5 Critical Mistakes Dealers Make: Is Your Service Department at Risk? | SDR #293

Welcome, everybody, to the big show. Today we're going to talk about the five mistakes dealers make. It's an interesting conversation. There's a lot of insights. We talk about what's in the news and kind of the, you know, impending challenges of the industry and much, much more. Coming up on this edition of Service Drive Revolution.

Happy fourth of July, everybody. It's that time.

There's a birthday coming up.

Christian and I will be in Washington jet skiing. What are you doing? Hungry for fourth of July. You having a barbecue?

Yeah, I think we're gonna have some people over to the house.

You want to try this special tequila?

Oh, sure.

Is that for me, by the way, this bottle of tequila, if you. If you open your phone to Safari and you put it over that little.it brings up an explanation of what the tequila is. That's pretty smooth. Doesn't this bottle look like kind of like Picasso designed it?

Oh, yeah. I could see that.

Pretty cool, huh?

That is so.

A friend of mine, that's a tequila connoisseur.

Tasted this and gave it a eight and a half out of ten. Which is like you and I giving it a ten.

Oh, okay. All right.

It's got a burn on the front, but it goes away really quick. It's interesting. It'll be like something. You look scared of it.

Okay.

You scared of it?

Yeah. I'll probably shelf it for a little bit later. I'm. I'm better. Not right at the moment. But it's got burn on the front, you said, huh?

Yeah. Yeah.

Are you afraid there's going to be technical questions or something?

No.

A test.

That's funny.

What are you doing for Fourth of July?

I think we're just gonna have some people over, barbecue, get some fireworks. My dad always likes to go all out and get like all the mortars and all that stuff. So I think that's the plan.

That happens where we are at the lake.

Oh, yeah.

I don't really like doing it. It's a lot of work. I just like watching.

Yeah. Don't they. When you tell me they light them over the lake, over the water or something like that.

Oh, it's a huge. It's a competition. Like, people.

Yeah.

On the lake try to outdo each other and everything.

You would think that, like, Microsoft sponsored.

Them in their 401k for their 4th of July setup.

It's nuts.

We have. We have a guy like two houses down, too, that literally just blows up his dog and he's going till like one in the morning. It's Funny.

That's one of those things where you can't get too old to enjoy fireworks.

Yeah, it's great.

It's pretty.

It is. It is. A lot of. It is a lot of work going through all of it, so. I used to enjoy it a lot more than I do these days.

But Christian is literally doing the National Lampoon Christmas vacation thing where he's renting.

Another RV this year. Yeah.

Showing up in an RV, doing an.

RV running up the 101 freeway. Up. Okay. Up California and bathroom.

That would be great. To just drive with the bathrobe the whole time. And then the cousin that he had. Oh, my gosh. That would be so amazing. But, yeah, I'm pretty excited for the trip. It's going to be. It's going to be good. So this is the fourth year in a row of doing an RV trip.

Yeah.

Oh, so you got.

We did Yellowstone.

Okay.

Sequoia.

Okay.

Grand Canyon. And now this.

Okay.

What are you going to do besides coming up to the lake? Where else are you going to see?

So I think there's. There's a couple of places right on, like, the California. Like Mount Shasta. We're going to go up and see that there's a couple of different beach spots that we're going to do, like Pismo, and that's not too far away, but that's our first stop. And then we're going to spend some time in Portland. We're also going to go visit one of our coaches in. In Bend.

Oh, you are good. See Coach Peter.

Peter.

So we're going to stop up there for a little while, and then.

That's a beautiful area.

And then on our way to.

To Portland, you can sign up for Antifa.

Yeah, I. They've been waiting for me, I would assume.

So. They're looking for you.

That's great.

As we were thinking about. As we're talking about fireworks, I think it's actually kind of a miracle just with how ridiculous I was as a child that I still have all 10 figures. I did some stuff I was not.

That's what I kind of figure my luck is.

Like.

I don't need to.

Take any chances because I remember how many times those fuses just.

They went off.

Bam.

I mean, me and my friends were dumb enough. We used to shoot Roman candles at each other. Anybody else do that? Like the little. The fireballs. It's like. Like, what could possibly go wrong? Like, your clothes couldn't start on fire or anything like that.

You always heard about the kid in school that Lost his hand, but they.

Were like, that idiot.

He never came back.

It could have just been us.

