Fixed Ops Should Carry Dealerships | SDR #374

Hey!

Welcome everybody to the big show. We're coming at you live this Wednesday mid-morning. Super excited for anybody who is hanging out with us. We, we are going to have some sort of chat function where if you ask questions in the chat, we will be able to answer you, hopefully. So encourage you to do that. I'll remind everybody about that here in a minute. Adam is here. Hoagie's here. They are in an Airbnb in beautiful Indiana. The reason why they're in an Airbnb is because I am not there. They were just talking about grime in their coffee cup or something before we went live. I wanted to follow up on that really quick. Their coffee cups aren't clean in the Airbnb. Is that what you guys were saying? I didn't quite catch it.

Yeah, it's for added flavor. It builds character. That's what you said before.

So gross.

No extra charge. It's complimentary.

But Chris, there's bunk beds.

Can you imagine the savages that stayed there the night before you guys and what they did to those coffee cups?

I'm surprised though, because there's a sign everywhere you turn here on what to not do. And what you should do, whether it's the bathroom, the sink, the entryway. It's kind of like when we were talking about certain gyms.

Yeah, the signs don't work. I'm going to tell you that right now. You should know that from what we do. You could put stop 50 feet in front of, and they still don't stop. This is so funny. Today we're going to be talking about why aren't fixed ops Saving dealerships—it's a it's a fascinating conversation that I really want to unpack with the boys and and talk about. But just briefly setting it up for you is sales are down in dealerships, grosses are down on the front end, but fixed stops are flat. And in a world where fixed stops should be up when sales are down, that's how it's historically been. That is not happening. It's actually going the other way, and we're gonna unpack that and why we believe. that is happening from what we see out in the field. But will be, will be really interesting. And we have some interesting perspectives on that. Also, I wanna talk about AI a little bit, but off the, off the top, very sad that summer is coming to an end. I don't feel like I really experienced summer the way that I wanted to. And I feel like every summer, that's the thing is I want to go to the lake more. I want to write more. I want to read more. And then life happens and you just don't get to do it.

And then it's fall.

Yeah. And that's what's coming. Like, it's going to be Christmas in no time. Like, I'm already thinking about Christmas.

Football's here.

Yeah, yeah, that makes it speed up even faster. But yeah, I know it is, it is nuts how, uh, how just, it just, uh, yeah, zings by without, uh, any, any warning. But, uh, I don't know, it keeps on making me, um, it's funny because, uh, like with my kids and stuff, uh, there's certain things that I've always felt older people say And now I'm just saying them all the time. Like, you know, it's just my, my oldest daughter's a senior this year, and I just find myself like, you know, putting my hands on the shoulder of parents with young kids, like, you know, telling them it goes by fast.

Like, now you're just— you're that guy.

All that stuff. Enjoy it while you can.

You're looking over at parents with like a Tasmanian devil, like some kid throwing stuff, and you're like, enjoy it.

That reminds me, that's pretty funny. There's a a Jerry Seinfeld skit when he says like, uh, with parents that when you're having little kids, it's like everything is slow down, calm down. And when they get older, it's like, uh, speed up, keep going, go faster.

That's so true. It's so, it's so funny how that works. So the, so next week is the end for me. I got to pull the boats out Labor Day. That's it. So next Monday, boats are coming out. It also is interesting to me that Sea-Doo launches their new products now. So they just launched, I think it was last week, their 2027 products. But going into winter, especially in America, going into winter, nobody's buying. Like, I'm thinking about a boat for next year. I want to get a boat. Mm-hmm. But I'm not gonna buy it now.

That is odd. I wonder what the thought is behind that. Yeah, like you would—

wouldn't you do it in like February or March, like when people are actually in the market?

Yeah, yeah, you think the emotion would be higher at that time, but I don't know, maybe when you're trying to get—

take your boat out that you're like, hey, you don't need to put it in just yet, maybe we can do a quick little turnaround deal.

I tried to do that. I tried to buy a boat and it didn't work.

Hmm. They just— does the weather— is the weather tracking well for this weekend?

Yeah. Not this weekend. Next weekend is when I'm going. Next weekend. Okay. It's hot here. It's 100 here today. It's nothing. It's been really hot, dude. We're—

I think we're in like the mid-70s here. It's actually kind of nice. It's cooled down a little bit.

That's good. That's not the situation here. It's funny. Yeah, you know what kind of boat I want? You should look this up, Hoagie. I, I wish I had 2 screens. It's made in— it's made in Tennessee, and it's called— what is it called? A Monterra.

Monterra.

So it's the only pontoon boat that I've found that will do an inboard engine. I think it's really weird when the pontoons have the engine off the back.

Probably some with production. Yeah. Makes sense.

I mean, that's a normal thing, but yeah.

Yeah. I would much rather have an inboard where it's underneath. Oh, sure. So you can jump, you can swim off the back and not have the engine in the way. Yeah. It takes up a lot of space.

Yeah, yeah, yeah.

And the, the, so right now I have a Sea-Doo Switch and that's how it is because it's the little, you know, jet ski engine. Mm-hmm. But that thing is a dog. Like it has no power whatsoever. Like, yeah, you can't pull a skier. You can barely pull an inner tuber with that thing. So I want something that I can pull a skier that'll last like 10 years. Mm-hmm. And you can go out and anchor and swim and, you know, do the whole thing, hang out on the boat. It'll have a good stereo. Yeah, that's important. The stereo on the Sea-Doo is a joke.

Oh yeah.

