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Global Acquisition: Solving Dealers’ Biggest Challenge
Today, dealers’ biggest challenge isn’t selling cars. It’s buying them. Learn how ProfitTime GPS brings Variable Management to any vehicle before you even own it.
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The greatest challenge that you and we are going to have as an industry for years to come is not going to be to sell cars. I mean, there might be some good times and some tougher times, but we're going to sell cars. The greatest challenge you're going to have is acquiring cars. And the reason for that? I mean, you probably understand, but think about the millions of cars that were not built by the manufacturers still are not being built that otherwise would have been put out on short term two or three year leases that would have been sold to commercial rental car companies, most of which would have flowed back into the wholesale market 18 to 24 to 36 months later. And that wholesale market is your feeding grounds for late model used inventory, the type of cars that support your success, late model inventory stuff you can certify, stuff you make good profits on and good back ends on. Well, that pipe is empty, largely empty, and there's no force of nature that can immediately make cars reappear that manufacturers are going to have to start production in a big way that feeds, you know, short term leases, but even more importantly, rental car companies. And then once those rental car companies get those cars built. Who knows when that's going to be? They need to be in service for six, eight, ten, 12, 18, 24 months before they start coming out, becoming available to you. So we believe at Cox Automotive and in particular, Manheim, that we have perfect visibility, perfect visibility to what the quantity of vehicles, the wholesale market and the nature of the vehicles, the characteristics of the vehicles on the wholesale market for years to come. And the bottom line is it's going to be short. When you do find late model cars, the type of cars you really need, for the most part, they're going to be high milers and they're going to be very expensive. Ones that are not going to give you very much margin opportunity. So I began to recognize that. And instead of just sitting waiting out the pandemic, we got busy. And what we did that I didn't anticipate doing is we built a whole nother side to vAuto. So everything you've known about vAuto up to this point has been sales tools. Well, what I'm going to show you now is the beginning. And I stress just the beginning. This is just the beginning of work that we will be doing for years to add a whole nother side to vAuto. And that's the acquisition side. And I want to tell you, when I talk about acquisition in a dealership, arguably it's the least managed, disciplined area of your operation. If there's anything in the dealership used car department today that represents the Wild, Wild West, there's nothing more than acquisition in just a little bit of proof of that. Okay. If I asked you to cite to me your performance metrics on acquiring cars. And if I'm wrong, I'd like someone to tell me I'm wrong. I think the best you could do is to tell me what your look to book is on trades, and maybe your cost of acquisition reflective of how right you're getting those cars. I think that's the best you could do today. I think if I asked you what's your look to book buying cars online at auction, what your acquisition costs to market is, no one knows those numbers. I bet if I asked you what is a good look to book at your dealership for buying vehicles off the street, I don't think anyone knows what a good look to book is. You're out of your service lane. Okay, so why is this important? Why is it important to put an acquisition side of managing your used vehicle department? Well, number one, it is going to be essential to your continued profitability. If you can't feed the beast, you're going to have trouble with the beast. But the other challenge here is that there is virtually no management discipline, performance management around acquisitions other than possibly trade ins and trade ins and auction cars are not going to get it done for you. What every dealer in the industry is going to have to do, and this might be the difference between those who are successful, those who are not, is to begin to build proficiency at acquiring vehicles from nontraditional channels. Traditional channels being auctions and trade ins, nontraditional channels being street purchases, service lanes, other sources. But you cannot expect to manage anything without measurement. And today, you have no measurement outside of possibly trade-in appraisals or acquisition. You have no measurement, you have no tools. You have no tools to improve your performance in a critical area of your future. So what I'm going to introduce to you here right now is just the beginning of a whole new side of vAuto that's in this ProfitTime software that will allow you to begin to manage for improvement on what I consider to be the most critical aspect of your used vehicle profitability going forward. And that's acquisition. With our global acquisition dashboard. Right now, this is just a dashboard, doesn't do anything for you. It will soon, I promise you. But right now it's what you need, because presently you don't have the ability to see what you're seeing here. You don't have the ability to say, okay, our number one source of acquiring vehicles in this example is trade ins. Okay. You don't have the ability to see the volume of those. You don't have the well, maybe you do, you don't have the ability to see how right you're bringing them in. Measured in this case, by your ProfitTime score, the higher the better. You don't have the ability to even begin to start to understand how to manage because you don't know where you're starting from. So measurement metrics are the beginning, the first step to management for performance improvement. Now, what I want to do here is to conclude with a couple more slides that are not made up data. I want to stress a lot of the numbers I showed you are just created for exemplary purposes. What I'm going to show you now are two real examples did not alter the data. These are going to be two Toyota stores from a group that I do business with in a state. Well, they have, I guess, stores outside the state. But in this case, they have two Toyota stores, roughly 150 miles apart. Very similar mid markets, they're not large markets, they're not small markets. They're what I would consider mid markets. These two toy stores, common ownership, common brand, very similar markets have two very, very different outcomes and it is all tied to their acquisition. Let me show you what it looks like. So dealership one here has an overall inventory with an average cost to market of 93%. They own those vehicles within 7% of their average retail asking price. Pretty high, pretty high. Their sister store 150 miles away Toyota dealership number two, 86% cost to market. That's a seven point spread, that's really significant. The opportunity for store two to have more profitable outcomes than store one is obvious. I think you all intuitively get that and understand that. But here's the important question: how does it happen? Well, the remarkable thing is it's absolutely traceable to how they're getting their cars, where they're getting their cars. So here's the true numbers here. Here is the global acquisition dashboard for the Toyota dealership with a 93% cost to market. Let's look at what's happening here. Number one source is coming from trade ins. I think that's probably understandable. But number two is auctions. And look at the associated ProfitTime score. I think it's around two versus maybe 8.8 for a trade ins. I mean, that shows you that they're getting their auction cars, but they're really paying up for them. And what you don't see on this list are any street purchases completely nascent. And, you know, somewhere down the line you see some service lanes. Congratulations, but not many. So where they're getting their cars from is driving, for the most part, their cost to market. By the way, both these stores have packs. They have the same pack and it's a relatively small pack. But you can see the inefficiency of their acquisition. Let me show you their sister store. It's really different. It's really different. You know, number one source, I think 46 coming from trade ins, is that right? 36 coming from the service lane and then 31 coming from ICO. 28 coming from street purchases. You know, way down the list, there are some auction cars. But look at the corresponding ProfitTime acquisition scores. I mean, you can just see it. It couldn't be more clear. And this is the stuff that's going on in every single one of your dealerships. But today, you have no visibility to it and consequently, you have no ability to manage it. And I think this is a really big opportunity that we all need to get our arms around going forward, because I do believe it's going to be your number one challenge.
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