#209 - Selling Your Dealership?

We often have dealers come to us and say, hey, do you know someone selling or do you know someone buying? Either a portfolio or a dealership. Single location, multiple locations. You know, we've got a community and we have a reach and we know people who are both in the market to get in the business and in the market to get out of the business. So if you are in that either of those camps, reach out.

You are listening to the Independent Dealer Podcast with hosts Luke Godwin and Jeff Watson.

Hello and welcome to the Independent Dealer Layer Podcast brought to you this week and for the last few weeks by Buckeye Dealership Consulting. Our good buddies at Buckeye. Luke, man, a lot's going on out there. I want to do a hot topics this week so that we can kind of educate the dealers that are listening on what we see, what's. What's going down.

Yeah, there's a ton of things going on in the auto industry now from, from new car stores to buy here, pay here stores. You know, it stretches the gamut. So many, so many big deals that are hitting. Hitting the auto industry. It kind of harkens back to days of old and who knows what's going to happen from here. But I think that, I think if you're positioned properly, Jeff, and you listen to the Independent Dealer Podcast every week, you'll be able to weather the storm and make it through to the other side, Right?

Yeah. You know, when, when the economy turns down, there's always these opportunities. Right. And some people, you know, there's people going out of business. There's. There's consolidations, there's purchases, there's all these things that go on. And, and you really want to see it because, you know, back in the day, like even leading up to Covid, during. COVID during some of the recessions and turns, there's always this writing on the wall and, and sometimes we see it, but we don't always, like, have the guts to take full action. Right. And really steer into an opportunity or steer away from something that we think might happen, but we don't know. And we just kind of weather the storm. So there's a lot of crazy stuff.

Yeah. You know, that, that leads to my favorite Warren Buffett quote and is be greedy when others are. Are scared and scared when others are greedy. Right. Yeah. Fearful instead of scared. But that is, that's what, that's how you have to live. And, and unfortunately, dealers get caught up sometimes in the hype of, of everything going well that they forget that. Yeah, everything can be going well. Right this second. But it can change in an instant. And we saw that lead into covet. We saw that leading into the Great Recession of 2009. So make sure that you listen to the writing or look at the writing that's on the wall because we may be heading into something that's going to. I'm not saying it's going to be as bad as a Great Recession, but I think there's some obstacles that we're going to have to navigate moving forward.

Yeah. And what's really interesting, one thing that's coming on the horizon and it's new car related but obviously every used car was once a new car. The uaw, if they go on strike and they can't come to some sort of an agreement with Ford and Stellantis and GM about their, their desire to have more wages and less work and more benefits and all this stuff, which seems kind of unlikely. Pretty long laundry list of things that they want that could affect the factories. Right. If it's some sort of a short or prolonged strike and they're not producing new cars that, that can affect us.

Yeah. You know I, I go back to the 90s and this happened every couple of years. It seemed like back then those supply was at an all time high. And so we look now and we say okay, the manufacturers have been working with this smaller inventory and the manufacturers actually may like this smaller inventory. They're able to make more money. The dealers like it, they're able to make more money. It costs them less on floor plans. So there's some things going on here. And on top of this the amount of pay increase that UAW is asking for is like 47, which is astronomical. They already make a ton of money. They won't like that. They want the average worker to make 90 something dollars an hour.

Yeah. Starting or something. 90.

Yeah, just think about that. $90 an hour to assemble a car to me is out of, I mean this is insane. All there's not going to be a car under $40,000 if this goes through.

I think the big issue is more the benefits. You know when they go back to pensions and, and benefits and things like that that they had before the financial crisis. That is a long term liability on these OEMs that it's never uncompetitive. Right?

Yeah, they'll never do it.

And so what happens? The big three just, they send more stuff offshore, they employ more robots. They do those types of things to try to get out from underneath the union. So are you just, you just.

They move, they Move the facilities to the south where we don't put up with unions. And, and this is what happens.

They move them to Mexico, they go even further.