I'll bring an old JBL because—

I do know these boats. I'm looking them up on my phone, but they're, they're Tritunes and, uh, yeah. And they have the inboard and they're, yeah, those things are Those things are really nice.

Yeah, that's kind of what I want to, I want to do. What I would like to do, because they don't have a dealer in, in Washington where I need it, or I haven't seen a dealer, but there's people on, on the lake I'm on that have them. There's a couple. And so I don't know if I go, if I have to fly to Tennessee to order one or how, how that works, but I'm going to start looking into that. you know, this winter and see if I can't get one made before next year. Sell, sell the one I have. But yeah, those are— they're really nice and they're all, you know, made in Nashville or Tennessee somewhere.

That'd be cool if you could like see the plant and then do some test drives.

Yeah, I don't know if they do that. It's, it's so funny to me that A lot of these boat jet ski dealerships are nowhere near water.

Yeah.

Like, there's no test driving.

Just buy and go.

But that isn't how it is like in Florida and other parts of the country, but just where I'm at up in Washington. Because you see these boat dealerships on lakes and you're like, oh yeah, that makes sense. Like, You could throw an event, have people come out and try it. Like, I'm lit— I'm literally just buying something blind that I've never driven. Mm-hmm. Every time. Like the jet skis, the boats, never. It's all based on YouTube reviews, which is—

So there's no like 5-day like guarantee or any of that kind of stuff for a day, like 24 hours. You buy it, you get it, you take it off the—

You haven't dealt with these, uh, dealerships, Adam.

No, I haven't.

You're lucky to get it PDI'd. Kind of. Like, literally when I bought my boat, it took 2 weeks for me to get it PDI'd.

Probably could have just done it yourself. Like, just give me the checklist, I'll do it.

The 2 weeks was a negotiation. It started at 3 weeks and I'm like, summer start. I need the, I need the, like, you think you can drive in and buy a boat, but that isn't how it works. They don't have techs. The, the tech shortage in, in motorsports is, is gotta be worse than in, in auto or truck. It's interesting because it's so seasonal.

Mm-hmm. Yeah, that makes sense. That's why it's hard for those dealers. Well, yeah, so they'd probably, depending where they're at, they're doing all the other motorsports just for the seasonal stuff. Like what, uh, you have the WaveRunners, the boats. ATVs, trying to do all those different segments. That's what they would have to do to keep 'em busy. And if there's snow, that'd be nice. Snowmobiles.

Yeah. You know, one thing that I ran into once that I thought was really fascinating is these Harley dealerships up in Canada will store bikes for their customers. And they, you know, they do a great job. They put 'em up on this wall where they're just slotted in and you can see 'em. It looks like, A cathedral of motorcycles on this wall. Like, it's really cool. And I was like, well, hey, why, why don't we in slow times, because nobody's riding a Harley in the winter up in Canada, right? Why don't we service 'em and modify 'em and do all that stuff? And they're like, well, they turn the insurance off. So the, the customers literally buy insurance for 5, 6 months of the year and that's it. So the bikes are uninsured for the other part.

So like if something catastrophic happens, they're not insured during that time unless— does the dealer ensure that it's safe for those whatever period of time?

Well, the dealer would, would have to accept that liability. And that varies from dealer to dealer and how they, you know, a lot of people are— would rather be cautious than make money.

Yeah.

Like, I would be the kind of person that would, would just have insurance and not drop a bike. Like, yeah. But, you know, uh, also, like, I'm, I, uh, take a lot of chances too. So I, I'm not everybody, but I'm just saying it's fascinating when it comes to motorsports, how seasonal it is and how hard it is to keep those techs busy. So you're not gonna ramp up. Like, let's say you have a little dealership, you're not going to have 12 technicians because you can't keep 6 of them busy. Well, you might only be able to keep 4 of them busy all year round. And then it's feast, it's total feast in the summer. You're booked out months and then, you know, nothing, which I've, I've often wondered, like, is there a way? Because I know, uh, people who do this. who will go to Malibu and teach surfing lessons in the summer. They'll go to Huntington Beach and teach surfing, do things like that that are water-related, serving tourists. And then in the winter, they'll go up to Aspen or Whistler or somewhere, and they're doing ski lessons and that sort of thing.

Mm-hmm.

Or taking, uh, guided tours on, Uh, what do you call the jet ski that goes on the snow? Snowmobile. Snowmobile. Yeah, they're doing that sort of thing. So they lit, you know, they're, they're seasonal. And I wonder what Texas in motorsports is, if you couldn't kind of do that a little bit, and that they're moving around somehow. I don't know, because it's hard.

It makes sense.

And then you're not— when you're just hiring seasonally for technicians, you guys know this, you aren't, you aren't getting the best quality because the, the technicians that are really good are staying, usually staying somewhere. It's the ones that bounce around that usually don't have the best quality. They're not the most consistent.

Yeah, yeah, yeah. I know, it's funny, I randomly know one, one guy in Pennsylvania and one guy in Idaho that I know from the car business, but they've always been like big powersports people. And both of them now own a powersports business, but they both have a tech background. And that's— and they both say that's one of their main things is that they're able to step in there and help. But it's not a They just love doing it. It's not a real scalable business. And that's the main thing that they talk about is how seasonal it is. But when it's time to go, it's time to go. And they're back in service. They are just back in service trying to— in the springtime.

Yeah. Another thing about that business is it gets hit harder than automotive. So if automotive's down and people aren't spending money, they're certainly not buying jet skis and a dirt bike or a dune buggy or, you know, they're just not. And so that business is more cyclical and they have bigger ups and bigger downs.

