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Have you watched the Variable Management Tutorials?

50-40-30-20: A Rational Sales Policy

Dive into the Average Days to Sell benchmarks to shoot for on vehicles of varying profit potentials. It’s a model for Variable Management done right.

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What our sales policy is going to be is yet another important difference between Velocity Management and Variable Management. Again, Velocity Management would say that we want every car to turn as quickly as possible. Seems right, right? Until it doesn't. So let me show you what it looks like when it's done right. Here is a similar composite done right. Now, the first thing that I want to point out to you is that the aid or excuse me, the price progression, the price progression across the four metal buckets is rational. 102, 100, 98, 96, it's declining. We're most proud of our best vehicles. And we're least proud of our worst vehicles. But we are not working to have a rational pricing policy as the goal. It is not the end goal. You might think that it should be, it's not. We're not working to get a rational age profile or a rational price profile. The rational price profile is simply a means to the end. It's the way to get to the outcomes that we're looking for. What are the outcomes that we're looking for? Well, remember I said we're going to have a variable sales policy. Here is a departure from what we all presently believe. I actually want to slow down. Slow down for the sake of higher gross. The cars that will bring it. Be a little bit more patient at a higher price for the cars that we now know will bring it, if we give them a chance, we allow them to. And on the other end of the spectrum, what I do want to do is I want to speed up the turn of the vehicles that need to be disposed of most quickly to salvage or to mitigate whatever ROI opportunity is presented. A big difference. No longer do we want to turn every car as fast as possible with that blunt instrument approach. Because what we now know, what we now know is that some vehicles are much less price sensitive than other vehicles. Maybe at some level we all thought that along the way but Velocity Management had no recognition of that reality that we now understand. And I want to say this again, it's really important that we all understand this. What we have determined and can prove objectively is that some cars do not need to be sold on price as much as other vehicles do. Here's what we now know and we can prove this is, as I said, some vehicles do not need to be sold on price or need to be sold on price as much, and we know why. And I'm going to tell you why but this is going to make sense to you. The first reason some vehicles on your lot don't need to be sold on price as much as others do is because you own the car really right. And every sales person on your lot can perceive the opportunity for a good commissionable gross and you guys know this is true. Sales people will walk people to cars they didn't come in looking for on the chance that they might buy it because that car gives an opportunity for a great spiff or a great gross profit. You know, commissionable gross profit. And, you know that's true so incentives, incentives among your sales force are not equally distributed across your inventory. Sales people will gravitate to those opportunities that give them greater commissionable incentive. And that's the first reason. The next reason some vehicles are now known to be not as price sensitive is because they're very popular in the market. They sell in huge volume. People in the market are craving the vehicle and they are in short supply. And you're lucky enough to have one of them on your lot. These are vehicles that are more likely than not your salespeople have a list of people in their drawer or their pocket who have said, if a car like this one comes in, call me right away. And you know these things happen. These are the cars that it happens. These also happen to be the same characteristics that make them platinum and gold. You own them really right, salespeople have great commissions. They're high volume, and they're short supply cars. These cars do not need to be sold on price. And I swear to god to you, I've told dealers this and they've tried it and it will be true and it would work for you as well. I've told dealers that if you don't believe me, go put a platinum or gold car on the internet and ask $1 million for it on the internet and watch how fast it sells. Now, it's not going to sell for $1,000,000. But people are going to blow up your phone and break your door down and say "You made a mistake. This is a joke, right? Come on, let's get going." And you're going to see, it's not going to deter the sale of the vehicle. Or put the vehicle on the internet, don't put any price on it. It's still going to sell fast. It's so ironic to me and in some sense also gratifying that I've spent a large part of my professional career trying to convince you guys to to lower the price on your cars. And you've argued with me, you didn't want to lower them. And these days I spend a considerable amount of time trying to convince you to raise the price. And you don't want to raise the price. And I say to you, "Why don't you want to raise the price?" And you know what you typically say in response? You'd say, "Well, if I raise the price on that car I won't get any eyeballs, I won't get any vehicle detail page views. No VDPs." And you know what I say? I say, "That's exactly what I'm trying to make happen." I don't want you to get a lot of VDPs on these cars. They don't need a lot of VDPs. The only way you get a lot of VDPs is at the expense of your gross profit by lowering your price. Right. And therein lies yet another, you know, contrary thinking to quote unquote, traditional good used car practice. Because haven't we done a good job convincing you in the past that the more VDPs, the better on every car? Haven't we done that to you? I have. But now we know that if you're working to get a lot of VDPs on some cars, you're absolutely just needlessly giving away gross. So I told you a few moments ago that a rational pricing profile is not the end goal. It's simply the means to the end goal. What is the end goal? The end goal is that we want to take our inventory, recognizing their unique opportunity and potentials, and we want a sales policy that is going to drive outcomes that are designed to optimize the ROI. And what are those outcomes? Well, on platinum cars, I'm going to ask you to be a little bit more patient. Not a lot more patient. A little bit more patient. We would like those platinum cars to sell on average of 50 days. We'd like your gold cars to turn in an average of 40 days, and we'd like your silver cars to turn an average of 30 and your bronze cars an average of 20. And when we do that, you will absolutely have optimized the return on investment by recognizing the unique opportunity that each vehicle in fact holds. It just kind of makes a lot of sense. Now, a few moments ago, I said to you, I said, I can assure you if you're capable of doing it, if you're capable of allowing the system to guide you to this 50, 40, 30 or 50, 40, 30, 20 outcome. I told you with certainty two things are