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Why Velocity Alone No Longer Works

Understand how the events of the recent years have hidden the once concerning trend of margin compression and why the underlying factors that caused it never really went away.

And for me, the case for change became evident in 2017. You know, it might seem like a long time ago to us now, given all that's happened in the past couple of years. But if we really think back as to what was happening in 2017. Do you all remember what our biggest complaint was in the used car business? We couldn't make any gross. And in fact, not only could we make gross, as reported by NADA on their annual composite that they call their Dealer Financial Health Report, roughly half the dealers in America had a net loss in their used vehicle department. And, you know, I think we had all seen new car departments go in the red some years earlier. And I think we came to understand that and perhaps even came to accept it. But I had never thought that there would be a day in my professional career where dealers would lose money selling used cars. And yet that's what happened in 2017, roughly half the dealers in America were in the red in their used car department. Now, if you consider what happened in 2018 and 19, the years leading up to the pandemic, it continued. Roughly half the dealers, half of you, lost money in your department. And let me tell you something about those of you who happen to have made some money. If you went back and you looked at the profit that you may have made and trended it across those three years, you would most likely find that each of those years leading up to the pandemic, your net profit declined. And yet, and this is what's really important, in those three years, our industry delivered record or near-record volume of used vehicle sales. Now, just pause on that for a moment and think about that, because don't we all believe in the industry that if we just simply sell enough volume, we make money? Isn't that just the basic assumption? And yet in those years, half of you were losing money and the other half of you that were making money, were headed down in spite of record volume. So you have to know that something was wrong. Something was wrong. And I happened to have recognized what was wrong, and it did make me very happy. What I began to recognize is that truly what had occurred is what people had warned me might occur that I was not willing to accept. And that is that the race to the bottom was on. The race to the bottom truly was on. You know, through the years that I was out there prophesying the virtues of Velocity Management, managers and dealers used to say to me, you know, "Dale, if everybody did what you say we should do, would there eventually be a day when you know, there'd be a race to the bottom and none of us would make any money?" And I used to say, "No, I don't think so." But in retrospect, I was wrong. And I'll own it. I'll own it. I was wrong. Now, to be clear, I don't think I created the problem. I think the problem would have occurred at some point whether or not I was ever in the industry. I mean, this is just the characteristic of the Internet. This is an unfortunate feature of what the Internet does. It distributes information to buyers and sellers, creates transparency, and margins shrink. You can't help but have that happen. In fact, there are many commercial industries today that no longer exist because that phenomenon and others that do exist but are hardly recognizable to what they once were. So I think it would have happened eventually whether or not I was in the industry. But what I do recognize today is that I probably did play a role in accelerating that in the industry. And for me, that was a really big problem. Because, I owe everything I have to being a dealer. My father was a dealer. I was a dealer. In the years that I've been on the vendor side of the business, dealers have been really wonderful in terms of supporting my family and me. And I feel like I owe everything I have to being a dealer. And if I can't help you, I'm certainly not going to hurt you. And I started to realize in 2017 that I wasn't doing anyone any good and perhaps was even creating some harm for dealers and the industry at large. So I gave very, very serious consideration to riding off into the sunset, hanging it up. I had sold the company to Cox Automotive at that point seven years earlier. I felt satisfied that I had done my part to help them in the transition. So I was pretty troubled and I was prepared to go. Before I was ready to go, however, I committed to myself that I'd give it one last hard look and God's honest truth, I had no belief that we would find a better way forward. But we did, in fact. And that's why I'm still here today. And that's what I'm going to share with you now.
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What happened in 2017 that necessitated the shift to Variable Inventory Management?

What is the primary focus of most used vehicle departments historically?

What role does the internet play in shrinking used vehicle margins?

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The Better Way: A Focus on ROI

See how a $2,500 front-end gross might be a good outcome for one vehicle and a bad outcome for another. And, why it’s critical to tell the difference.