Yeah, it's interesting. It's interesting you say that 'cause I'm thinking about where I'm at or where we live. We'll have it, it's not uncommon to have multiple brands for whether it's lawnmowers, side-by-sides or any other ATVs and then some boats. And like you have probably 5 or 6 different brands under one roof to try to cover all of the 4 seasons. We do have some, some snow by us, so they'll do snowmobiles as well. But it's interesting. I'd be curious to know a little bit more about that as far as in the techs, like the quality of techs or the span of the tech and their ability, because my I mean, they'll even do some small to mid tractors. So my one buddy, he's like, yeah, he works for Mahindra and he's like, yeah, they're just hobby farmers, but anything around, they'll try to hit the motorsports, the hobby farming and everything just to kind of make it an interesting type business model. It's interesting you bring that up.

Yeah, well, that would be ideal, right? If you could do the lawnmowers and some of those lawnmowers are basically tractors, right?

Oh yeah.

So you're doing tractors, you're doing lawnmowers, feeders, that sort of stuff. But anymore, like when you look at farming too, it's so consolidated. Like when we were driving around Indiana, if you don't have one of those $1.5 million John Deeres that is, you know, doing huge pieces of land at a time, you're probably not in business.

Well, multiple. Yeah, it's multiple and it gets to scalability. And, uh, if you ask my father-in-law, they always break.

Yeah, but I don't think too many people are buying the small or mid tractors that are farming.

No, that's why I guess they call it hobby farming.

Only for construction, I would, I would assume. I mean, that's an assumption, but I think that that's where it's trended the last 20 years.

Yeah.

Yeah, the, the, those dealerships are, are interesting. They're very similar to automotive and then nothing like it all at the same time. Advisors, techs, you know, same sort of process, but totally different economic influences.

Yeah.

And yeah, like I said, you never, you never get to test drive them.

That, that would drive me nuts.

So the dealership that I bought the boat doesn't sell those boats anymore, but there's another dealership that does, and they have a different kind of pontoon boat. And same thing, like, I didn't want to buy it without driving it, and the reviews weren't very good on it. You know, it's just, it's, it's hard to buy something off of YouTube videos and reviews and never see it. And it— and they, they're not going to have Like the ones they stock are too big for my dock. So I would just be ordering one and never, you know, never really be able to see what it is until I got it, which might be too late. And they're expensive.

So, so Chris, we got a little stat here from our, our paneling or live chat. Um, one, one of the listeners said that average powersports dealer is doing 35 to 50% absorption.

Yeah, that's small, right?

Mm-hmm.

Yeah, it's hard. I mean, but it's a hard thing because of the seasonality. And, and I, I think that, um, like imagine owning a powersports dealership and I've kind of experienced this in a way. So I know, I know how funny this is. And you are in a 20 group with a guy in Florida that goes all year round and your, your customers are literally canceling their insurance. 6 months out of the year. Like, and the guy in Florida's like, well, what's wrong with you? Like, yeah. And you're like, well, not a lot of people are riding their motorcycle in the snow, Jack. It's just, it's not really apples for apples in, in that way.

No, it's not.

In automotive, it's kind of the same, right? Like if you have a, a dealership in Phoenix, cars are breaking because of the heat. And if you have a dealership in Alaska, cars are breaking because of the ice. It's, you know, it's different times of year, but it's still the same sort of extremes. But when it comes to power sports, it's different. It's very seasonal and cyclical that way.

There was one time doing, uh, doing truck, uh, service manager. What we were doing at the time, we were doing service manager and parts manager training together. And you, you know, a lot of times in truck or car, we'll get—

Wait, you gotta say what that was called. That was called Between what? Between two fires. Between two fires. I thought we called it flames. Between two flames, maybe. Yeah, between two flames. Parts and service being the flames. Sorry. Yeah, go ahead. It was fun. It was fun.

No, and but you know, we get departments from time to time talk about how they're they're seasonal, and and usually you can show show people a path of of what to fill in the. the downtimes with and make them productive and things like that. And we were in Quebec and the guy was like, no, we have to shut down. He's like, there's no road. And I was like, what do you mean there's no road? He's like, yeah, once it warms up, the road thaws and there's no road. So they had a satellite service location on Have you ever seen those shows on National Geographic that are ice road truckers?

Yeah.

So they have like a satellite service center on the— he's like, no, ours is truly seasonal. Once the road thaws, you can't drive out there. You got to wait till winter again when it refreezes. And I was like, okay, well, that's pretty seasonal.

But yeah, for the rest of you, I'm sorry. Put you over here. We'll put you in the parking lot. Yeah.

Yeah. When it thaws out. Yeah. That's so funny. Well, I'm sad that summer is ending. Yeah. I, I'm trying to think. I've read probably 3 books this summer. Had a, had a lot of fun. I mean, uh, one highlight was, was driving around Indiana, Adam, with you. That was super fun.

You love the, the corn as far as the eye could see.

Somebody said, I'm pretty sure I know the dealer Chris buys his Sea-Doos from. I bought my last Sea-Doo from Paulson's in Olympia, Washington, and they are incredible. I love them so much. The sales guy there that takes care of me and the person running it, they're so great. They've done so much for me too. So that if you know, that's who it is, Paulson's, but they don't sell the boats anymore. So I have to go somewhere else. I would be curious, Hoagie, what you think of that, that boat and which engine configuration you would suggest. You're my go-to. To technical advisor. So maybe we can pull up the website.

