#140 - 20 Group Notes w/ Luke and Jeff

You are listening to the Independent Dealer Podcast with hosts Luke Godwin and Jeff Watson. Thank you so much for tuning in. Let's do this.

Hello, everybody. Welcome to this episode of the Independent Dealer Podcast. Luke and I are fresh off of our 20 group meeting. We had some time to get away from the dealership, work on our dealership, and that's what we're going to go over today. We're going to give you kind of our Cliff notes version, kind of our summarized takeaways from our 20 group meeting. Luke, do we have any disclaimers that we need to give the audience before we get into this?

I think a big disclaimer. Is anybody out there wanting to join our 20 group? You better get on it because it's almost full, Jeff.

Yeah, and of course, you know, we tout them any 20 group, whether it's NIADA or MCM or any of those. It's important to be in it.

Yeah, it is. You know, the disclaimer is your business isn't like our business either. So even if you're a buy here, pay here store or your retail store, some things we're going to talk about today, you're going to be able to get some takeaways. But then again, you've got to take that, what we're going to talk about and fit it to your business. Because everybody's business is different. Even if you're a buy here pay, you're the same size as me. We do things different than you do. And you just got to remember that.

And definitely. And I think one more plug for 20 groups, Luke. And this is what I was thinking of when we decided to do this episode. It's not for everyone at all size levels. Right. Because there's a cost. And I think, I mean, I would say annually, we probably spend, I don't.

Know, what, 10, 15 grand.

10, 15 grand. Right. Between your quarterly dues and your meetings, travel expenses, your pro rates. So it is an investment, and that's one thing you need to know. So I would say, what you're selling 20, 30 cars a month, you're probably at the point where you need to be dedicating that kind of time and money.

Yeah. You know, Chuck said something interesting to me while we were talking during a break, and he said, you know, I'm getting a ton of leads, and Chuck works leads just like we do, Jeff. But he said he's getting a ton of leads for people selling four or five cars a month. And, you know, nobody wants to be mean. And we're not Being mean. But there's a critical size that you really need to be at to grow. And you know, if you're selling five cars a month, I would encourage you to get to 15 consistently, maybe even to 20. And then at that point, you should know your business a little better, you should know your numbers a little better. Then you hop in. But let's say, Jeff, you're a 30 car a month guy, and you don't know your numbers. You don't understand a balance sheet. You don't understand a P and L. You don't understand any of that. You're not ready for a 20 group either, because there's a lot of reporting that goes on. You got to know your numbers. You can't show up at a meeting and not understand it because you will get left in the dark. I'm sure you see that, right, Jeff?

Yeah. Yeah. And I think to that point, my only hedge to that would be, you don't need to know all of them. You need to have a real DMS. You need to have a real accounting system, QuickBooks, something along those lines. Everything else, when you meet with these, you're gonna get better and better, and you'll start in a beginner group or depending on your portfolio or retail, or if you're just a subprime company buying paper, there's groups for all of them. So to jump right into it, that leads me into one of my first kind of realizations going through this. As you report all your numbers, I'm realizing it costs me about $2,000 a month to sell a car, Right? That's my.

Per car. Per month.

Yeah, per car. To sell a car. And I'm heavy on overhead. I know that because of my management structure and things like that. So that's kind of an eye opener. You know, I always thought I was closer to the thousand. $1,200 to sell a car, but it cost me $2,000 to sell a car. And that's a number you have to know that is.

And I think. I think, Jeff, I'm thinking I'm right there with you. I was going to look at that.

Real quick, but yeah, you're heavy on the management, too, because of your ownership structure. But there's two ways to combat that, right? You can either say, oh, my goodness, I can't make less than $2,000 on a car sale, or I'm negative. I don't think that's the right way to look at it. I think you got to look at it like, I need to increase my Volume so that my average can come down. Because you've got this fixed expense of overhead for a lot of this. You know, some variable costs are in there, but for the most part, if I could just sell 10 or 20% more cars, I'm going to bring that down by 10, 20% average cost to sell a car. I think that's the way to go at it. I don't think the solution is to not sell a car unless you're gonna make $2,000 or not sell a car, you know, or try to start cutting expenses so you can bring those down. I think the key is to increase volume.