No, no, they move them to South Carolina. They move them to. Not North Carolina, South Carolina, Alabama, Mississippi, where we need jobs like this that we're willing to pay somebody $45 an hour to do this because that's a lot of money. And to Texas and places like this. So this happened when unions got greedy before. It's going to happen again. Ford, Ford went to, to the UAW last week and said, hey, we're going to give you a 15% raise and you're going to go from averaging 70, some $70,000 a year to $94,000 a year. And at the UAW said are you kidding us? This isn't enough. Yeah, I just, it, I'm, I'm not a union guy. I think they're horrible. They're bad for capitalism. This is outrageous and it's going to hurt, it's going to hurt everybody if this shuts down. We've already been, we've already been in a hole of inventory that we have slowly climbed out of. We still have issues with parts. This is not going to help that issue. Maybe it will help, I don't know.

So I think when you look at those three, they have a lot of inventory right now. Right? Those three OEMs are some of the highest inventory levels they've had in a long, long time. So I don't think that they're not looking at it like hey, this isn't so bad, let's have a strike, let's go a month, let's go maybe two months or whatever. I don't know what the time frame is that's going to dry up some of that dealer inventory that's sitting out there and make us, you know, keep those retail prices up instead of, I mean you can go out right now and get a killer deal on a frickin Rubicon or something. Right? Like they're like a dime a dozen. So yeah, maybe that's part of the strategy.

Well, another strategy that, that UAW implemented, I think Friday, Thursday or Friday last week was they actually filed a motion with the US Labor Board against GM and Stellantis that says that they're negotiating in bad faith. Well, and this is, they're just negotiating bad.

Send them anything.

We're not doing anything. Well, and they do this for one reason, one reason only. And that has position themselves for a strike and to use unemployment money instead of the UAW money. You know, this is, this is such a corrupt system that I can't even, I'll just go crazy on this. But 2 million, 2 million new cars in inventory, Jeff, is a lot today, but it was not a lot in 2015. So yes, average average days in inventory has gone up, but you shut this thing down for 30 days and that inventory goes to zero.

It might be good for them because there's a lot of Ford Lightnings just sitting and people refusing deliveries. So that might be, that'd be great for him. You saw that thing the other day where Farley tried to take a Lightning across over to Vegas or something. And his quotes were like, it's a challenging experience or something. Or it's like, dude, how, how are you the CEO of a company that's going all electric and this is the first time you've tried to take a road trip in one of your own cars?

I tell you this though, Farley, Farley's, he's a good guy and he's a good CEO for Ford. You don't see any other CEOs doing this, going out and going, yeah, our product actually is not as good as you think it is. I mean, you know, I actually, I actually wrote in a. A Mach E, I must say Mach E the other day. And I'm a Ford guy. I am a Ford guy. But I compared that Mach E to my Tesla Model Y is no comparison. I mean, zero comparison. The ride sucks. The. The range is not nearly as good. I just, I don't know, I don't.

Even know who's talking about the Mach E. I've not heard that phrase in forever. I forgot they even made that thing. It was hot for a second and now it's dead. So speaking of a company that is going to benefit from this, right in this EV war, the Tesla's, you know, frigging musk is at it again, just freaking wrecking. So I my sympathies to you guys. If you're listening to this and you are a Tesla specific or heavy in Tesla's, right now you're getting the one, two punch you got slapped in the face a couple months ago with the price drops. A bunch of us lost a ton of money on those electric on the Teslas. And now he does it again, right? I don't know. Great. You want to buy a market share, B, you're trying to get rid of a bunch of excess inventory so that you can launch the new, you know, updated versions. I don't know what it is, but it Definitely does not help retention. It does not help. I think if you're a loyal Tesla owner and you just barely bought a Model X or an S, and all of a sudden that thing is 30, 40 grand flipped in the matter of six months, you're pretty freaking pissed.

Well, luckily, most of the people that are buying those cars are fairly wealthy, and so they may be a little mad, but it's not going to materially affect them. So, you know, you can't generally paint.