I was, uh, yeah, I had to put my phone down because I was clicking around on it too much. But, uh, I was building out like all the turrets for the different speakers and, and mounts and stuff you can put. It's— those, those are pretty cool. They, they have, uh, they have quite a— you know, part of the fun of having a boat is outfitting it after you get it, right? And, uh, and putting in your, your stereo and and your different accessories and stuff. But, uh, man, a lot of their stuff's pretty clean because you can, uh, outfit it with a lot of stuff, um, and order it that way. It's pretty, it's pretty cool.

That's awesome. Okay, let's talk about AI for, for a minute. So when, when AI really became prominent, what would you guys say, like 3 years ago?

Yeah, something like that.

Yeah, the The narrative was it's going to replace everybody. It's going to replace advisors. It's going to replace BDCs. And in other industries, companies even went to the extent of laying people off in anticipation of. So famously Salesforce, what, laid off 14,000 people? Didn't Ford lay off a bunch of people?

Yeah, 300. And ended up hiring them all back.

Salesforce too.

Yeah. And put out a statement about, you know, it wasn't— they weren't able to, you know, and those were engineers. Like, they thought they were going to be able to and were super disappointed with the product that AI had, and it caused a bunch of problems and like literally just had to urgently get as many of them back as they could to stay on schedule with production and stuff. Um, but yeah, it's crazy.

And so the, the funny thing for, for us, and I would say, you know, we're on the front lines, right? Because we're going out to dealerships that are not performing the way that, that they're, you know, anticipated to perform. And we're, we're helping turning them, help turning them around or fixing them. And one of the things That has happened over the years is like, oh, digital inspections are gonna change everything. Nothing. Like tablets in the drive. Customers actually don't wanna talk to you. They want, they wanna get in and out in 2 minutes. And so we're gonna, we're, we're gonna use tablets in the drive and it's gonna be like McDonald's. Like you can just literally, it will be quicker to get out of the service department than buy a Big Mac. That didn't work whatsoever. Like all we, all we did is we just saw, you know, yeah. Sales go down.

You had a little stint of, uh, of advisor kiosks also. Yeah. I don't know if you call 'em an advisor kiosk.

That never, those were fringe for sure. Yeah. Yeah. But yeah, there was a, there was a, a little period where that was the thing then. Um, Let me think, what else? Tablets was a big one.

I feel like tablets are still a thing. Still see them everywhere.

Yeah, yeah, you still see quite a bit of them there.

It's how people leverage it though, is like more of a tool of collecting information rather than not connecting with the client or customer, I think.

And then it was, uh, video inspections, right? So the video inspections are going to change everything. And, you know, very few people that we know are good at that, have mastered that. Most people love the idea of it, but it's harder to execute.

Yeah.

And I always say, if you can't do it with paper, you're certainly not gonna do it with video. You gotta walk before you run. And it's all about consistency and that sort of thing. And so I just find it interesting That AI, they talk about the AI bubble, but it really is a bubble in, in what you expect of AI. Like, I don't expect AI to be that great anymore just because I've learned that it's not that great.

Yeah, I think we're figuring out how to, I think we're figuring out how to use it. I would say another thing, uh, in the last year, maybe 2 years, um, Probably one of the biggest things with AI bubble that I saw pop with just a ton of dealers and just had a conversation earlier this week is the AI phone systems. Like, they've tried a couple of them, they've got burned, you know, and the AI phone system, it doesn't want to give you to the live person. Oh, for sure. And the dealer kind of wants to use it as more of a backup system. But once they get in the backup system, they can't get to a live person. And like, just the same story I've heard over and over and over again. And yeah, that bubble is popping hard. Like, they're backing way back away from those. But, you know, I think the The main thing, just like looking within our business, making changes to a website, we have some really talented people on our team and what used to take, when we wanted to make a change, what used to take 2 weeks or was a project. A lot of cost. Yeah. Now takes no time. Well, no, just what Mike has done with our internal stuff.

Like, yeah, just, uh, managing our coaches, our clients and all of that. Like in, in, like when we suggest a change now, like it used to, when in our software, and if you've ever been on our program, you know, the advisors compete against each other and we have this software with dashboards and we're tracking everybody's numbers. Previously we would ha— we would have to hire coders and it would take like what, 30 to 60 days, Hoagie, to get a change made in the software.

I can only imagine the bill too.

Oh yeah. No, by the hour. Oh my gosh. Yeah. Hundreds of thousands of dollars on the software. Now, what does it take when we suggest to Mike a change? 10 minutes?

Minutes. And whenever he's up and he works some long hours, because trust me, like we're sitting there going back and forth. He's like, try it now. All right. Works. Let me know if there's anything else. It's like on-the-fly developer. It's pretty awesome.

Yeah. It's skills. It's really just in, in real time. Like we built this projection tool. Well, he built it. I, I didn't build it, but he built it. And we were doing projections for a strategy session that I was gonna do. And the numbers just looked too good. And like, you know, I wa— I want to get on a strategy session and kind of get people excited about what their numbers could be. But we always run into this thing where There's also just the the unbelievability of the numbers. Like yeah, if you're losing money in your service department, you can't believe that somebody's making 50% net to gross. Like it's too it's too much of a jump, and frankly, we don't even want them thinking that way. We want them thinking about getting over the losing part, just you know breaking even or making a little money, and then we'll the next thing is let's get to 20 or 30% net to gross, right? Like We kind of understand it's too far. So I'm asking him to kind of like tailor it down. And I'm like, well, don't take our top 30% of clients, go 50. Well, that's too much. And he literally on the fly was changing these projections, taking all of our data and with no issue whatsoever of just, you know, moving it where we wanted it in real time. And all of those things before would've required a programmer, a bunch of money, And probably telling the programmer 5 times they don't understand our industry. And no, it's not, you know, whatever. There's always this gap between what people understand and how our industry's so different in the accounting.

