#227 - Rising Costs, Finding Capital, Managing People

You are listening to the Independent Dealer Podcast with hosts Luke Godwin and Jeff Watson. Hello and welcome to the Independent Dealer Podcast, brought to you by Buckeye Dealership Consulting. Luke, what's been going on, man? How you been?

You know, it's been a. I tell you, I keep telling people 2021 for the last year has been the hardest I've ever had in business. Not that it's been the worst, Jeff. It's just been the hardest. And it seems to continue to, To. To throw me punches and we keep rolling with them, but, you know, it's. It's going to be okay. May was a wonderful month. We sold a lot of cars and our collections were off. First time we've really seen collections off. And, you know, since. Since the pandemic started. So I think there's something in the economy and I think we got to get prepared for it.

Yeah, it's really interesting when you look at the indicators, right. Everyone's, like, very cautious. We're all kind of like, watching what prices do. We're watching what, you know, commodity prices and car prices. And I looked at the MMR report for last week, and prices are still creeping up. Right. There's a couple segments that are down, but for the most part, we still see growth. And I don't like the way they phrase it. They say positive movement, I think is the word they use.

It should be negative.

Yeah, it's like it moved to the positive, but it's not a positive movement. Like, I think that for some reason we think that a normal, like a, like an mmr, like depreciation is a normal curve. Yeah.

It's weird to me, I tell you, I don't necessarily trust MMR figures all that much because it's really hard to buy cars in mmr and it's really hard to sell cars to the MMR value. So it's weird, you know, if you're in the auction every day or online watching what cars are bringing. There is a softness on certain. Certain cars, commodity cars, big SUVs have fallen off a good bit. High mileage, big SUVs, I should say. But there is a softness in the market, and I don't know that it's under 20 grand, but I think there is a softness in the market, probably from 20 to 60 grand somewhere in there, or 30 to 60 grand. There's is. There has been a definite backup, I think.

Yeah. And you do see inventory levels creeping up a little bit. Turn time creeping just a little bit. So there are some of those little indicators. But it's a little bit normal for this time of year for that to happen. Right. We kind of have a little bit of dip, a little bit of increased inventory, the kind of the, the dull days of summer, and then boom, it comes right back in the fall. And then pre tax time, it gets crazy.

Yeah, we, we used to buy, we used to buy cars. Old guy that used to be a wholesaler years ago, and he would always say, you got to have, you got to get rid of all your inventory by July 4th, because if you don't get rid of it by July 4th, it's just going to sink. And, and he floor planned a lot of wholesalers and he was very smart guy, made a lot of money. But what we would start doing come July 4th, we start buying. And we just buy and buy and buy and buy and buy. And we bought. We bought enough cars to have, you know, probably 100, 100 ready to sell come tax time. And then 100 to 150 for wholesale during tax time. And we would just crush it, you know, wholesaling during tax time. Those days, I mean, I think are definitely gone. But there is a right time to buy cars. There's a wrong time to buy cars. But then again, when you, you know, if you, you don't, if you're not using your own cash to do that, then there's really a, a problem there too. But anyway, go ahead.

Yeah, and that's been a lot of the conversation and maybe we can get your take on that is finding capital. Right now a lot of dealers are talking about, okay, my floor plan, you know, maybe I want to step up and get more of a flooring line, or maybe I'm looking for more capital for my buy here, pay here operations. Or I want to try buy here, pay here. That seems to be the, a lot of the talk in the Facebook groups.

They're two different things too.

By the way, people are looking to, Are we looking to expand or do you think that's a factor of people trying getting kicked from their current flooring line or getting kicked on their current floor plan or, or maybe their banks cutting them back?