Yeah, I was looking. Where'd you get that number from? Because that seems that's not where you were earlier.

Yeah.

Oh, okay. You're adding. Okay. You're adding direct expense to.

And my personnel. Yep. You got to add them both together to give you your total overhead. And that doesn't include recon. Obviously. My recon is separate. So anyways, so that was an eye opener for me. It tells me I need to sell more cars. It tells me I have the power, I have the overhead, I have the manpower. I just need to increase volume.

Sure. But one thing you've got to think about in buy here, pay here is that doesn't include the interest income coming in. So it may cost you or me $2,300 per car per month to sell. But if you're also making that interest, it's, you know, you can make, you can get by making 3,000, $3,500 a car if your charges charge offs are low and your interest income is high.

Yeah. Most of the time your interest, like we said before, your interest is going to be a one to one to charge off. Not for you, but for the rest of the world. Your interest and your charge off is basically going to be a wash.

It shouldn't be, but Chuck says it's okay to be.

It's okay to be a one to one. Right. Which is I'm a little bit better than one to one on my interest to charge off ratio. But so anyways, that's a big takeaway for me. Luke, what was your number one takeaway from this weekend? And I want to throw in one more disclaimer that I didn't say in the beginning. Obviously we mentioned we pay 15 to 20 thousand dollars a year to be in this group, in a 20 group. So we're going to share with you some of our takeaways. Not to take away from the fact that you do need to be in A group. And obviously these pages of notes right here, you know, they cost me about five grand, right? So this is some valuable stuff, right?

So, you know, Chuck always. He. He'll challenge me on something, right? I know my numbers pretty much back and forth. And. And if he challenges me on our percentage, I may not know. I go, well, of course, I'm doing good at that, right? And so he said, well, Luke, you have, you know, you have the highest number of total losses per month. How many of those are you reselling? I said, well, we're reselling 70% of this because I thought that we were right. Well, I have not been tracking that, and the only way to know your numbers is track it. So I went back over the last three months, started looking at the data, and we were probably at like 30%. And I was like, oh, no, what's happened here? Why did we lose these valuable customers? Where'd they go? So I dug into each customer, and I noticed that some were buying new cars. Some them and went to CarMax, and we just lost them, right? Because they had paid us so well that their credit had increased. Their car credit was, you know, dang near perfect. And we may have been low on inventory during this last three months because of, you know, what's been going on with inventory pricing. And so we had missed some of these people. Well, I went back and flagged these people, my CRM, and created a new task for my salespeople to do. So it was an involved process, and I spent all day last Wednesday doing it. First thing I did when I got back, and just by doing that, we sold four cars last week that you.

Wouldn'T have had otherwise. These were paying customers, wrecked their cars, and then they just floated off into the oblivion.

They were out there without a car, and they still had the same job. They're still the same customer. And the reason we hadn't resold them is because we were trying to get a higher down payment than we probably should have been. So once I identified the problem, I was able to fix it. And that's what's so important about 20 Group is, you know, what's important is talking to people. But being challenged is so important because you think you know something that you don't know. And the only way to know something is to actually know it, to see the numbers, to dive into them, figure out what part of the process is broken. That process, There wasn't even a process. The process was, oh, call the customer and sell them a new car. That's what I would Tell them, well, I wouldn't follow up on why they didn't sold it, why didn't sell the customer car, and the customer was just gone. And So, I mean, four deals pays for 20 group for the year, right? Or dang near it, I bet.

Oh, yeah, yeah, absolutely. I mean, that's one of the most. One of the. One of the biggest phrases that I learned from my first 20 group meeting was, you don't know what you don't know.

Oh, yeah.