Yeah.

'Cause most businesses don't, don't have gross profit the way we have it. They just have cost of sale. The way, the way that things are expensed are just different. And so, yeah, it's fascinating to me that on that side of it, it's very, very useful. But on the human interaction side, when it comes to customer service or whatever it is— did I tell you guys a story about my Oura Ring? Yeah, yeah, yeah, yeah. And so still to this day, the only option I have, which I feel bad doing, is just, uh, telling American Express that I never got the product.

Yeah.

Like, that's the only option because none of their customer service portals work for my problem, which is they sent it to the wrong address. The AI says, oh, you gotta go to this website. And then that website is always a dead link. So it's funny. Uh, Dave in here said that, uh, kiosks were used in my group and they were gone in 6 months. Yeah. Yeah. And the thing that I'm just seeing more and more is If you're looking for an advantage in the marketplace, the advantage is the customer connection and actual human contact. That is an advantage beyond anything that you can imagine. And for, for a long time, people would say, we have the new stuff. And I would always laugh at that because we don't have the new stuff. We have the old stuff.

Mm-hmm.

Like our process in the service drive is about making friends with customers. You know, treating them like humans, validating them, making, creating a process that's easy for them, that they don't have to make a bunch of decisions. They feel important. They, they feel like they're, they matter. And AI is never gonna do that. I, I can't see, I just can't see them making a robot or a doll or anything that would make me as a consumer feel like I, I wanted to do business with somebody like, I, you guys are different than me. You're, you're, you're younger. You're way more up on tech. I think in a lot of ways that you would even get in a Waymo. I wouldn't get in a Waymo. You'll never see me in a Waymo. I don't like it. I just don't like the idea of it as a concept.

I appreciate the vote of confidence.

I do have a Tesla and I will let that drive for me. Yeah. But I, I feel like saving a couple dollars to be, yeah, to have a robot in control and just hearing your guys' stories too, is you guys think it's funny, but to me, those situations that you've been in, in the Waymo isn't funny. It's like scary.

Yeah, it's kind of like, uh, I feel like they're, uh, we're their test subjects sometimes, but also like the majority of the time. I think the technology's kind of fascinating that that's where it's going. But yeah, I mean, it's interesting.

The only thing I use AI for really personally is research. That's it.

It is a good research tool. Well, see, like that's, I look at AI's depending on where someone is at going into whatever part of the workforce. It's an additional skillset, like the example that you just shared in developing, but it should really just be used as a tool. I always look at it as trust and verify, like whatever it's gonna build or write, you still have to read it. You still have to like refine it. That all takes time. And if it can kind of close the gap in whatever the task is, but it's not gonna replace it.

That's why the—

Yeah.

Yeah. And the best advice I've been given on it so far, and I continue to give this advice, is like, so Chris using AI for research. Chris is already pretty well read and pretty good at researching. He's written a lot of books, he's done a lot of things. So it takes his talent, and when he starts on the— starts asking AI about things, about human behavior, psychology, if it's not giving him what he wants, He can direct it. If I want to ask Chat about diagnosing a car, I figure out pretty quickly if it's on the right path to where I need it to go, and I can redirect it. So one of the best utilizations of AI is in your field of study. Mike, Mike can code if he needs to code, but it takes where your skill sets and your strengths are and amplifies them.

Yeah.

That's the best use of AI to this To this day or at this point in time where we sit right now. And it does, it just takes things and allows you to speed it up. But it's not, you can't come into something a novice, you'll end up lost.

Yeah. Clay said here on YouTube in the chat, he said the value of an advisor is more index to the experience and relationship. I totally agree with that, Clay.

Yeah.

Um, and we're not gonna be able to replace that. I, I don't think that Elon's right in that we're, we're all gonna have robots as personal assistants. I just don't see it. I don't want it. I don't, I just don't like it, but maybe it's cuz I'm old. I don't know. I, I always try to like be objective about that sort of thing. Yeah. But I'm also human and I don't feel validated by a robot. I don't feel validated by a bunch of people on social media liking my stuff. I wanna know who they are.

Yeah. Yeah.

I would much rather have a conversation with somebody one-on-one talking about a book than, you know, like on our other channel, we have over 100,000 subscribers on there and we get a bunch of, likes and shares and all that. And that's nice. It's, it's cool, but it doesn't, it doesn't mean as much as like the actual human connection and knowing who, who they are, you know, who the people are. Yeah. Live events. That's, you know, that sort of thing. So I, I just, fascinating conversation. Not—

It is.

Not super topical. I, I just more and more, I, I use AI less and AI less and less. Now, uh, Matt said here in the chat that functionally AI might not be there, but man, when it comes to search branding and brand data, AI is kind of changing the game on how people find you. That's for sure. Like that's something we've mastered is people are searching in AI instead of Google for things. And we've, we've kind of learned how to rank. Like you can go to any AI and type in Who, you know, who should I get to help me with fixed ops or help me fix my service department? And we're gonna come up in there and we're, we've done that for some clients that we're working with right now where we're helping them rank in AI. And that is the future of, of search is AI. It's not gonna be Google.