I think rising interest rates are causing a problem here. That would be the. I believe it's probably a recession indicator, number one. But I believe rising interest rates are causing people to rethink the money, to rethink their cost of their money. Okay. And so there are a lot of people out there that are willing to give you money for buy here, pay here. And the capital, the capital is expensive and there's vendors that are, that are not so expensive, then there's vendors that are moderately expensive, then there's really, really high interest vendors. So you know, what may be happening is some people that started at the beginning of the pandemic and they got some of the PPB money and it starts to run out. Well, they're gonna, they may need some more capital if they are growing. So they may be trying to graduate from the higher interest to, to the mid interest or the mid interest to the, to the lower interest when it comes to buy here, pay here space. And if they're buy here, pay here still been really good, then they may need to grow. But I think on the floor planning side, it's all about interest rates and interest rates are rising and people probably have pretty full floor plan. So yeah, that's probably where that is.

And that runs into the problem of you're using a lot more of your floor plan to floor the same amount of cars. Right. Or, or less amount of cars because your, your cars are costing more. And if your floor plan is probably pegged to like, you know, prime plus a point or two or I'm not 100 sure how floor plans work, but you see that creep in your variable rate start to get you curtailments, fees, all those things kind of start kicking in. Yeah, you can't, you got to turn those cars quickly.

Yeah. And you know, you talk about the same amount of, the same amount of cars for a lot more money. Dollar wise, I have more inventory than I've ever had in my life.

We're like, right, probably one point, quantity wise, $1.3 million.

Well, something to that effect. Okay, well, number wise, we're not even close to being there. And so you really see when you, when you start to talk about used car inflation and you're talking about 30%, so 30 to 40% of a million dollars. How much, Jeff?

Yeah, I don't do public math.

300 to $400,000. And so that is a big deal. That is a big deal. And if you're used to having, you know, let's just say you're used to having 100 cars and all of a sudden that 100 cars used to be a million dollars, now it's 1.3, $1.4 million. And your floor plan was capped at a million, you got problems and you're, and your interest has gone up too. So it's, it's an indicator. Be careful with it. Because floor plans can get people in trouble.

And the exact same thing happens on the buy here, pay here side, you know, you're saying, hey, it's taking me more capital to try to keep my sales up, keep my volume going. I'm putting a lot more on the books with less accounts, which is, you know, you could argue that's good or bad, but. So the tips for dealers are a. You've always got to be planning, you've always got to be forecasting both from your buy here, pay here operations and, or just your retail operations to know what kind of flooring line you're going to need moving forward. And the capital needs to make sure you stay cash positive, right? Cash flow positive every month. When you have your containments and you have payroll hit and your mortgage hits, but also you need to be doing that actively, right? Like keeping your financials and, or having someone who is doing it so that when you go out into the market and say, hey guys, I need to move my line of credit or hey, I need a bigger flooring plan or I need to do these moves. You've got to have financial statements, you've got to have your ducks in a row because if you run out there and all of a sudden you need it and you haven't been doing any of that, you haven't been tracking things. You don't have bank statements and history and financials. Like you're most, you're late to the game.

Most floor plans will give you a little bit of capital without producing much of anything, right? Let's say 200 grand or whatever it is. Um, but when you grow it to a million and you grow it to 2 million, you grow it to 3 and 4 million. If you don't have those financials in order, there's no chance you're going to get those. They, they just don't hand money out just for the heck of it. So you got to make sure you have that, have all that together and be able to produce it within a couple days. It's not having those and not knowing your numbers like that are a sign of a not, not good business, right?

Yeah, absolutely. And building those relationships with the banks, building the relationships with private lenders, you know, I know that's how, you know, my dad got into the business back in the day was he was a floor flooring line for a local dealer. And I remember as a, you know, early college kid running titles back and forth from my dad's house to this dealer's house as he paid things off. And it was an unorthodox way, but it helped this guy get his Dealership going without all the craziness. I mean, I think those flooring lines are one of the biggest ways that banks get burned. It a complete mess. But you need to keep on top of those things, which is again the argument to having good books, having good accountants staying on top of your financial statements.

Yeah, And I think we got either, I guess last week an episode talking about all that, didn't we, Jeff?

