done is absolutely incorrect.  In fact, many of the nation’s top dealers are sourcing the hottest vehicles for the right money, it just simply requires a new strategy and a different approach.  Dale Pollak will review and demonstrate the strategy of Engineered Inventory using the free agency approach.  Webinar participants will see a live demonstration using an actual dealer’s market of how to identify the best vehicles and purchase them for the right money.  This webinar is an essential lesson for dealers, GMs and used car managers.

Title:         Engineered Inventory

Date:        Wednesday, December 15, 2010

Time:        11:00am – 12:00pm CST

The reality of today’s market is that vehicles need to be priced right in order to drive traffic.  This means that you can not negotiate as much, or in some cases, at all.  On Friday, November 19^th, at 11:00 a.m. CST, Dale Pollak, a leading used car expert and best selling author, will present 4 practical strategies that will enable documentation to replace negotiation.  Using these easy techniques, dealerships can expect their profits to rise without sacrificing volume. 
Reserve your Webinar seat now at:  https://www2.gotomeeting.com/register/444183314

Today I have the privilege of announcing the signing of an agreement for the acquisition of vAuto by AutoTrader.com.  I would like for you to understand how I arrived at this most important decision and what it means for all of us.

Over the past several years, it has become apparent that the used car business is increasingly more and more about the Internet.  Further, the growing community of Velocity minded dealers have come to the realization that their business strategy depends on virtual marketing proficiency. Realizing that neither inventory nor virtual marketing proficiency alone is enough for success, the connection between our company and third-party web providers became obvious.  In other words, it has become clear to me that inventory management and virtual marketing must be real-time and highly integrated.  To this end, I began to consider the need to form a closer working relationship with online third-party merchandise companies.

Two years ago, I was invited to AutoTrader.com’s annual sales meeting.  From the audience, I watched Chip Perry, AutoTrader’s President and CEO announce to his field staff that they would no longer be sales representatives, but rather advertising consultants.  Chip told the audience that their dealer’s sales objectives had priority over their own.  It was further announced that ongoing formal training would be provided to facilitate their field staff’s transition from sales to consultants. Over the past two years, I’ve had the privilege of assisting in this training process, along with other highly respected institutions, including NADA Academy and Northwood University.  As I became more acquainted with the men and women at all levels of AutoTrader, I came to understand their commitment and desire to engage in this change and to serve the interests of their dealers as their first priority. 

In addition, AutoTrader was willing to assist vAuto and our clients by providing access to its deep database information about vehicle supply, demand, consumer preference and behavior.  I felt as though I had discovered and been given access to a treasure trove of information to assist dealers.  The benefits of our mutual cooperation lead dealers to frequently ask why our two companies don’t combine to provide even more real-time and deeper integration. In essence, the decision to unite with AutoTrader was a natural and easy one. 

So what does the combination of AutoTrader and vAuto mean to you?  Well, first I will personally assure you that we will continue to put the interests of our clients before our own.  We will also have access to even more real-time data that will improve your competitive advantage.  By combining technical and data resources, our newly united companies can provide tools and services for dealers that would otherwise not be possible.  Maintaining our service, improving our product and continuing to innovate are the three tenants that motivated me to take this important step.

There are obviously many questions as to how our organization will operate under the new ownership structure.  First, I want you to know that our entire management team will remain intact. Further, there are no plans to modify our organization with respect to its structure or personnel. vAuto’s and AutoTrader.com’s Sales and Consulting Teams will remain in their current configurations and continue to operate separately. To be clear, the acquisition by AutoTrader.com is an express endorsement of who we are and how we conduct business. The intention is for us to continue forward with our same passion and commitment.

On a very personal level, I am extremely grateful to the extraordinarily talented and highly motivated vAuto team. To each of you that have helped bring us to this point, I want to express my greatest appreciation, admiration and gratitude.  I believe our best days as an organization are ahead.  With this move, we will be able to take our mission to yet an even higher level.

To our dealer clients and friends, we owe you an exceptional amount of gratitude for your loyalty and trust.  We’ve gone to bed every night as you have with genuine concern for your business.  I want you to know that our work together has only just begun.  I’m looking forward to “wowing” you with many new and even more powerful innovations, ideas and tools. 

To the broader industry of solution providers, please know that both Chip Perry and I want to continue the partnerships that we have all worked so hard to create. 