Yeah. Yeah. And I think that's how the general public uses it anyway, right? It's becoming a replacement for Google.

And, and, uh, yeah, I found myself going to Grok and asking like, hey, what, what coffee shop in this neighborhood? That sort of thing. Okay. The, so the, the big topic I, I thought we should talk about is this. Why, why aren't fixed ops saving dealerships? So just, you know, basic. I think everybody understands this, but I'll just lay it out.

Fixed ops.

In kind of the time when Ford and GM were coming up, one of the issues that, that Ford had with cash flow was they would send the vehicles to the dealership and then the dealer would sell the vehicle and then they would get paid. And it, it was creating all of these cash flow issues because they were making more and more cars, but they weren't getting the cash to make more cars. And so Like anybody who's ran a business who grows really fast, you run outta cash. It's really hard to grow fast. And so the idea was, well, let's have the dealers get this line of credit, a flooring line. They will pay us right away when they get the vehicle. And then Ford, GM, you know, we'll take care of our cash flow issues. And so the selling point to distract the dealers was you can have exclusive rights to parts and service in your market. And if you know, there used to be this this ad internal ad for Ford where it showed you what it would cost to build a Model T in parts and service. And so if a Model T was like three thousand dollars, it cost I don't know seventy thousand dollars or something if you were to order all the individual parts and pay a technician to build the vehicle. And The point being that fixed ops can carry the dealership in any market. So if sales are down, you're still gonna be profitable because it will carry the overhead for the dealership, which that's where the term fixed absorption came from. Like fixed ops carries the dealership. And if they had to give the cars away for free or even at a loss, you would be okay in a recession. And survive, right? And that's always kind of been the scale that goes up and down is that when sales are down, when the front end of the dealership is struggling, it means people aren't buying vehicles, which then means they are servicing them. And for a long time, we saw the average car on the road was 9,000 miles and 9 years old, and then it went to 10. And then, you know, now we're, we're at the average vehicle is 14 years old and has over 100,000 miles on it. And it's just way beyond what it was even just 20 years ago. People are keeping cars longer and driving them, you know, more. And as air travel is more expensive, people are driving their cars on vacation, right? So. The use of a vehicle is going up, not going down. But in a market that we're in right now where sales are down, gross profits are down on the front end. So I think in the second quarter of this year, grosses were down 16%. So imagine that, like most sales departments barely break even. They're living off of the incentives they get back from the manufacturer. And now they're down 16%. And so across the, the different dealer groups, so we're talking about Penske, AutoNation, Lithia, Group One, their fixed ops were basically flat. They weren't up, which is very, very concerning in the sense of we're seeing a lot of dealerships selling. We're hearing a lot of dealers say they're going to close their doors. They're going to give the keys back to certain brands that they own. But we're, we're kind of starting to feel the, the thing that we felt in 2008, 2009, where dealers are getting asked to recapitalize their dealerships and put more money in. And, you know, whenever that happens, you as a business owner, you have to kind of figure out like, do I believe that 6 months from now, if I put a couple million dollars into this and it's losing $100,000 a month, do I think that it's going to, uh, that it's going to pay off in the end? Well, everybody's very uncertain about the economy and tariffs, everything that's going on. I don't think people are, are really sure about it. I re— I remember during 2008, 2009, I think Sonic, like the stock price for a lot of these groups went to almost nothing. I think it went to like $5.

Yeah.

It like was not, was nothing. And so we're go— there, there really isn't the opportunity for these Lithias and Auto Nations to acquire stores and grow to, to kind of placate the market. And if they have, you know, quarter after quarter of declining sales and declining profits, it's kind of, you know, they're, they're not a, they're not good enough with fixed ops to understand how to, how to grow in, in this sort of situation. And a lot of dealers aren't either. Like we see it all the time, dealers losing money in fixed ops and they just have, they've just accepted for years that that's just the way things Are, right?

It's the necessary evil.

Yeah. And so just in a climate where you would expect that service would be up, it's not. It's, it's flat, if not down in, in some areas, is very, very alarming. And so service is not, you know, fixed stops is not saving dealerships. And so let's kind of talk about what we see out in the fields. When it comes to this, the, the very first thing I would say is technicians. I see it over and over again that dealerships are not able to add technicians because they either can't find them or they don't think about it that way. Whatever it is, they're losing clients because they're booked out 2 or 3 weeks. They can't get to the work and people are going to go somewhere else. And so— You know, the telltale sign of this being a problem year in and year out for a dealership is when I look at a financial statement and the warranty RO account is higher than the customer pay RO account. Because what that means is customers have to come to you for warranty. So if you have a Honda dealership, they can't go get Honda warranty work done somewhere else. They can't go to an independent. The dealerships have a monopoly on the warranty work. When they don't have capacity in the shop, the warranty work is what will wait a week or two if you're booked out. The customer pay work will go somewhere else. And so over time, there's just this attrition of customer pay work leaving and warranty work becoming the bulk of what the mix is. And I, I see this with just about every brand now when I'm do— when I'm looking at financials is The warranty RO count is creeping up to a, you know, to a point where it's even with customer pay or in some, you know, situations it's, uh, more than customer pay. And that all has to do with capacity in the shop, technicians, right?

Yeah. Yeah. I can't, you can't, uh, you can't underscore that, that piece of it, uh, enough on And, and we, we go about a lot of different ways of trying to fix that because what you'll run into a lot of times is even though they know they're low on techs, they'll say, yeah, but Hoagie, the techs I got aren't efficient. And, you know, so there's several different things you could bring up. That's one of the most common ones. But even when the techs aren't efficient, they do this thing where they're like, well, I don't want to hire more techs till I get the the ones that I do have efficient. And it just so happens that the prescription to get the shop more efficient is also to add techs.