Yeah, yeah. And you know the guys from the fractional CFO thing, you know, I've kind of heard their name thrown around some more too from some of my dealer buddies that are using them to get the introductions to the banks. So they use the fractional CFO guy that says, hey, you know, I'm in here, I'm helping you plan. But guess what? Once we decide you need to move, I've got some introductions to a couple different, you know, lenders that can help you out. So having those connections are important and.

Good car CPAs will do the same thing. So just make sure that you're using, using the right people and, and also those banks and those four lines, they know that, hey, you are using X, Y and Z. CPA firm. Okay, we trust you. We can go straight to them for those financials. So I think that's a big deal. So you make sure you, you've got all that in.

Yeah, there was another question. The guy said, do you guys set your repair shop up as a separate LLC or do you run it as your dealership?

I have it set up as a separate subchapter S corporation. And I'm not telling you that's the right way to do it. The only reason I really did it that way was because there's a different ownership structure. I'm the one that started that. And so I own a little more of that than, than my, I own more of that than I do my dealership. So that's, that's the reason it's set up like that. I don't, ah, I don't know that there's any, any advantage to it. It's probably a little bit of a disadvantage to it.

Oh yeah, I would imagine it'd be very difficult because now you're keeping a separate set of books, you're keeping separate checking accounts, you're keeping separate everything. Tax ID numbers. You're filing an extra return every year.

It's all that and it's, it's an extra, I mean, let's just say CPA, cost wise, it's probably an extra 5,000 a year. Okay.

There is insurance Reconciliations every month. And yeah, I mean, yeah, but the.

Books, I mean the, the books have to be done either way. So I don't think that there's, there's that much more to be done if.

We'Re doing our books.

If you're doing your books, there's not that much more to be done there. I think there is some. Having a, having a silo, having them siloed, you can kind of look at the numbers a little better. So yeah, so you don't let that.

And it helps you treat it, it helps you treat it like a real business too. It helps you treat it like a real expense center and, or profit center. Here's my argument. If I could set this up again, my repair shop would be separate. A separate location, a separate name. It would be 100% separate. Just like if I did this again, my RFC would be separate. If again, the caveat to that is you have the money and the volume to justify multiple buildings in separate locations, you know, a couple blocks or a mile from each other. To have a separate repair shop, I think just saves you so much of the headache and hassle of customers showing up at your dealership and dropping their car and then standing around in the lobby for five hours.

Well, hold on. We have separate buildings, separate operations. We've had that set up for eight or nine years now. Nine years before that, for the first 28 years of our business, we had another shop that did it. And I can tell you, even if you have a repair facility or not at your dealership, they are going to show up at your dealership. So it doesn't matter. But what you have to put in place. You talk about this. If a customer comes to get their car worked on, it's drop off only. And if they show up without an appointment, you have to explain to them why we can't work on their car. The siloed operation is, is really good for numbers. It can be good if you're, if you're on different locations there, there's definite benefit there. But I think the benefit of having them all together is better. And I think, and I think that's the reason new car dealers have always been together. If you're lucky enough to have an old new car dealer store where services in a, a drive through lane with a totally separate kind of building from sales would be the, the best idea to have. Yeah, I think that's the best setup where we could. I thought about doing that at my place and I said I'm not going to do it. So, but we've trained people show up.

Close enough, you can walk over and yell at your service writer, but not so close that you guys are sharing an office.

Yeah. And other thing is the service writer can also tell you, hey, this is, this, this customer's in for a reason. We're about to hit them with a $1,800 bill. You may want to trade that customer. And that's what service department should do. And that's the benefit of having them really close.

Okay, guys, real quick. Interrupting our own conversation, we forgot to plug our sponsors. We've got a couple of great sponsors of the podcast. You guys know their names? Buckeye Dealership Consulting. You're going to be at convention this week. You're going to come and stop in and talk to these guys and ask them all your reinsurance questions, all the.