And so you show up to these things and you think, well, I didn't know that. I didn't even know that was a thing. Right. I didn't know that that's what I needed to do. Or I didn't know that that was even a possibility, or I didn't even think to look under that rock or that situation. One other thing that came up that I'm gonna pursue, and I think it's kind of some old, maybe an old strategy, but pursuing more Chapter 7 bankruptcy filings, you know, I think that's something that's been done in a lot of industries and a lot of new car stores do it. But do we really pursue Chapter seven? And I think one of the members in our group had a really unique situation where they actually had a relationship with some of the local attorneys and said, hey, if you send a Chapter 7 filing to us and we sell them a car, we pay you a bird dog, plus we pay you a percentage of their car payment for the next 36 months or something. So it was a really strong referral program that they have. And I don't know logistically how you track that, but interesting. Instead of just buying lists and mailing to Chapter Sevens, trying to get these people in, you would actually just go straight to the attorney and build a relationship with them to get those people.

And if you don't already have a relationship with the bankruptcy attorney, you should, if you're in our business, because it's just part of the business, you're going to get bankruptcy filings. And if you have one that's owned by the plaintiff side or the creditor side and they can put you in touch with somebody on the debtor side. And some of those creditor sides also represent debtors, too. So it's a really good relationship to build. And we do get referrals from bankruptcy cases, and you got to make sure you have your ducks in a row. But it's a good source of leads, I think. And I think Harry was doing that. Is that right, Jeff?

No, I think it was the guys up in Salt Lake.

Oh yeah, okay.

Yeah, they had a pretty strong referral program all the way around actually. So yeah, definitely a super interesting avenue that I'm going to pursue. Inventory turn. We talk a lot about inventory turn. Right. And you're a big, big proponent and I hear you talk every week. But when I really sat down and look at the numbers and I go, oh man, if I'm only selling 25 to 30amonth and I've got 90 in inventory, you know, what am I doing with a three time inventory? Like it's just not even needed. Like I don't need that. So I've got a whole lot of capital tied up in cars and what I'm trying to, you know, educate is just, you know, you know, holding costs. Again, it comes down to holding costs and I've got, you know, my lead mechanic and my service writers who maybe sit on a car for too long thinking that we're going to get around to repairing it when the best thing to do is just cut our losses, you know. So my goal and what I've started doing is to go back there and look at all of our little skeletons and our bones that are sitting in the backyard that have been there for 6, 8, 9, 10, 12 months and just say, look guys, we're not going to get around to this. And even if we did fix this 2006 Ford Fusion, there's going to be no point in sticking it on the front line because it's going to sit there for another 12 months. So why are we even thinking that we're going to get around to this? Just send it to the auction running or not, recoup some money and move on to something new. Because right now it's just a cancer. It's just sitting there.

Yeah. And you know, you run out of room and space matters in our dealership. Let's not even talk about money. Right. That you've got stale cash sitting back there. But the space matters too. It can create. Trying to get this right, it can create a bad look to your dealership. If you've got, you know, let's just say you've got a dirt lot and there's a lot of dirt lots out there and I'm not putting down dirt lots. But if you've got a lot, if you've got a dirt lot and then you've got a bunch of junk piled up behind the building, well, it looks like junk, right. And it, it really affects the way that you can, what you can sell and how you can sell it. And even if you've got a nice looking place and you've got a bunch of stuff sitting that makes it look bad, it makes it look worse than it actually is. So it's not, you know, it's not just the money tied up, it's everything else. You know, my turns a little too fast right now. And the reason that happened was because of our lack of inventory, because of COVID and you know, I think a sweet spot for. For buy here, pay here is probably around 9 or so. And I had been to 12 at last 20 groove and kind of gotten back to 10 because we were able to buy some inventory coming in. But you can't sit at three. If you're sitting at three, you've got too many, too many cars and probably too many projects. Take those projects, get them ready. If you don't want to take it back to the sale and take the loss, you've got to decide, I'm going to get it ready and I'm going to get it sold. And sometimes in our. Sometimes. One thing I had might be better to do that.