Yeah.

So it's just kind of a— most business books you open will talk about your business and adding capacity before the constraint. And we are no exception to that. Yeah. No, it has to happen.

Just fundamentals. Mm-hmm. Yeah.

My favorite is always, uh, we're, we're waiting for the right tech. We need that unicorn to come through here. Yeah. No, just get 'em in the door, build 'em up. You, you can do it. That's a mindset.

And so then that just feeds to the next one that I had on the list, which was lose the, the independents are gaining market share on the dealers by a pretty good clip. So it used to be like, You know, dealers had 30% of the market share of customer pay. Now I think it's down to 25% and going lower. It's, it may even be lower than that depending on what, you know, what, what you read. And that's because of capacity more than anything else. It's not pricing. Most of the independents are priced similarly to the dealers. The, and the other part of that is, What's fascinating, because we do work with independent shops, independents have a harder time finding techs than dealerships do.

Mm-hmm.

Because think about this for a second, is if you, if you're running an independent shop, you need technicians that can work on anything. In a dealership, you just need a guy who can work on Nissans. It's way easier to find a Nissan tech than it is a tech that's really good that doesn't have comebacks working on everything.

Yeah. And with that level of repetition, it takes way less time for you to train a decent tech because you're training them on 3 engines and, you know, 6 different models or whatever. And yeah, and the pathway is just way quicker. Yeah. With, you know, losing this market share to indies, I don't know. I mean, I've heard you say it over the years, Chris, like we have home field advantage on all of this.

Yeah.

Like you have home field advantage to be this client's one-stop shop to service, to sell them the next car, like all of those things. And I think whether it's sales or service right now, now more than ever, like I want GM service managers, owners, I want you to go mystery shop your own stores or your fellow friends in the industry. Mystery shop each other's other stores. Call, call and buy a car and go through the process online and see how arduous it is. See if you want to buy a car and, and call the sales department and ask for a video walk around for somebody so you can see a car and just see the different levels of stuff you get back. Call each other's service departments and ask for an appointment. I just, I just had it happen just a a few days ago where I'm skeptical all the time now because we don't know the status of our own business. We don't know how we're torturing our own customers. And so when someone tells me, yeah, we're not booked out on appointments, come on in tomorrow, the first thing I do is pick up the phone. And it just happened to me the other day where on a Monday I'm calling them and supposedly we can get in the same day, and I get quoted from the PDC, uh, an appointment for Thursday. And those are 2 different, you know, 2 completely different worlds. And, um, like, so, you know, we, we have home field advantage, like you say, but we're just disconnected from what's really happening.

I think so. Yeah, there's a couple good questions in, in here. So Um, Dave says, 100%, this is a huge issue with Stellantis stores. Vehicles are so difficult to fix and warranty work fills the lot. CP guests are going elsewhere. Yeah, it's Stellantis. I'm seeing it with GM. I'm seeing it with— I'm seeing it with a lot of brands that you'd be, you'd be very surprised. You wouldn't think that Honda would have that, but I've seen it with Honda a couple of times recently. And then, um, Clayton asked a great question. So he says, if a dealership could increase its service sales by 30% by satisfying current demand and hiring technicians that reduced margins by 10%, would that be an acceptable trade-off? So what he's saying is, if I have to pay more for the technician, so my gross goes down, but I'm doing more in sales, is that trade-off Worth it. And what I would say, Clayton, is that you, you, you don't have to do that in the sense that who is paying for the technician?

The customer.

The customer. You set the rate. If you have more demand than, than you have the availability, if you have to raise your, your labor rate by $10, to make up what you have to pay for technicians. It's just supply and demand. You don't have to eat that difference. The, the, I mean, that's what a free market is. A free market is that the, the demand sets a value, a price, right?

Yep.

And prices are set by what, what, what is the need or the, the backlog in the market. And so, Yes, it's worth it to have the volume and keep the customer for sure. So if I had to take a, a 10% reduction in margin to keep the customer over time, I would make that deal. But you do, that isn't the, the reality you live in. You can pass that along to the customer. That's always one thing that blows me away is when there's a service department, and I'm not saying Clayton that this is you, but I, but we see it. from time to time is they got an effective labor rate of 105 and their, their posted labor rate's like 125 and they're booked out a month and they're saying, we can't, you know, we can't afford techs. And it's like, nobody around you is at 105. Like everybody's at 150 now, if not close knocking on 200 for a lot of brands.

Mm-hmm.

Because of that, because we're paying the technicians more, not because we're making more. Most of the, most of that is going to the, the technician in a, in a, you know, in a lot of ways. And so I would just say that that's another way for you to look at it is you can pass that along to the consumer. So you don't have to really make that choice. You can raise your, your rate.

It's all what the market will bear.

Yeah. Good. Great question. I love this ability to, uh, to be able to chat with the audience. I love too that it tells you where the, where the comments are coming from. Pretty cool. So the, the next thing I had on my list, gentlemen, is antiquated systems. So we've done work with these big dealer groups, the, the consolidators we will call them. And one of the, the things that happens to an industry when you have consolidators come in, or even venture money, is they don't really care about the customer, they care about the dollar.

Yeah.

