#263 - America Car Center, Autotrader, Customer Appreciation

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 man we are in tax season it is the end of march end of february first of march.

Yeah i i i like getting through february it takes a bit of a load off how'd it go february was good not the best february we've ever had and you know we've been talking about that the sales staff with staff and we did eighty one cars one time in february jeff for you it's big that's huge and that was in like thirteen or fourteen i think twelve thirteen or fourteen anyway and just crushed it and and i tell the staff that we did eighty one cars and they don't believe me jim they go how in the world you do that i don't know i can't i can't pinpoint what we did to get those eighty one cars sold that year but we did it and you know we've had sixties here and there you know we typically sell thirty to thirty five a month so you know doubling the production during those months is huge and we got we fell short of our goal this year we ended up in the you know low to mid forties but i tell you what after doing that many cars and not being stressed and it would be stressful for us normally but it wasn't stressful at all staff did their job everything flowed right i think a lot of that had to do with one of our sponsors neo but it really we really i think are really close to dialing it in and doing forty every month so that's that's our goal and hopefully that's where we're going to get to just.

Tightening up your processes and using neo for your underwriting and just not having to scramble to get this stuff done i think it definitely helps to smooth your processes like that when you do get them dialed in and you start really figuring out how all the pieces.

Fit right yeah i mean that's what that's what we're hoping to do how.

About you how'd you do my february was okay slightly above normal we didn't hit goal you know our tax max program i think today we filed about nine refunds about twenty two thousand dollars so that was a bit off from last year as well obviously we still got a little more time to keep filing some returns we always seem to be a little bit behind with the money i always see the facebook posts and all my dealer buddies talking about how they're seeing the tax money hitting the ground and i think we've seen some but we've not really seen like a a noticeable influx of you know large down payments so yeah so hopefully that's still coming for us for sure.

You know what what we noticed was that last year the last two years we've been able to sell some really high end units and i pulled those and i pulled that price down a little bit and a good thing i did because our really higher end units have sat this whole tax season already and that's that's usually because the payments are too high and the down payments too high so i'm glad i kind of stuck to my guns and and brought my average inventory price down a little bit because i think that's helped and will continue to you know hopefully march we anticipate a march probably being bigger than february but you know surely because of the amount of days number one but you're in the middle of tax season now you're not on the beginning or the end i think march will be a good a good indication of how this year really turns out.

Yeah i find it surprising you can bring down your cost of car because i can't go any lower i can't there's just nothing lower there's just nothing it's just crazy and even they talk about prices coming down and all this stuff right back up just like it always does we knew it would yeah.

But i'm talking about the difference in carrying multiple units at twenty five thousand acv no we have not like our core acv is still thirteen to sixteen thousand dollars so that stayed right there but i lessened the twenty five thousand dollars twenty twenty twenty to to twenty eight thousand dollars acv and and i'm glad i did yeah yeah the cheap.

Stuff you can always sell a cheap car you know and it applies for all areas even me to have a thirteen thousand acv is crazy for me right that's high for me but if i had a thirteen hundred dollar acv sure i could sell them like hotcakes.

But you'd repossess them like hotcakes and pick them up on the side of the road like hotcakes well it's a.

Good you know it's an interesting argument to make is like where is the payoff between a cheap affordable car that will be paid for and they'll keep and too cheap it's not going to run the note and you're going to repoint it or you're bringing in the type of customer that's okay with a thirteen hundred dollars acv which means it's got higher miles it's beat up and now they're not being able to be.

Successful yeah hey i also i'm on.

Your newsletter luke for your dealership i understand that there's a free tube steak.

On friday yeah i know how you like customer appreciation days and so we've tried this we just wanted to bring some more action to the lot the first one we tried in february the weather was crappy and so it really it didn't turn out like we wanted to but just creating the buzz jeff does does something so again this friday free hot dogs and chips all day you know we start cooking about eleven and we just you know create some action and that's really all it's about it who cares how many people come and get hot dogs we'll cook eighty of them and you know what maybe we'll eat eighty i don't know you'll.

Cook eighty the staff elite seventy that's very possible you'll throw away five that's how it always is every time i bring in a food truck or we do something on a friday the bulk of it is just employees eating it i don't know if it does any good i just i just have no.

Faith in these things i don't either the only person i know that does this right is is tracy myers you know but he's he has a flair for going big with everything so maybe that's what it is he'll get bounce houses and things like that you know maybe you have to have everything maybe do it once a year but we're just trying i think customers appreciate it when they see it even if they come or not if they see that you're doing something it makes them happy to know they bought a car from.