Yeah, one thing I had to educate was like, we just got to get it out. Like, stop thinking that our guys are gonna get around to it. They're not gonna get around to it. We don't have time. I don't have the mechanics, I don't have the manpower. Like send it to another shop. Oh well, that's gonna cost us twice as much.

Doesn't matter.

Dude, you're costing us twice as much by not sending it out. And that's something that you've got to wrap your brain around is like what's just.

Let's think about that real quick. Let's say you've walked around the same car for a month. Okay. It came in, it was the airbag light. You don't have the guy there to check the airbag light. Or it was. Needs a transmission, whatever, you know, whatever it is and you keep walking around it. Well, if you walk around it for a whole month and you know what your carrying cost is, let's just use $40, you know, 40 times 30 is, you know, it's 1200 bucks. So it adds up quick. Let's say it was $26, you know, so you're still at $780 of it. Just sitting there tying up your money. Now if you've got floor plan expense and this, that and other. Well, you've got real cost. It would have. If you'd got that car the first day sent it to the dealer and had it repaired and paid whatever it was to fix that airbag light. You'd be better off, right?

You would have paid double. And you're thinking, well, you know, I can. I can save $500 by doing that transmission myself here at my own shop, as opposed to sending it across the street to one of my buddies or an outside repair shop. Yeah, that $500 is not worth it. You know, if it's gonna sit there an extra two or three or four.

Months, get the cars ready, get them on the front line, Then you can get them sold. And it's that simple.

And that's the eye opener for me, too. Was the joke earlier was like, even if I have four, I have three or four 2006 white Ford Fusions sitting in the back, Somehow I'm like, what are we gonna do? Even if I get these out front, no one's gonna want them.

Do those cars.

No, that's why they're in the back.

I've never seen a 2006. I haven't seen a 2006 Taurus in 10 years. Fusion in 10 years.

Yeah. A white ford fusion. And so I'm just like, what are we doing? Like, anyways, huge eye opener.

Yeah, you know, we. It was collections was the 20 group theme. And we're pretty good at collecting. We have some issues we've got to get better at. We got to get better at our delinquency rate and our recency rate. But the way I work is a little different. I want people to pay out, and so, you know, we let those fall. But I've been really searching for a way to incentivize my collectors and bonus them differently Than the way I'm bonus them now. And, you know, it's good to talk that through, you know, and, you know, we've got a guy in our 20 group that's a numbers guy. Chris is a really good numbers guy, and he loves to build spreadsheets like I do. And he was, you know, nice enough to share with me the way his bonus structure was set up. And it's just. It's elegant, it's beautiful, and, you know, it gives me a platform to go into and build my own. My bonus structure, My own pay plan for my collectors. And that's really something that when I went to 20 group, I need to make sure I brought back with me. And I got it, and I've. You know, it's worth its weight in gold. I know. You know, there's been people out there Asking us to really talk about pay plans, and we'll probably get to that in an episode coming up. But, you know, pay plans are so important. And, you know, we were challenged on our pay plans with our salespeople when we were at 20 group. And it's stuff you really need to look at. You need to know what you're spending on each section of, you know, management of sales, staff of technicians, you know, all this. And luckily I was able to bring that back with me to build some new pay plans, which are, you know, very important going into the new year.

Yeah, yeah. One of our other topics, you know, obviously tax time coming up. You know, we talked a bit about reducing that tax burden, hoping that we can kind of run a few more expenses, you know, are you going to take your PPP money now? And I know we discussed that last week's episode. Obviously, our reinsurance companies are huge way to, you know, defer some of that tax income. You and I, Dealer Re, the guys over there, Tim and Taylor, have been great for us and great for the podcast. I think we've had, you know, I think quite a few of the listeners have called them and either explored it or signed up. You know, we don't have the exact numbers back from dealer Re, but I think we are guiding a lot of people in that direction, which I mean only. I mean, it only makes sense. Again, if you're selling 10, 20, 30amonth, you've got to have it.