And so we, we have these consolidators the last 20-something years that have gone into the market and they've bought dealerships in different markets. But they're, you know, AutoNation is running their dealer group from Florida. There's no connection to Laguna Niguel, California, or Bremerton, Washington. Like there's no connection whatsoever to where their dealerships are owned. They're just a number on a sheet. And that's kind of how these groups run them. It's, it's all about Return on investment. It's not about the marketplace and the, you know, the actual consumer or the human. They do as little as possible to get by. They pay the advisors as little as possible to get— like, they just try to skim at every, you know, place that they can. They're trying to cut expenses. And there has absolutely been zero from Penske, AutoNation, Lithia, On and on and on has been zero innovation in fixed ops that benefits the customer. Zero. They're still running the antiquated systems that we've been doing for 100 years. They they're still dispatching the work in the same way. They're still writing up customers in the same way. That it is there's been I mean just think about the millions of dollars in good times that these companies have made and how they've invested nothing. Back into improving the customer experience, and I don't know. Maybe there's somebody on the you know at Auto Nation that's like, "Well, we got tablets." Well, that didn't make the customer experience any better. It probably made it worse. You're so disconnected from what is actually happening in the service drive that you think that you can automate it or that technology will make a difference. And so, you know, we lived in a time. I grew up in a time where dealers. were a part of the community. Now they're not a part of the community. Their advertising dollars don't go into the community. They're not, you know, the, the owner of the dealership isn't going to lunch with the principal of the high school and the mayor of the town. It just, that's dead. That, that isn't how it works anymore.

Or investing in the programs locally.

Yeah. That, that's another thing, right? Like, like tech training. Yeah. We, we're, we're in a world right now where These kids come outta college, they've got $150,000 in student debt and they can't get a job. And we would sponsor them to become a technician and they would have zero debt coming outta school.

They just make money.

Yeah. And we're not money. We're just trying to change, like, just think about how many times these, these public companies change pay plans, change, you know, they're, it's just, they're always trying to get more and more and more and more without ever reinvesting in the systems, reinvesting in, in the customer experience. And so that's, you know, when, when consolidation happens, this is, this is what we get. We, we get, uh, you know, the marketplace that we have created, which doesn't really care about the consumer, and we're just taking advantage of the fact that people need a car to get around. But it isn't long-term. Consumers are revolting. You just look, just look at, I mean, think about if you, if I'm the president of Lithia or AutoNation, how I could double their profits more, probably more than double their profits by introducing revolutionary innovations in customer service in the drive. Think about how many more vehicles I would sell. Think, think. I mean, it would just be plus plus. All ships would rise. It would be a force multiplier. Having strong fixed stops is a force multiplier in the in the market we're in right now. But they won't do it because what will happen is the the these public companies will lose you know money. They won't they won't have the capacity to grow, and then they will just get rid of dealerships. They'll sell them off or they'll close them, and then they'll consolidate, and the you know. One of them will eat the other one. And that's the only way they will be able to survive because it's not about the customer experience. It's not really about the love of the industry. It's about, uh, owning, owning a, a property that you can get as, you know, try to milk as much money out of it as you can. And I mean, this is happening in industries all across.

Yeah, it is.

the board, you know, like saddening. It really is because, you know, there is a world where people would love cars and, you know, but that just isn't, that isn't how it is right now. And so antiquated systems, like the systems are terrible, absolutely terrible. And then, um, on the other side of that, in most dealerships, the The owners came up through the front end or the general manager came up through sales. We don't have enough of a representation from fixed ops in the general manager owner roles. And so they just don't understand it. They're good at selling cars, but service, you know, how many times do we hear, if I could close the service department and just sell that, I would do it. It's just a necessary evil.

It's crazy.

In a lot of ways. Crazy talk. Yeah. But, but I do think that, that the consolidation thing is, is coming to, coming to a head.

Yeah, I do too. Yeah.

It's, uh, and Tesla, Tesla put the bullet in it with going direct to consumer. So now you got manufacturers that forever have wanted to go direct to consumer.

Yeah. Yeah. It is a thing. Uh, the, the store I was at earlier this week, they were telling me about how, uh, When they found out that one of the big groups had bought one of their main competitors down the street, how excited they were because you just know the way that that thing's going to go and it becomes their— became their advantage. But it is happening. Uh, well, I mean, you already see it. There's a bunch of them already selling off a bunch of these stores. And, um, yeah, well, yeah, you couldn't have said it better. One will end up eating the other, um, before it's all done.

But the, the customer experience won't get better. They don't invest in that. They don't think that way. Okay, well, thanks everybody for hanging out with us. We gotta run. We're, we're out of time, but, but I appreciate it.

And, um, I love the conversations. Let's keep it going on the next one. Yeah, I love.

So if you're listening to this on Monday, we're going live on Wednesdays doing this, and you know next week I'd be happy to just answer questions if you want to get on and type in a question on YouTube Live, and we'll see you next time on Service Drive Revolution.

See you, buddy.

I know from experience that a lot of our dealers owners won't invest in training. For Fixdops, but 8 service managers in our coaching group have been promoted to general managers, something that doesn't happen enough in our industry. Proof that when you're given the right tools and the right mentorship, you can do amazing things. And I'd like to personally invite you to something that should exist already, but unfortunately it doesn't. And that's a live Fixdops Academy, a mentorship, a community. But what it really is, is a service The Best Dry Revolution. Anybody can afford it. Anybody that wants to invest in themselves. We're going to teach what we know about running a healthy fixed-op service business. Our average coaching client performs well above the industry average, and a handful of them are in a league completely their own. In fact, if I told you their numbers, you wouldn't even believe it. They're so good.