Finally, I want to express my love and appreciation to my mom and dad, wife Nancy and sons Austin, Alex and Samson.  You have been tremendously supportive and understanding and have made the sacrifices necessary to allow vAuto to thrive.   

I will remain committed and loyal to everyone as together we enter the next phase of our relationship.

Respectfully,

Dale

The present moment in the industry is one between from where we came and where we are headed. Although there is a growing trend of dealers characterized by the velocity movement that are learning and executing the principles of velocity management, there are many others that have simply adopted the practice of equilibrium pricing. The consequence for such dealers that are willing to price at or near equilibrium without attaining greater operational efficiency has not yet been realized. Without question, over time this group of dealers will experience results that will cause them to retreat from the market by either reverting to non-equilibrium pricing or pursuing other more attractive investment opportunities. In the meantime, the entire industry is experiencing the pressure of a market place in transition. Long term survival and profitability will depend on dedication to and a clear understanding of market efficiency and velocity management principles.

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

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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 (Includes about $30,000 of write down money we took to gross)

2010          89 Units              243 Units        -28,000        $44,000

Overall I’m very pleased with our progress, but we are not making more money and that has me concerned.  I’ll put my thoughts down and then ask for input from either of you: 

March and April of 2010 have been our 2 biggest volume months of used cars in the last 5 years that I could easily put my fingers on and I think our 2 biggest months ever overall and consecutive (66 in March and 74 in April).  This with dramatic decreases in new vehicle sales(which also decreases nice trade-ins).  We have worked really hard to go out and buy the right vehicles with the help of your tool.  While that is exciting news and our salespeople are making some volume bonuses our used net is not at a 5 or 10 year high.  We seem to be struggling with our gross both front and F&I.  We have had no more than 5 vehicles over 60 days for the last 2 years and that probably affects our gross somewhat, but we would like to see our front gross up around $1,500 (currently at $1,200).  It also seems difficult to keep our F&I gross up on deals closed online or over the phone (our F&I gross is $455 per unit which is not far from our goal of $500).  I was thinking that if we could get consistently up to 65 to 70 used that we could move our used net to $20,000 per month, but it seems we have had to sacrifice too much gross (can’t move it from $1,200 to $1,500) to get to that unit level.  I fear if we now try to move to 75 or 80 units per month it will not pay in net (I realize more service gross in the process) with a bunch more work.  Our expenses are low in our 20 group other than personnel, which is a decision we have made to keep an additional manager that we could probably do without as I plan to move to the dealer position in the next few years.  In other words there are not huge expenses that can be cur.  Any other insights from this limited data?   Anything else either of you would like to see?

Thanks to both of you for the great product we have the privilege of using and the support that comes along with it.  It is a game changer and we buy it 100%.  I just need to figure out how to use it more effectively to get a little better net to the used department.  - Chuck.

Chuck,

Thanks for your very thoughtful note and analysis.  I have several suggestions and observations.  First, welcome to the reality of today’s used car business.  The reality is that you and every other dealer are working in a highly compressed margin environment.  Unfortunately, wholesale prices of used vehicles have risen much more than their retail counterparts.  This is because there are obliviously many more used car wholesale buyers chasing fewer vehicles.  On the retail side, banks won’t advance as liberally as they once did, and more and more dealers are pricing aggressively.  Unfortunately, I don’t see relief for this condition in the near or intermediate term.  For this reason, I would encourage you to look for evermore places to become more cost efficient. 

In light of this reality, you’re confronted with a dilemma, and that is the need to make more profit with less margin opportunity.  The most common response and the one that is incorrect is to raise your prices.  The effect of this strategy is like shutting the oxygen off to the patient.  While you might be successful in raising your front-end average to your target level of $1,500, you will undoubtedly sell fewer vehicles and make less total gross. 

Another incorrect alternative strategy and one that many dealers have used without realizing it is to put more money into used car inventory.  This method allows the dealership sometimes to sell a few more cars, but ultimately produces an even worse return on investment. 

The only viable strategy is to go fro money to metal, from money to metal, from money to metal as many times as you can with the present amount of cash.  This sets up the question of how you’re going to move merchandise even faster without lowering prices even more which would seemingly make your average gross profit dilemma even more difficult.  Well…here’s the answer. 

You must begin to manage average gross profit, but you have to do so in a new way.  I would offer you the following three strategies for properly managing gross profits.