You yeah i can definitely see that from a branding standpoint that's all they need to know is that you're in the community you're giving back you've got those opportunities i'm sure your employees appreciate you know a dirty water dog on a friday or however you're going to.

Cook these we're grilling them buddy no we're not no no garbage boiling hot.

Dogs so we did a customer appreciation party every year forever right since the beginning i've been doing them and they were really well attended back in you know twenty ten twenty thirteen twenty fourteen but the last few years i did them twenty nineteen twenty eighteen man it's the same ten people that show up to try to get a free tv or a free car payment i could not get any kind of attendance and it just got so i don't know if it's the culture people just don't have time to stop at these things and they don't want to waste their you know evening or their weekend or whatever it is or if i'm not doing a good enough i'm not enough of a showman you know i'm not making a big enough production that it's something you have to be at you want to be at well that's that's.

What i said secret that's the reason i said tracy myers does it well it's because he's a showman for sure he's a showman so i think i think i think it goes a long.

Way it can't be a five or eight thousand dollar event it's got to be an eighteen thousand dollar event with jump houses and carnivals and clowns and whatever else i don't know if i.

Can tell you we've had we've had some really good trunk or treats that that's been really well attended and i think those go a long way too.

That'S tough too man i'm just like i put myself in their shoes like am i gonna get my kids in the car and haul them over here to walk around your dealership and take candy i don't know go figure hey you know what luke though people that do put on a good event buy here pay here united one hundred man.

That'S that was there might be a.

Lot of candy there might be free.

Dogs i don't know but i promise you you'll get something free with your.

Registration fee yeah so it's going down april thirtieth las vegas at the bellagio.

Yep buy here united dot com i think and or be here bhph dot.

Com bhph united dot com get on register now get your plane tickets this is the perfect window right now you're about thirty sixty days out yep so now's the time to get everything locked down and be there it's going to be good old time it's a great.

Time we will be there we'll be doing a lot of production a lot of recording right jeff and we'll be.

Doing something i don't know come talk.

To us we may want to interview you and all that good stuff and you know be there because it will.

Be worth it yeah so one more topic before we get into what i really want to ask you about and get into so i think on the facebook page you saw a bunch of dealers and some of these groups get riled up about this auto trader private seller exchange platform that cox has launched right so cox has come out and said hey you know this whole private party to private party one and a half million sales per month we want to get our hands on some of that we want to be the intermediary for you to sell your car to your neighbor and we're going to handle all the paperwork and all the in between and make this exchange this this marketplace platform for them it's pretty interesting.

Concept honestly i mean okay they want to do that i i don't see i'll make a lot of people mad here it's like it's it's like curbstone i could give a rat's batude about a curb stoner i don't care it doesn't matter to me and some people they'll spend their whole career as a independent dealer committee or member or whatever caring about it curb selling does not affect your business everybody i'm just going to let you know that running your business poorly affects your business so just because you think that the guys got four cars down there on the curb for sale for for five thousand five hundred dollars matters it really doesn't okay if you do your business the right way you're going to sell plenty of cars this year the big the reason people are upset and the reason people get upset is cox because cox is doing it okay if you would have said abc auto dealer is going to do this there wouldn't be a problem people would start copying it and do it so cox has the facilities to do it they have the financing to do it they have relationships with vendors to do it it's a safe transaction for individuals individual to individual so the only thing i can see here is that it would maybe interfere with us buying some cars off the street right is there is there any other i mean maybe it would maybe it will affect higher end retail people but they're not doing subprime number one so it's going to be prime to prime and if if a prime buyer wants to buy a car from an individual they can go do that right now and go to their bank and get financing done it's no big deal so this is people get riled up about things they shouldn't get round up about i.

Think i think part of the argument and just to take the other side of it is from what i understood of these people making the argument was it's private party sellers that would typically get either basically you'd get pushed out of the private party market because you'd get so depressed that selling your car private party was a hassle so this is making private party sales easier for the customer of the alternative which is trading it into a dealership or selling it to a dealership right sure so they're facilitating a private party to private party transaction and making that process easier for the customer a cox automotive is not the one to step in and be dealing with individuals i don't think so no customer service skills they have no communication skills i i just can't even fathom the type of manpower it would take to run this type of.