The picture of every Model S and X owner can just walk away from 40 grand equity. Come on, that's not an excuse. That's still ridiculous. What it does do is he can't then trade in. So Now I'm flipped 40 grand. Okay, well, I can't upgrade now. I'm not going to upgrade to the new refreshed model because my car is not worth what it was before. Had you done the opposite and kicked. Continually kicked prices up? Now my car holds its value. It's much, much easier for me to trade in.

He is buying sales, and I think the quote from him where we wanted to increase our sales by 50% next year. And the only way to do that. Well, multiple ways to do that, but one of them is to drop your prices. And also having a UAW strike is going to help him, too. So you know the guy. The guy's the richest man in the world for a reason. I don't necessarily agree with it because I've taken a bath on my Model Y, but I'm driving my Model Y, so I don't care. I mean, it doesn't matter to me. Am I. Am I 20 grand flipped in it? Probably I'm 20 grand flipped in it, but. Okay, I'm gonna. I'm gonna keep it forever. I'm gonna let my daughter drive it when she gets old enough.

But you also bought it new.

I bought it new. Yeah. Who cares? It's. It's fine. I, you know, who cares?

Well, the great thing is, look, you can just pull out some of that reinsurance money, man. Right? Our guy's a Buckeye. They're helping you suck money away to your reinsurance company every single month. So one thing I'm doing right now is I'm def. I'm refocusing on my cpi. And I've said that to you guys before, but we're looking at it and just getting really, really adamant on, hey, we have got to sell our CPI program. You shared with me a number the other day by text. I don't know if you Publicly. But the amount of CPI money that you brought in and, and guys, if you haven't listened to the previous episodes on cpi, go back and listen. That is, it's found money, it's outside. You're not, you're not just adding it to the loan like Gap or a service contract and just hoping that they pay. This is money that would have been going to GEICO or Progressive. It's now going to you. That is, it's a revenue stream.

The only thing I can tell you, and it took me joining with Buckeye to, to get this pushed into my head and Jason, who's a great friend of mine, just said, Luke, you are, you're losing out so big on not doing cpi. The only thing I regret about CPI is not, is not doing it 10 years ago. I'm telling you it is. When we decide to focus, it's amazing the amount of money it brings in and it protects your portfolio. It's just all around a really good product. And if you're not signed up with Buckeye and doing cpi, just stop listening to the episode, don't stop listening episode, but call Buckeye immediately and let's get signed up.

Absolutely. Because I'll tell you what, Luke, I'm going to need that extra money because times are rough. So let's talk Buy here, pay here for a second, guys. Delinquencies for me are rising. The big thing we're seeing is drop offs, right? Voluntary surrenders, bankruptcy filings. We are kind of, I wouldn't say we're in full crisis mode right now, but I'm definitely educating my collector on we do whatever we need to do to keep them in the car and keep it running and keep them riding. Right. I don't want the car. I haven't bought a car in probably a week or two from the auction because I have so many voluntary surrenders and repos. I'm stocked.

So this doesn't only affect Buy here, pay here, Jeff. This rise of delinquency, which is, which is a number that 5.2% of all auto portfolio is 60 days plus right now that number is large. I, I'm less than that on Buy here, pay here, a good bit less than that on buy here pay here. And this is the highest we've seen since 2006. What this is going to do to everyone, even retail, buy here, pay here or whatever. These lenders have to start tightening up and so the more they tighten up, the harder it is for retail dealers to get people bought. And this is going to Affect the entire industry. More. More repo is going to be at the auction. That means more inventory. Hopefully UAW doesn't strike for too long. But this is, this is something that affects everybody. Delinquency. And it's in its rising, it's rising quickly.

Yeah. A lot of those subprime guys, right? So we've talked about this for a while, and of course, any of you guys that do outside subprime, you have seen it tighten. I mean, you guys know that that's, that's, that thing changes overnight and it's been going on for a couple of weeks or months. It really, really affects things across all the dollar amounts. Right. Because we're getting hit on the cost of car now. They're tightening, you know, the amount they'll land on that car. And I'm still sitting on vehicles that I'm into six months ago. Right. So I, I'm over on that vehicle. So it's like this perfect storm of, okay, I'm heavy into this car. The bank is even cutting me back on the callback. What do I do? Do I just need to lose money and blow these aged units out and try to replace them at today's costs?