First, recognize that we have built a culture in the showroom over many decades of big negotiation.  When cars are priced right, you can not afford to do as much negotiation.  While everyone is concerned with what you tell a customer that expects a large discount or trade over allowance, that is not the biggest problem.  Chances are the customer arrived at your store because they already satisfied themselves that your vehicle is priced right.  Unfortunately, they just don’t announce that fact upon arrival.  The real problem is in the mind of your own sales people.    Based on decades of high mark-up pricing, we have taught them that they need to negotiate, and now it’s time to change that culture. 

This begins by taking the vAuto system into your sales meeting and showing the sales staff how sophisticated you are philosophically and technologically about pricing your vehicles for sale rather than negotiation.  You would like your sales person to leave the meeting with a bounce in their step, and when they greet the first customer of the day that asks “what are you going to do for me”, your sales person responds with the true belief and words “come on…we both know why you’re here”.

The second key strategy of proper gross management is to have documentation replace negotiation.  It’s a crime that you’ve used the most sophisticated price tool in the universe to get the customer to the store but yet a sales person is out in the showroom struggling to justify its price without data.  The vAuto tool has a showroom report that is designed to show a customer why your vehicle is priced fairly. It doesn’t need to be the lowest, all you need to do is to show why lower priced vehicles are not exactly the same as yours, i.e., mileage, equipment, condition/history, etc.   Using this data to open a customer takes away the most powerful weapon they have that costs you gross in every single negotiation, the weapon of BS and exaggeration.  Not only does this strategy reduce the amount of discount, but it also reinforces in your sales person’s mind with each presentation as to the appropriateness of your asking price.

I believe so strongly in the need to do replace negotiation with documentation that I have built and launched another tool called RealDeal.com.  This new system is to the price what CarFax is to the car.  In other words, objective, third-party validation as to the fairness and value of the price on a specific vehicle.   I would encourage you and every other dealer to see a demo at www.RealDeal.com. 

The third strategy is to begin measuring the amount of discount between asking and transaction price for each transaction and each sales person.  The mere practice of measuring the discount creates almost automatic reduction in the amount of discount of the average transaction.  Over time, you will create a competitive environment that will reward sales persons not for how much gross they make, but rather for how much gross they gave up. 

Dealerships that have been using these practices are able to reduce the average amount of negotiation from thousands to just a few hundred.  The effect of these strategies will dramatically improve your gross profit as they wipe away needless discounts.  Please check with your vAuto Performance Manager for training classes that we offer around the country (no charge).  Thanks and let me know how it goes for you. - Dale

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. 

Instead of conveying the appropriateness, the way these large retailers are attempting to execute this important second act is by using what they call “limited negotiation”.  The desire or need for limited negotiation evidences the fact that these retailers have not yet fully come to terms with the fact that sellers can justify value and buyers can validate their decisions in a more efficient and pleasing manner than limited negotiation presents. 

The process of justification and validation does not need to take the form of any negotiation, even a limited one.  Rather, once a vehicle is priced right, documentation can replace negotiation.   Once the vehicle is priced right, all the dealership needs to do is to document why their vehicle’s price is worthy of acceptance.  To the extent that this can’t be done in the context of competing vehicles and in light of present technology, it merely suggests that either the asking price isn’t right or the documentation isn’t sufficient.  After all, in the case of used vehicles, every seemingly identical car has some differences (i.e. mileage, history, equipment, etc) and in the case of both new and used vehicles, every dealership has a unique value proposition such as warranties, service, etc.  The fact that a dealership still must negotiate suggests that the dealership has yet to understand that proper pricing is a two-act show – with documentation replacing negotiation in the second act.

If you are wondering what “state of the art” documentation looks like, feel free to click on the link to view the RealDeal product.

Let me know your thoughts.

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 display is your responsibility.  If I hear one more excuse from the used car department that it's not their fault, I'm going to go postal. 

Used car managers and GM's would never tolerate a used car lot with empty spaces on the front line, cars not parked straight and covered in dirt.  Yet, the disorderly way that their vehicles are displayed on the Internet is tolerated, or perhaps more disturbingly, not even noticed.  It's past time for any GM and used car manager to take responsibility for making sure their vehicles are on the Internet quickly with prices, quality photos and compelling descriptions.  I know that many who read this post will assume that their virtual display is well represented in this regard.  The sad fact is however, that if you could see what I see using vAuto's virtual view tool, you would not be happy.  If you're a vAuto client with the virtual view tool, take a look at your on-line display through this lens and tell me how satisfied you are now.