An operation this is going to be horrible this is going to be they.

Will they will i mean just insane insane idea i don't know what they're thinking that's the biggest brain damage they could ever get into but b i do see what's the next step now if if i cox can facilitate a private party to private party transaction well why can't i facilitate an off lease to private party transaction guess what i got sixty thousand off lease cars sitting in my inventory right now i just start putting those on the private party.

Platform you know that may happen also you know what else might happen tesla might start delivering cars to your house ford might allow you to order a new car online all these things are.

Going to happen so right but their argument is and their big angry is you cox are supposed to be us dealers partner we're paying you fees we're buying through you we're doing all this stuff for you as a partner and then they get all pissed when they're like okay so you're gonna end around.

Me you're gonna run cox is a business for sure cox are cox automotive is supposed to make money and how are they find a way to make money is is the way it matters and so let's just say i'd like to know after they implement this okay there's one point five million private party transactions per month currently do you think that's going to go up you truly think that needle is going to move at all well i mean no it's.

Not not to any percentage that's going.

To be noticeable right so it doesn't matter people get upset about things that don't matter it again run your business properly then you don't have to worry.

About it.

That'S just my opinion.

Well i don't like it i want to.

Be angry i being angry is not going to affect your bottom line so i mean you'd be angry all you want to get fired up about things that don't matter it does not matter.

Yeah period it doesn't matter there is an argument and i think that's always the slippery slope argument right okay if i'm going to say that this doesn't matter or that this doesn't affect me or the curb stoners don't matter or that selling private party doesn't matter or that well maybe having a dealer license doesn't matter well maybe we should just let anyone sell a car well maybe we should you know what i'm saying like where is that slippery slope as a dealer where you're going to say i'm just going to head down be in my business and i'm not going to worry about what all these guys are doing whether i like it or not or push back against it and feel like it's infringing on my you.

Know so if if if if a dealer out there really wants wants this to they really think this is a problem quit doing business with cox and quit doing business at autotrader it's that simple it truly is i mean and if everybody decided to do that then cox would either go out of business or they would get more into our business so i really doesn't i don't see how it matters i do not see how this matters yeah i'm sure i'm sure it does to somebody but.

You know yeah well so to plug one more sponsor guys buckeye dealership consulting you know they are a great sponsor of the podcast reinsurance psi vsi pms all those acronyms that these guys do for us or two s i'll tell.

You they're great i have been using for several years now and they know the business they can teach you how to sell product they can teach you new ways to make money they can teach you new ways to keep your money and honestly at the end of the day that's what matters they just come off their really busiest time of the year they have time to set up your reinsurance company if you hadn't already done it if you hadn't already done it you're just you're missing out on millions of dollars of opportunity it's.

A good point instead of ranting about cox automotive oh yeah for hours every day that they're doing what they're doing maybe you could take those hours and put it into setting up your own bsi program you're going to be i program make yourself some money because i.

Promise you you will you'll make more money in the long run doing this than complaining about freaking cox doing something who cares if the i mean i mean next thing you know they're going to raise the auction rates another dollar fifty and people are going to complain again oh my yeah yeah be angry.

That your that your salesman just broomed a customer pre qualified them on the lot that'll guarantee more for your bottom.

Line than guaranteed that happens if you train if you took the time you got on facebook and complained about whatever because all of you are out there complaining about something if you just took the time and trained your staff while you were complaining or even looking at facebook you'd make so much money it wouldn't even matter anyway.

So primal end is a sponsor of the podcast primal end gives capital to dealers for dealerships for lines of credit for any kind of area right yep yep they got the money we need the money the money is an issue right now and we're seeing it dry up and this is probably the biggest headline we're seeing kind of unfold it's almost like a it's almost like a slow motion train wreck right it's like you see it you can't stop it it's gonna happen.

So this is why primal limits and primal end is important because doing what we do we need one thing right jeff what is the one thing we need caffeine cash baby yes and if you don't have cash you can't be in this business two c's even if you're owned by york capital who has eighteen billion dollars under management okay that's a lot of money just to let you know you could run buy here pay here for years on eighteen billion and probably badly and you could run it badly and still make money so but even when you have that much capital you may not want to put all your capital into business and that's where somebody like primalim comes into effect they can help you they can lend you money and they can make you grow so let's talk about american car center and what happened friday afternoon it's a big deal it's a huge deal in our in our world and if you want to worry about something this is something you should worry about so american car center at least your pay here in the southeast you have up here jeff that it's forty dealerships i've heard closer to sixty okay they are owned by york capital private equity firm and last week they had advertised a twenty two million dollars bond sale two hundred twenty two yeah i'm sorry two hundred twenty two million dollars bond sale and what that is is financing that's all it is okay counties and cities and everybody issues bonds and when you're york capital you can figure out how to issue bonds to fund your buy here pay here dealership which is for.