You can, you can do that. Unfortunately, if, if you're out of, you know, if your floor plan is upside down, you may not be able to do that. You have to, you have to make sure war plans are tightening as well. Right. And so your gross profit is going to come down because you have age units. And I tell you what, I've seen books drop in the last month. Like, I've never seen books drop. It is, it is insane. So lenders are lending less. This is going to create a perfect storm for people who are out of trust with their floor plans. Man, I tell you, you just got to stay on top of everything when this starts to happen.

Turn time.

Yeah, I mean, it's got to turn them, turn them on.

So, so we talk about that and buy here, pay here. Right? And you talk about that in retail. Retail, it's obvious. I mean, that's just like writing on the wall that your turn time is so, so important when you're talking about being a retailer, subprime dealer. When you're a buy here, pay here, it's always like, I got a butt for every seat. You know, I'm going to sit on this thing forever. I don't need to drop my price. Right.

I'm, I'm not, I'm not that guy. But yes.

Okay. Yeah, I just dropped my down payment. Right. So yesterday I go to sales, I get Adrian, I say, Adrian, these five cars, we've got to do 0 down, 100 down, whatever it is. If they've got job time, time in the area, they're stable and they can afford the payment. Let's not let down payment be the issue. We need to get these five cars out on manager special. Obviously, I'd rather put the car out there with a low down payment on a qualified buyer than to sit on this thing or to have to reduce the price or send it to auction. Like it's better for me to get that thing out there making payments.

Yeah. I think there was a little bit of discussion in the Facebook group the other day about this. And, and payments matter more than anything. Who cares if your gross profit goes down a little bit? It doesn't really matter. You need to buy the, the person, not the deal. And the more you understand that, the quicker your turn time will be and, and probably the, the better your portfolio will be as well.

Absolutely. And, and when you, you touched on floor plans earlier, and obviously our advice for guys that are on floor plans is understand your covenants. Know what triggers audits, know what triggers you to be out of covenant. That is the number one thing you, the absolute number one thing that can take dealerships down is not managing your floor plan from either a cost standpoint or heaven forbid, a default standpoint, or you start robbing Peter to pay Paul. That will catch up to you. They are smart and they are on it this time around.

And, and just one thing, they will take every car on your lot, not just the ones that are floor planned. So make sure that you know what's going and they'll do it overnight. So be very attuned to your limits, within your floor plan and don't cheat it. Don't have, you know, if you're getting close, that car that you're driving that looks really fancy and makes you look great, sell it. Because, you know, I used to laugh when people would get in the car business, first thing they would do when they got their floor plan, they would go buy themselves the nicest car in the world to drive the old truck. It's just not the way to do it, you know, driver repo.

You know, it's funny, I had this conversation with some friends the other day about just assets, right? Just like those, those toys that are all hitting the market right now. We see it in RVs. I think if you're an RV dealer or near RV dealers, you see that inventory is way, way up in those and you're starting to see people unloading because people are stressed, right? They can't have a car payment, an RV payment, a boat payment. They got a side by side they're making payments on. They're going to start liquidating those things. And I'm seeing it in my market, right? I mean, the number of ATV UTVs and boats and things that are hitting the market are jumping up big time. So. And the number of Teslas hitting the market are jumping. Primal end, just a plug for them. When you're looking at money, you're looking at your cost of capital. These are the guys to go to to talk about, hey, are there better options for me?

Yeah, you know, buy and sell a dealership. Getting more cash to fund your business properly is something that you can never undervalue. Primal and helps dealers value businesses. They help them collect the proper way. They, they help them with responsible growth if you need it and the time right now to grow. It's, it's getting there. For buy here, Pay your stores reach out to prime land because they will point you in the right direction to make good decisions.

And you can see some of those big guys, you know, autonation, you know, whatever, partnering or buying out financial group cig. That's a, I think a lot of those guys see the writing on the wall, right? Like, yeah, buy here, pay here, subprime area will have its day when this bottoms or as it bottoms and rebounds.