Reinsurance got questions questions, all your consulting questions, all of your performance group questions. They'll be there. And I tell you, they have a huge contingency. You, you know these people. Chuck Bonanno, David Brotherton, Jason Gosnell, Sean Peterson, Brett Burke. There's all these people there that can help you and make you a better dealer. So make sure you stop in, say hello, and sign up. That's all I can tell you to do. You'll. You'll make money doing it.

Yeah. The other great sponsor of the podcast that will be there and always has a very large presence is Pastime Again, one of the biggest GPS companies in the game right now. Definitely fully invested in the product, in the programs. So stop in and just find out what's going on. Get a quote on what your price point would be. Find out what the technologies are and which one's going to best fit your operation, whether you're retail or buy Here, pay here. You know, we've talked about it a hundred times. You can still use GPS even if you're not a buy here, pay here lot to protect your assets and keep track of your cars. So there's so many solutions.

Yeah, go say hello. Really great guys here, too.

Yeah. The service side of it and the managing the people side of it, that's something that I think we lose track of very easily as we get caught up in the weeds of everything. Right. We're chickens with our heads cut off, running around, and then we take our eye off the prize or off the ball and things get out of hand.

Yeah, but I like the way you're leading there. You lead me into something I do want to talk about Jeff, and I'm going to Stop at one point, coming back, let people know this. There's typically your. Your garage liability coverage does not cover you like shop liability coverage does. And so there's no. There's really no overlap there. So I want people out there that are talking, thinking about opening up a repair facility that you need to. You need to see what your garage liability for your dealership side coverage and also talk to someone about shop liability coverage. Cause it is too drastically different policies. Okay. Okay. So next thing. Yeah, you know, collections have been easy for the last two years, right, Jeff?

Up and down, yeah.

But. But for the most part, repos have been super low. Money just flows in, and then all of a sudden, there's no stimulus, there's inflation like we've never seen. Gas prices, you know, average, I think this morning, we're over $5 a gallon for the country. Milk is five or six dollars a gallon, however much it is. All these things are causing really, really high inflation. And people are going to choose to typically eat and pay rent before they pay their car note. So you've got to really look at your collections and you need to manage your people properly. So there's certain numbers you can look at. So the first thing I always look at is just a. How much money did we collect?

Right.

Principal and interest, total. Well, that will tell you one story, but sometimes it takes a lot longer for that story to unfold. It may even take a month for that story to unfold. Because typically you can collect really well at the beginning of the month and really well at the end of the month. And you have gaps in there. And if you're trending wrong, you really have to start looking. So I was not managing that department as well as I should have. And when I really started digging into the numbers, like how many promises to pays did we have this week? How many did we promise space do we set this week? How many phone calls did we make? How many text messages do we send? Well, what I noticed was we weren't doing our job because it had gotten so easy to not have to do anything to collect the money. All of a sudden, when it starts getting hard, you have to step up your manager game. And the best way to do that is to never let your manager game go down. So we've instituted this scoreboard system in our dealership. And it's. I'm taking. It's taken about two months really, to refine what that scoreboard looks like. And I. And every day it's something new goes on that scoreboard. And yesterday I Developed new scoreboards for the service department and new scoreboards for the collectors. And hopefully that will help us stay on top of what's going on on a daily basis and not a monthly basis. Because if you can. If you can break it down to daily and make sure that you've got a hundred calls made, make sure that you have the right amount of promise pays, make sure that the broken promise to pays are, you know, probably less than 60% or, I'm sorry, less than 40%. Your promise pays, you know, come through like they're supposed to, then you have a lot of ammunition to. To get better at what you do. And. And you got to do it. Guys. It's. It's really, really hard to manage this many people without a good system in place.

Yeah, let me ask you that. So just give us the nuts and bolts. Is this a Google. I assume it's a Google sheet that you're using. I don't know how much you love sheets.