Those that the way i understand it is a simpleton it is a package.

Of loans right well the bond is secured by the package of loans right.

So your package your collateral gets a rating and that goes out into the secondary market or into the capitals market yeah those people that if they feel it's a good investment or the returns there based on the rating of the assets can bid on it or make offers or try to buy portions of that for whatever investment vehicle they have.

Right and so yes and so what i understand they had a offer for sixty five percent of it and offer for thirty five percent of it okay how do you think these bonds rate just if you just had to think.

About it so much worse than they did a few years ago you know.

The year yeah the us government is aaa rated right or double a rated i think apple is aaa rated these are junk bonds okay so what do you think they haven't issued a bond in a year what has changed in one year jeff interest rates interest rates they've gone up about eight about eight percent in a year right so let's say last year they sold these bonds let's just say ten percent which they were more than that i guarantee you i probably they were probably between ten and fifteen percent let's say they sold those bonds last year and the return was ten to fifteen percent how much do you think those bonds priced this year are going to be down on.

Fifteen to eighteen i would say go.

Up i'd say it'd go up at least eight percent also what else is going on in the market auto loan delinquencies so makes the bonds less attractive so the next thing you know york capital who really doesn't need any cash but why not get cash on your assets sitting there in form of loans so they did this tried to do it and the capital was going to cost you twenty to twenty three percent guess what they said we're not going to put any more cash into this business let's collect out what we got and that's what happened and that's what.

Happened so that's a phone call that the executives are having on friday afternoon with the own with with the with the private equity company that owns them and the private equity company is saying our most calculated bet on this is to pull the plug on you guys sorry we're cutting off your credit card.

Yeah and what's what's interesting is that they didn't own any of their inventory either okay yeah isn't that weird really weird to me that next year was flooring all of their inventory and they still needed cash so to me that just means it was run poorly so.

Well so you back it up a couple decades right and the guy who started this i don't know i don't remember his name but he sold out to a private equity correct yeah that's how we got there and that's to me a recipe for disaster right like when you're running a small buy here pay here lease here pay here operation and selling to really subprime type customers from what i understand that i'm a i'm a pessimistic guy when it comes to scaling those type of operations i have rarely seen it done well or rarely seen it survived more than a couple of i mean maybe a decade.

I think it's very hard to do what we do on a grand scale now drive time's doing it and maybe they know something the rest of us don't know but once you scale past the original owner and then you have multiple locations where you can't put your hands on these customers daily multiple layers of management i think it really starts to to dissolve the the relationship that allows these accounts to be collected starts to dissolve and some of the biggest buy here pay here stores in in texas right now which you know are in in oklahoma which were the largest ones are i mean who do you know that have over ten locations jeff i mean i don't know i maybe maybe adonis and tricolor maybe but that.

Would be it i don't know they have over ten i don't know they.

Do either so i think i think there's a reason and i really do think there's a reason and maybe this is maybe this shows us what's interesting.

To me is they didn't do it smarter they shouldn't they they should have known this was coming they should have known what their bonds were rated and what the appetite in the market was for it when they before they brought it out how do you come out on a friday with an email to employees that operations have ceased and no other information you're not ending around for your customer base i mean everything that i've looked and seen online is you have a whole customer base that now thinks they own their cars they think they they think they can just ride they think they're out of here this company's bankrupt come yank my gps out of my car because i own this.

Sucker like i can tell you this how westlake i'd be willing to bet you westlake is collecting these accounts or or somebody like that so i don't you know but i have a i.

Haven'T seen any info from any customers posting that said oh westlake reached out to me or oh acc reached out to me and said that i need to keep making my payment like normal how does that how is that email not go out at the exact same time as the email to the employees or press release i'm sure a whole asset that you got to collect on man your whole portfolio who's collecting this.

Because it's it's hundreds of millions of dollars probably i would think their portfolio is at least two hundred twenty two million it's probably more like it's probably more like close to a billion if if we had to look at the amount of money they're trying to raise so it's a huge number so somebody's collecting that and i would assume westlake is doing that so the other thing i saw was so it's already going.