Yeah, that's a, that's consolidation on capital. Cig that's owned by AutoNation decides, hey, we're not going to, we're not going to focus on outside dealer deals because we believe that autonation is going to be. Autonation is moving huge into the used car space. They believe that they use cig as their internal lender. They are essentially in the buy here, pay here business. You know, people don't even think about this. CarMax is in the buy here, pay here business. AutoNation is in the buy here, pay here business. And a lot of these big, big groups are, they just don't, you just don't think about it and they don't promote it as that. But when these big companies buy, these financial institutions, essentially that's what they're doing. They're creating their own financial army.

Buy here, pay there, right? Yeah, buy here, pay here. But it's buy here, pay digitally, which is what all of us are right now. We don't really care who they write the check to. Very few of my customers actually pay here, right? Like physically they're doing it all online. It's all digital. They don't know whether it's coming to me or some other bank for the most part. Right.

Yeah.

The vast, vast majority of the group. So real quick, before we wrap up, Luke, a couple minutes left. I want to make sure everyone knows about the upcoming events that we've got going on just so you can get those on your calendar. So Lease Here, Pay Here summit, October 12th and 13th in San Diego. That's a great opportunity. When you talk about these business models like this. Right. What's going to be popular, what's going to be an opportunity to take advantage of in the next, you know, two, three, four or five years. Leasing could very well be it for you.

Yeah.

And.

And it's it. And just for Lease Here, Pay Here dealers, I will be there. Buy Here, Pay Here. A bunch of other buy Here Pay heres I know will be there because it's essentially the same business. But the good thing about Lease Here Pay Here is it's a big tax deferment. So come out there, listen to what's going on. We're going to be talking about ways to, to recon better the ways, collect better. It's just a really, really great spot in San Diego to have a, have a summit.

Yeah. And then the very next month, November 13th and 15th, we have the Buy Here, Pay here dealer forum, which is the associations Buy Here, Pay Here event for the fall. It's going to be out in Indianapolis. Not even sure where that is. I think it's.

Man, it's in the fire. But that's a really good spot. And the JW Mary out there is beautiful. We're going to, we're going to have a couple sessions and, and we really hope to see a lot of dealers there. I think they've refocused this for Buy Here Pay Here stores. And there's a lot to learn. I've always enjoyed that fall show.

Yeah.

I think when it's named. Yeah. When it's named properly.

Yeah. With the new leadership, Jeff has got to refocus. So guys, put those on your calendars. There's. We guarantee you come November, there is going to be a lot to talk about, you know, wrapping up year end and going into tax time again.

It's always a great dealer. It's always a great time to, to hone in on those things that make you a good dealer.

Yep. And so one other thing I want to announce and let you guys know about is we often have dealers come to us and say hey, do you know someone selling or do you know someone buying? Either a portfolio or a dealership. Single location, multiple locations. You know, we've got a community and we have a reach and we know people who are both in the market to get in the business and in the market to get out of the business. So if you are in that either of those camps, reach out to us. Send us an email info@the independentdealer.com let us know what you are either selling or looking for. We'll put it on our website. We've got a little dealer to dealer marketplace that we've established because there really is just no place for dealers to go and get in or get out of the industry. Right.

It's, it's a hard thing to do and it's a hard thing to know the value of your industry. I've sold one kind of large dealership we were involved with and it took me a while to figure out what it was worth. But I think I've got a pretty good, pretty good way of doing it now. And it's, it's definitely something that's hard to do. It's something hard to get financing for which Primalane can help out there. But there are ways to do it and we can help facilitate it. And we'd love to help. We're here to help dealers, right Jeff? And this is another way we can help.

It's really just connecting the dots. And then also obviously if you guys need any kind of education or input or advice on how to make your dealership the most attractive as possible. Right. If you're on the selling side or if you're on the buying side and you're trying to evaluate a dealership or a portfolio, definitely reach out, holler at us, let us know. With these financial changes, I mean, you guys see the news. There's so much consolidation on the new car side. Right? Right. You know, Lithia and Ashberry and all these freaking conglomerates, man, they're, they're massive companies making millions, billion dollar offers on their competitors. It's, it's, it's mind boggling to me. I don't get it.