Yes, it is a Google sheet. Well, you know, it's a report. I do a Google sheet that I discuss with them every month. It is. It is definitely a Google sheet. The scoreboard looks like a scoreboard that I made out of Google Sheet. It's sent out daily. Um, and it's just. It goes over numbers that everybody should know in the service department, how many hours returned yesterday? Um, you know, what did we get through the show?

Are you inputting these numbers?

I am currently. Because I want the. I want the process to be taken care of first.

Okay. But eventually you would go to people and say, okay, daily, Weekly. Here's the five KPIs that you need to enter into the scoreboard every morning or every Monday or whatever the, you know, frequency is. And as the service manager, I need to see these five numbers every single day. Or as the collections person, I need to see these numbers. Or as a sales team, let's see how many calls you made, how many texts you sent, how many appointments, how many shows, how many apps, how many deliveries. Yeah, you know, those key numbers need to be reported daily or weekly. And if they're on a shared drive that everyone can access and everyone sees, I think that it's constant accountability.

I think that you need. When you start the process, you probably, as the general manager need to set it up and pull the numbers as it goes forward. I wouldn't let certain people do them. Like, you may even want a manager from one division doing the scoreboard for the other division, vice versa, because the numbers are only good. Like, we've said so many times the numbers are only good as they're put in, right? So if, if you got a manager not doing their job and then they all of a sudden put in the wrong numbers, well, that's not helping you either. So, you know, we're going to refine it as we go because I've got to, I got to make sure these things are done if I want to, if I want to ever not have to go into the office. I've got to have these things in place and I'm just not there yet.

Yeah, it's so interesting. I talked to another buddy the other day and he said he had been in a couple of small businesses, ran stuff and he started his thing that he's in now. He says we built it to sell it, you know, and that's kind of that philosophy sometimes of like are you building your dealership with the mentality that you are going to sell it someday? Then what that does is it forces you to create systems and create management so that you can be replaceable. You don't build it around yourself. You don't build it as you as the bottleneck. You build it as a standalone. Even if you're just a one person operations, you build it like you could sell it. It helps you. Joe McCloskey Keep it, keep it more.

Joe McCloskey told us that a year ago, we interviewed him. One of the most powerful things I think that's ever been said. And actually you, you said, you told me to read a book that who not what is it Jeff who not how not how. And one of the first things they talk about the who not how is you essentially need someone doing everything except for what is your like core competency. You need people doing, doing it all. And what that does allow you to scale. You cannot scale as one person. It doesn't work. I've tried it. I've tried it for 20 years and I'm burned out because I tried it. I wish I would have seen that a lot sooner because it's really, it's the truth.

Yeah, yeah, it's so true. Talking about KPIs, what I find really interesting or what we want people to know about is we are putting out a newsletter.

Yes, we are.

So yeah, we'll be sending out a newsletter pretty soon as part of kind of a supplement or an addition to the podcast, which hopefully will have more management tips and practical things, actionable items that you can put into place in your dealership. So if you guys haven't signed up for the newsletter definitely jump on the website, the independentdealer.com get signed up, put your little email in there. It won't be spammy. It'll be once a week. We even get around to it once a week.

No, we're going to get to it once a week. Promise you that.

Oh, yeah, yeah. I hope we do.

And we're going to be building some of that content when we're out in Vegas next week. And so it's something that I think we're pretty passionate about. And actually some dealers have talked to us about want some more content. And you know, we're, we don't know everything, Jeff, but what, what we, what we learn, we can put out there and what we learn from other dealers because we have a lot that we're learning from other dealers. Can we can also put that into this newsletter? I think it'd be really good.

Yeah, yeah, that's what it is. It's just kind of like you said, we find the, we find the best stuff from the best people and hopefully pass it on to you. Luke, speaking of convention next week, hopefully you guys are listening to this on your way there.

Yeah.

You are en route to convention Vegas. What do you hope to take away from the couple of days in Las Vegas, Luke? And what tips do you have for other dealers that are heading there to make sure they can get the most out of it?