Out that with lease here pay here from what i understood some of the posts was they have past time or on time units there were people complaining that they don't have the code for their gps even though they made their payment they don't have the code to reactivate their car guess who guess who.

Gets involved when that happens yeah cfpb.

Yeah and the lawyers oh yeah like you're not you're not smart enough to have some sort of a contingency plan in place to so our local elections activities operating even though your sales operation.

Has stopped so our local one is a recon center a big recon center so monday morning you know where my first stop on the way to work was right by that store i stopped in there and passed out my card and trying to hire technicians and so we got a couple people to come in and interview well when i found out what they were making and what they had going on i was like this isn't going to work what do you mean i mean holy cow they were paying them god awful amounts of money oh really oh my goodness and they had control like a technician had control over kind of the recon process and they were well we're making thirty bucks an hour and this is really a part changer making thirty bucks an hour and i'm turning eighty hours a week and i'm like holy wow and i mean it was it was eye opening and anyway i had a good conversation with a bunch of people passed out my card we interviewed two they didn't fit in our program you know we'll see i think there's going to be a lot of good people to hire that they have hired so if there's one of these in your town i i encourage you to go reach out talk to them there's my salespeople there's going to be a lot of defaults on these cars as you were just talking about so there's going to be more people coming into our market next year is going to be running these cars at auction y' all so there will be i would say these stores carried a hundred or so per location maybe maybe not per location they probably let's say fifty at least per location so there's going to be a ton of cars out there in the market that are probably already recon ready to sell there's opportunity here again this matters more than a true vulture luke vulture well you know the one people i worry about in this situation when it comes to car dealers this is a this can create waterfalls for sure and and you got to know where you are when this happens and that's the reason again primal and is so important they are still lending okay when you start talking about pricing bonds to market one company comes to mind a lot jeff right and it starts with an a and ends with an a and i if i was one of those dealers knowing that kind of this is their business model and that i could capital markets capital markets and a company that american car credit let's car center had their own loans that they were pricing well their loans as their company are worth more than twenty dealers loans packaged in one you got what i'm saying okay because they have a track record of how they collect how they recon their loss ratios they have this the one thing that other company i'm speaking of does not have is that they can't say hey we have these ten dealers that we have ten years worth of data on because they don't have it and so i think it's if i was involved with that company i'm not saying i'm not saying anything's going to happen what i'm saying is i'd be prepared you know what.

I'M saying well i think everyone needs to look at it as a warning call right and you've seen some of the smartest dealers in the group chime in and say they're not laughing they're not pointing fingers they're trying to look at it as like okay what can we learn from this oh yeah you.

Know you got to learn something what's.

What'S the autopsy on this how did they go wrong and what can i do to not end up in their situation or or or what could be the next domino to fall you know is it another larger you know does this spell bad news for carvana if they don't have the ability to keep raising capital you know does this spell trouble for those companies that are selling their packaged you know securities into the you know public markets and they're not able to raise their next round and you might have a whole portfolio tied up with them hoping to get funded.

On it right yeah it's scary i've seen this happen before but also be.

Relying on people like mechanics bank right mechanics bank they were doing some volume and they just decided to shut down overnight boom gone so if you were a dealer and you were doing fifty percent of your loans through them or more what happens to your business model if that you had all your eggs in one basket with no contingency for lenders or for capital providers or you.

Know i've seen this happen this is the start of it buddy when that when that avalanche starts rolling and if you're lucky enough to be in smaller insulated cities you won't in states red states you won't see this happen as quickly these other states it happens a lot faster and you got to be prepared because this could get this could.

Get dirty well i would say as a as a heads up for those that are in the buy here pay your industry keep an eye on your collections keep an eye on your collateral recovery rate keep your cars and payments as affordable as possible work with your customers that's the advantage we have as smaller buy here pay here operations we can keep tabs keep the temperature of our customers and find solutions for them you don't have mechanics getting paid dollar thirty an hour to hang parts because you're paying attention to what the labor markets are doing you don't have bloated inventory you don't have you know all this shrinkage because you've got dealerships in all different areas and you're not able to keep tabs on some of the lesser you know tightly run ships pay.

Close attention to your expenses we've let them run crazy for the last two years we had some we had free money our customers had free money so you've got to really pay attention to these things that that could affect you and eat your cash because you've got to have cash yeah so luke before.

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