But that's not, you know, Coons has talked about being sold for $3 billion. And I'm not even sure. I, it probably doesn't even include real estate. Knowing, knowing how these markets are. And I think a Toyota store sold down in Florida the other week for $200 million. I tell you, this is, it's a, it's a weird time to be in the car Business, Jeff. And you've got to be prepared for buyouts because they may affect you. Yeah.

What's interesting about the new car side, just to wrap this up real quick, I don't know. I'm not 100% against new car consolidation. Right. For me, and, and I'm. I haven't given this a ton of thought, so I maybe haven't thought through this process completely. But I do think that the large dealer groups are able to stand up to the OEMs with strength. Right. So if OEMs try to strip licenses, if they try to go DTC, if they try to do anything silly, a company like Ashbury or Lithia, man, that's a formidable force. Right. Like these guys don't want to mess with them.

So our, our Berkshire, I mean, you know, who you going to miss?

Yeah. The money behind it, right?

Yeah.

But if it consolidates up to the hands of five dealer groups, the entire country has every single Ford or GM store or whatever under its belt, then.

You have, then you have problems. I'm not for the consolidation of most of a lot of this. For one, I think it's not good for the consumer prices. I mean, you can start price controlling here. Not that they haven't been doing it for years, but there was a race to the bottom for a bit. The more and more this happens, I believe they can stabilize pricing anyway.

It's not bad for us as used car dealers. Right.

Well, it can be because they have so much money to buy used inventory and they can stockpile so many cars and they can control the market that way as well. I'd like to see where this goes. I'm afraid that we will get to a point where five to 10 big groups own 90% of, of new car stores. And I think if we get to that, we have a problem. Yeah.

It's interesting to me and what it just gives me is, is that vision or that site? I mean, obviously very, very few independents, used car lots are ever going to have the kind of blue sky that buying a Honda dealership or Toyota in central Florida will have. You know, I'm saying, like, it's just, you have no, you have nothing. Right. Unless you're a massive brand in your area and you have established a footprint, you are worth nothing. Like the local dealer here that just went out of business, he just, he just sold his inventory and shut his doors. You know, selling his dot com and selling his name is worth, you know, frigging the $20 hosting that he prepaid for. Like, it's it's very, very hard, in my opinion, to establish blue sky on a. On a used car lot. One or two location. Of course, you could argue that for some of the, like, tricolors or some of these big, big, big groups. Yeah. If they were to sell out, they have an operation, they have a system, and that goes back to what we talked about in earlier episodes. Luke, are you building your dealership around a system? Right. Building it.

Are there processes last?

Yeah, right.

It's built to last. It's. Do you have the process. Do you have the processes written down? Are you training properly? Are you doing all the things we've talked about, our house housekeeping episodes in the last couple weeks? All this matters because one day some. Some big person may knock on your door and say, hey, I want to give you millions of dollars if you build it right as. If you build it right as possible. Yeah, but if you don't, it's not possible.

Exactly. Because if they say, luke, I want to give you a million dollars to have your dealership, and I take Luke out of his dealership, and he is the dealership, and it is Luke's auto, and Luke leaves and it collapses because he's not there. He is the centerpiece of everything. That. To me, that's tough, you know, like that, that's. It's not a viable business if the owner operator is the key cog in the. In the operation. Yeah.

I mean, Berkshire, you know, they buy a lot of businesses and. And what you'll find is all of them are built to last and that one key person does stay on for a long time. So this isn't always the best exit strategy, but, you know, build it right and they may come, but build it wrong and they won't come. Guarantee.

Yeah, absolutely. And if you have questions, reach out to us, guys. Appreciate that. Everyone that's listened this far, leave us a review on itunes. Send us a message. Let us know you left us a review. Luke's gonna call you, wish you happy birthday, and if you have any questions about, you know, your operation or what you're doing, obviously, always feel free to reach out to us. We want to be able to provide as much value to you guys as possible. And again, we've said it before, if we don't know the answer, we know someone who has the answer for sure.

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