So the biggest tip is to look at the, the agenda ahead of time and know what to go to and what not to go to, because I believe that. And also know how you learn as a, as a dealer. Do you learn from hands on? Do you learn from talking to other dealers? Do you learn from vendors telling you how to use a certain product? You have, you know, you've got to decide that for yourself. And I think looking at the, at the agenda and deciding what do I specifically need to go to and if I'm taking, if I'm taking somebody from my dealership, what do they need to go to? The worst thing is to walk around the halls before, you know, before a session begins and not know what to do. You need to be there, you need to figure it out because getting there and trying to do it on the spur just doesn't work because I've done it.

Yep. Write down what are the pain points at your dealership and start thinking about that. Both from a management, a software, what do you want to learn about? Is it your website that you'd like to improve? Is it your CRM? Is it your, what do you Want to talk to capital partners and people that could give you money? Or are you looking to just rub shoulders with dealers? Go on the Facebook group, go into these areas and find those names and find out who those people are and then go track them down at convention. Ask them questions about their dealership, their location, a post that they made, some information that you want to try to get out of them. I don't know any dealers that aren't willing to share.

Very few, very few that aren't. And I tell you, there's some great people out there that you can talk to that will be at convention doing all sorts of different things. You know, people as unique as, you know, Joe Mock up in Chicago. And then you got, you know, some, the Watkins down in, in Mississippi and there's some big dealers from Texas that'll be there and some dealers from California on the west coast where they're having to deal with, you know, $8 a gallon gas. You know, they, they may have, you know, an idea that, that you just don't know about. And so look out there, you know, send the people a message before you get there, say, hey, I'd really like to introduce myself to you. Come up to us, say hello, we'll put you in the right direction. If you've got a question about something, we know a lot of vendors, so we can help you out there. The thing about the vendor hall is this. Don't just go in there randomly and start talking to a bunch of vendors because you will get sold on something. It's just not the right way to do it.

And it'll suck up your time. It's very quick. It's very, it's very easy to just have your entire day sucked up by chatting with a couple of vendors that just don't really serve your purpose. Right. You need to find those top priority goals and your pain points at the dealership and then go hunt those because.

There are solutions in there, Jeff. There are a lot of solutions that can be found and there's solutions from other dealers who are using products and they could say, you know what, actually that vendor's not here, so this is probably a better way to do it. You know, my ideal convention, Jeff, has, has a lot to do with networking. You and I talk about that a lot. And so there are a lot of good things going on at convention, from the first timers event to the, the cigars and martinis. I'm not sure what they call it anymore, but that the first thing when you get there, a lot of dealers will be there. Introduce yourself, Talk to those dealers, because that's where it's at. You know, grab people afterwards. Go have a drink with somebody. Go hang out the pool with somebody. Whatever. Whatever floats your boat. Do it, because that's where you're going to really, in my opinion, that's my ideal thing. I want to hear dealers presenting to me as well, Jeff. I want to hear dealers that are better than me or bigger than me tell me what to do. I want to. I want to see dealer panels and breakout groups. That's what you and I like to see. And there's probably some of that there. I. It doesn't look like there's as much as there should be, but that's where you're going to really, really get a lot of education, right?

Yeah, yeah. It'll be really interesting. I mean, we've had some ideas in our conversation last week with Ben and Katie whoever was. Sorry, the head of education artist pasted. Yeah. Our conversations with them about the convention coming up and, you know, we hope for the best, and I think it'll be good. The education sessions look okay. There's a couple of things that you, you know, as dealers, I'd like to see done a little differently, but we'll see. We'll see what happens.

Well, you know, we're going to always be critics, no matter what. I do believe there are better ways to do a convention than they're currently being done, but we'll see. We'll give this. Give this organization a couple more tries to see if they're doing it right.

Absolutely. Great. Luke, good chatting with you. We're excited to be in Vegas. Excited to have some fun, really run around, meet people. So if you're there, you're listening to this, definitely come up and say hi.

Please do.

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