Well, naming by names, but one of our clients in Texas I was visiting recently, and he, like. I mean, it literally pretty much, you know, I don't want to get too graphic, but, like, blew his hand in half. Just. Just recently. Like, last 4th of July maybe, or the one before that. But yeah, he was shooting off mortars and one stuck in the tube, and there was people around, so he didn't want to, like, throw it or anything like that. So he just, like, stuck it behind him and it. And like, oh. Oh, it was. He showed me a picture of it that I. I don't want to. If you would have asked me, I would have said, no, I don't want to see it, but.

So he looks pretty recovered, though.

Yeah. Yeah, yeah, yeah, yeah. No, he's got pretty good. You know, like, all in all, I was really surprised that they were able to make it what it is. Yeah. Today. But, yeah, the irony is he's actually with.

He's also a responsible guy. He would not be the one that I would expect.

No, I was surprised, too. Yeah. Yeah. It's funny. Yeah.

Yeah. I'll take a couple books to read.

Yeah.

Christian on a jet ski is dangerous enough.

Yeah. So it's. That's a. Other funny thing is, like, so I told Raylan, my son, that I'm like, yeah, we're gonna be on the lake with Mr. Collins and we're gonna ride jet skis. He's like, are you driving?

So there might have been an issue with the jet ski a couple of years ago where, like, I literally dumped. So it was me, Raelyn and Claudia on the jet ski, and it was a two person jet ski, and I was putting three people in. I don't know if you guys can tell the camera adds 10 pounds. Like, let's. Let's just be honest about that. But I'm bigger, and so there's just a lot of weight on this jet ski. When I. When I gunned it to get everything going, we all flew off and it was like, it was super traumatic for him. And he still hasn't kind of. He hasn't gotten over that.

He's not going to want to go on the water.

No, no, I'll get him on there. As a matter of fact, actually, the chances are way better that he'd go with you than go with.

I don't like. I don't like having somebody be.

I don't even know if I don't.

Even understand what the purpose of that is.

I feel like, why would you want to ride behind somebody on a jet ski?

You got to drive that thing.

It's too intimate.

But I do think that I like my freedom. That is you seeing him on a jet ski, like he's that not a care in the world. He's got his music on, like, that's your happy place a little bit. But I do think that one things that so. So he won't ride with me on a jet Ski because he's worried about me knocking him off. But if we let Tim take him out on the boat, the raft thing, the tube, and he flings them all over the place, he'd never be happier. It doesn't make any sense.

My parents love to torture kids. They think it's the funnest thing. Screaming bloody murder and they're just laughing like. But it's funny. So I went and put the jet skis in. I don't know, it was a couple weeks ago. Yeah, more than that now. And of course, like, the batteries are dead, the whole thing, right. But get them in the water. And.

The one was dead, so I had to tow it to the dock. And then I ran a trickle charger through the water, which is what could go wrong. Nothing could go wrong, but it works.

But I took the other one that the battery worked. And it's funny because those jet skis are exactly the same. I got them at the same time. They're two different colors, but they're the same model, same everything. One of them is a pain in the ass. Like it just. If something's gonna break or whatever, it's that one, right?

Was that the one that had the light come on right when. Yeah, she got on it.

Yeah, the blue. It's the blue one, which. That's the one I should trade in for the 325, but.

I wanted to go for a ride or whatever. But the other one, you know, was dead. So I go out and Missy road behind me and I just, you know, went. And it's like, I don't know, let's say it's like 5, 30, 6 o' clock in the evening or whatever. And I'm like, is it raining? Like, I kept getting like water drops on my face and I'm like, oh, yeah, I guess it must be sprinkling. When I'm looking up and it's clear skies, like no clouds. I'm like, what's going to get back? There were bugs all over my face.

I guess it was that Time of year or something. I've never had that happen where there were that many bugs. The fish were jumping too. Yeah. Yeah, it was funny.

Yeah. Black.

I look like the front of a windshield that had been on a long road trip on my face. And I tell my, my parents that and they're like, you didn't smile.

Did you try to catch the raindrops on your tongue?

Pretty funny. What's in the, what's in the news? Chris Jones.

I've got two pieces of, of information in the news and really just kind of supporting the importance of service and fixed ops. Because I think that like there's this kind of, there's a cliff coming on the variable side and it's just like we can kind of see it coming that there's some things that are, that are stacking up. And the first is that it's from Money magazine talking about the fact that the card, the car dealer inventory has really just been ballooning up over the last 12, 13 months. And there was a point where they're refusing inventory. Yeah. In some cases the dealers are refusing.

Inventory and flooring expenses up because of interest rates.