If you don't have a reinsurance company in your buy here, pay here business, you're wasting so much money in taxes. It's just, it's incredibly.

And you're sending so much down the road to other people, you know, because.

What'S the one thing you gotta make sure your car does if you're buy.

Here, pay here, it's gotta run.

It's gotta run. So you're warrantying that car whether you know it or not, right? Well, if you had your own warranty company and you could be putting money in each car that you sell into that reinsurance company, you're gonna make money in the long run.

But same as your retail, right? I mean, the exact same thing if you're a retail dealer. Because guess what? You know, Guardian and ASC and whoever else elite, all these big warranty companies, they make a lot of money by taking your premiums and not fixing your car. So why not have your own? It works for them, it'll work for you. Right?

You know, it's two or three times a month where a customer shows up at our dealership from another dealership and says, hey, got this warranty. I need this repair. You know, and I'll just. You go to repair it. And then warranty company goes, well, why did it break? Well, because the part failed. Well, I need to know exactly why the part failed. And you go, I don't know why the part failed. The part failed. And they go, well, I'm not paying the claim because you won't tell me. Exactly. You don't get that if you control your own reinsurance company, you can call up Taylor, which I did yesterday, and say, hey, Taylor, this customer is a little iffy. Can the warranty company take care of it? And Taylor says, if you say it's good, it's good. And, you know, that's. That's the relationship you get with the birds, and that's the relationship that you can have with your customers, and those customers will keep coming back to you.

Luke, any other takeaways before we close out this episode?

It's, you know, it's always track, track, create, process, create process. And that is the one thing 20 groups should instill in you. And that's. Hopefully this is what the podcast will instill in you as well, is you've got to track things that you don't know you should track. And if you're just sitting there listening to the podcast and you go, hey, how many. How long has it taken our cars to get ready? Or how. And most people say, oh, it's taking 10 days. Get my cars ready. Well, if you're saying that you're not tracking it, is what I'm telling you. Well, what is my delinquency? Well, if you say, well, we don't, you know, our delinquency is real low. Well, that's not a number. You need to know these things, track, and try to get better. The only way to get better is to know your numbers. And that's what everybody out there should be doing. Digging in your numbers and getting better.

Yep, yep. Absolutely. Track it all and get away from the dealership to work on the dealership. You know, I had the benefit because we were so close. I took, you know, my number one, you know, kind of office sales manager, you know, gm. He came with us this time, which I've never done before. And I think it was good for him to see the big picture, and he could talk to other dealers and other owners and kind of pick their brain. And I think it was a really big eye opener for him to see where we're at, where we could be. It's one thing. You come home as the owner and you want to portray that vision. And I think all of our employees get very scared when we get back from 20 group meetings because they know it's going to be a whirlwind of new processes and things like that. But it was great taking him and also to that point, leaving your employees in the dealership for two days. What happens? You know, we found out that we had one salesman that absolutely excelled and kicked butt while we were gone, and we had one longtime salesman that just coasted. And when we got back, he got let go. You know, he was just. He was average and he'd sell his 10 or 15amonth, but he'd been at it long enough. He was just not. He wasn't doing it. He wasn't making the text messages, the phone calls. He wasn't making the outbounds. And that was proof. And so it really helps you to step back and get the big picture through things like this and get other dealers perspective, too.

Inspect what you expect and get other dealers perspective on everything. Because just because you may be doing something what you think is the right way, another deal may be doing it a different way, which is much better. So talk to dealers, learn from dealers, and, you know, help each other.

Yeah, absolutely, Luke. Hopefully everyone got some sort of education from this episode. I know 20 group's great for me, and, you know, I don't see if or when I would ever get out, but if you made it all the way to the end of the episode, that means you hopefully got some value. And if you did, please go. Leave us a review. Itunes, Spotify, Stitcher, anchor, we're on all the platforms. Whichever one you're listening, just click over real quick. Leave us a review. That's how we get the podcast out to more people and look forward to talking to everybody next week.

Sounds great.

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