going to happen. So let me tell you the first thing that's going to happen. With certainty, your volume will increase considerably. Why? Well, when you see your inventory for the first time through the investment lens, what you're going to discover is that every one of you, to a certain extent more than others, but every one of you have a significant portion of your inventory that's silver or bronze. Now, before I explain to you why you can be sure volume is going to rise, it's really important for me to make this point clear. The fact that a dealership has a significant percentage of their inventory in the silver or bronze category does not mean that you're making bad acquisition decisions. Absolutely does not mean that. I'll tell you what it reflects. It reflects the reality of the very efficient transparent nature of today's wholesale market. I mean, think about it. Sometimes you need to go to auction to buy cars. What auction are you going to go to to find a good low market day supply car that's high volume and get it out of the auction cheap. What auction is that? It's no auction. And yet sometimes you got to buy cars that you need. Right? And even trading for cars from customers. I mean, today customers know better than they ever used to know what the true value of their trade in is. How often can you trade for a car that's got good low market days supply and high volume and get it at a reasonable price today? Seldom. So you cannot help but have bronze and silver cars in your inventory. There's absolutely no shame, no shame in having those cars. But can I tell you where there is shame? Not recognizing them for what they are and not treating them as they should be treated for the purpose of optimizing the return on investment. That's where there's shame. So silver and bronze cars treated properly are great. They're great. They're volume cars. They're F&I cars. So the reason I can tell you that the first thing would happen if you allow the system to work is your your volume is going to increase. And how could it not? Because every single one of you today has inventory sitting in your lot, a significant percentage of your inventory, that's essentially priced not to sell, and I can prove that to you. So what do you think would happen to your volume overnight if you reprice a significant part of your inventory that's not priced to move, to price it to move? What do you think would happen to your volume? Of course it's going to grow and of course you're going to put more people through the F&I process and get more gross there. And of course, you're going to replace those cars and generate more internal fixed gross profit. Please. The question is, when it when it looks at the history, is it just looking at the market or your dealership's performance? And I'm going to address that more directly in just a moment. But the answer is both. Your specific dealership, history and characteristics as well as your market characteristics. I'll come back to that in just a moment. Thank you for that question. So if you did in fact recognize your silver and bronze cars for what they are, and if you did price them as you should price them to salvage whatever ROI opportunity there are, is your volume would grow your F&I would grow, your fixed internal fixed gross would grow. But you might say to me, Dale, if I were to do that, I might have some undesirable gross profit outcomes. And you know what I say in response to that? Yeah, you might. You might. But here's the only question you have to answer. Are you better off taking that today or some time in the future? And you know the answer. You know the right answer. So the first thing I told you that will happen if you allow the system to do what it does, which is really hard, is your volume would grow. How could it not? Every single one of you has a significant percentage of your inventory today on your lot that's priced not to move and I could show it to you. But I also told you that your gross profit is going to increase. Well, not only is it going to increase because you're generating a lot more back end because you're increasing the turn on your silver and bronze cars that are not turning very quickly right now. But your gross profit is also going to turn because these these platinum and gold cars that today your pricing as if they're distressed, we're going to ask the right money for those cars. And if necessary, we're going to be a little bit more patient with them. Perhaps 50 days, perhaps 40 days. Not objectionable periods of time. But I'm going to tell you, these cars will bring it. And one of the practical experiences that I have, which is really, really exciting to me, is it almost doesn't matter how high a dealer prices there platinum or gold vehicles. I've seen them price 108, 109 percent, close to 110%. And they still sell, they still sell under 50 days. And very often they sell in the days to sell very often is half of what their bronze cars are priced. Sometimes six, eight, 10% lower. I see this. Every single day. So, I mean, just to put a finer point on that, it might be the case where I see a dealer pricing their their platinum cars at 102% and their bronze cars at 96%. So that's a 6% spread, right? The platinum cars sell in half the time. 6% higher, sometimes 8% higher. Sometimes even 10% higher. They sell in half the time and it's there, you can see it. And I see it every day, all day long. And this is how I know that we are cheap selling the wrong cars. We're cheap selling the wrong cars. There are some cars we do have to cheap sell. But today, the differences, thanks to data science and better insights to these vehicles is today we got a pretty good idea of which cars are which. And I want to tell you, it's not perfect. It's not perfect. But on average. It's frighteningly accurate. Data science. Fascinating. So just to review the high point here, the tenant that supports the optimization of your inventory is that, again, a major departure, distinction, Velocity Management is we are no longer going to take an approach to sell every car as fast as possible. We're going to we're going to take an approach that's going to cause us to be more patient with some that will bring it if we're willing to give it an opportunity and we're going to be less patient with others that need to go as quickly as possible.
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1. 
What’s a key reality about used vehicles that Velocity didn’t account for?

2. 
What are three reasons some vehicles are less price sensitive than others?

Check the three that apply.

3. 
What is the consequence of lowering your price to get more VDPs on vehicles that aren’t price sensitive?

4. 
Match the ProfitTime precious metal to the desired average days to sell.

Bronze
Silver
Platinum
Gold
50 Days
20 Days
40 Days
30 Days
5. 
When a dealer implements a rational sales policy, what is one of the outcomes?

6. 
Select the precious metal categories that represent your “volume” vehicles in ProfitTime.

Check all that apply.

7. 
Why would implementing a rational sales policy cause your sales volume to increase?

8. 
How does Variable Management account for sales velocity?

View all quizzes and track your progress on your Certification Page


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