Yeah. I remember there was a time where people were, were making money on flooring expense because they were moving the car so fast and everything.

Like, let's explain flooring because a lot of people in fixed stops don't know what that means. But yeah, explain it.

So the, so the way that I would explain it is if I had a new car dealership and I was going to get 50 cars from Honda, now I have options. I can pay cash and buy all of those cars from Honda directly and just write them a big check. Or I can do what's called a floor plan expense, which means that you kind of take out the loan for the money and then you pay interest on the value of the inventory that you've bought. So every month you pay whatever the dollar amount is times the interest rate that you have divided by.

But either way, Honda is getting paid.

When the car is delivered, but Honda is getting paid.

Honda's not floating those cars to you. So you have to, you have to pay for them either cash or on a line of credit.

They're either getting money from the bank or they're getting money directly from you. Now, for a really, really, really long time, flooring expense was, the percentage was fairly reasonable. And I feel like we had a really good run for a long time where it was a couple of percent, but it has been creeping up and up and up and up. And here's the problem. So the article says car dealers have so much inventory. So economics is supply and demand, right? So when you have a lot of supply, what happens to your pricing goes down? It goes down because you need to.

Get rid of your inventory.

So you have to sell your inventory. You sell it at a lower price. Now the inventory that you bought, if you floor planned it, the interest rates have gone up. So you're slimming your margin and raising your cost of inventory, which is not a good situation to be in. And that's how you get to a point where your new car, used car departments can lose a ton of money. Right now it's more a new car because used car, used cars, people don't typically floor plan them and they'll write checks. But on the new car thing is you've got a smaller margin, a higher cost and it's a really, really good way to dig yourself into a hole. If interest rates are going up for the dealerships, water rolls downhill. So what do you think's happening to consumer interest rates, which is the second thing? And I'm going to give you guys some statistics that are going to blow you guys away, right? So interest rates for floor planning is going up. What's happening to interest rates on car loans going up? It has been going up really, really consistently and I haven't, I haven't bought a car off of like a regular what I would call a bank rate and straight from afford a couple of decades. I either lease or I'll do like the, when we bought the Toyota, I think we got like 1.9%. It was sponsored manufacturer and then leasing, you don't really care about the interest rate as much. But a bank rate loan. So I'm going to give you guys some figures and you guys just guess what it is. So if you have a credit score between 661 and 780, which pretty good credit is what I would say. Okay, do you guys think that the average APR for a new car is if you had to guess, 6%?

Yeah, let's say 7%.

6.89 between the two of you, very, very well done. Now let's slide that thing over to a used car. So the used car interest rates are typically higher than the, than the new car rates.

8%.

Yeah, I was going to say a couple points higher. So maybe 9%.

Nine point. Oh, you're good at this game. 9.04. 9.04%. Now let's go to what they categorize as a non prime 601. To 660. Which when I was selling cars all those years ago, if I had a 600, I knew I had a deal like I was. I knew they were going to walk away with something. But the average APR for a new car, 9.62%. So a used car, 13.72% is the average APR. Now it's going to get B tier credit. Yeah. B paper for sure. Not even the yucky stuff. Right now we're going to get into the. To the more risky stuff or the subprime, which is credit score 501 to 600 and a new car interest rate. Like just doing that. And then keeping in mind that the. At the average price of a new car, $47,000. Imagine a $47,000 loan at 12.85% interest.

And then if you think that's a bad deal, a used car is a tick under 19.

And then if you're really in deep subprime, which means you probably shouldn't be buying a new car anyway. 15.62 and it's over 20, 21 for a used car.

Well, 20%. You're not paying the car off.

You're just paying juice.

Yeah.

It feels like a loan shark almost, doesn't it?

Payday loan.

But just kind of think about that. And then if we're really, really smart and strategic, we're going to assume that. And I know we talked about this previously, that the average age of a car that people are. Are keeping is on the road is 14 years. So that's not going to help that people are just going to not be able to buy cars. And then what does that mean for us in service?

We're going to be busy.

We're going to be super busy, which.

We'Re seeing that we.

Yep. And the thing is, is that I, and I believe that this is, you know, kind of a thing that's happened, is that a lot of dealers, because the age of the car was going the other direction and the cars were built better, we weren't seeing a ton of repair work. But when you're talking about a car that's 14 years old or 15 years old, I don't think it matters what the brand is. Stuff's going to be just worn out and old and we're going to have to be better at repairs. And then that kind of gets me rolling down.