#293 - From Wholesale To Retail w/ Donald Sullivan

Hello and welcome to the Independent Dealer Podcast brought to you by Buckeye Dealership Consulting. We have another great installment of our How I Built this series.

Yeah, it's awesome. Donald Sullivan from Sullivan's Auto Trading, I think in Fredericksburg, Virginia. Great guy. A lot of great insight on a company that's been here for three decades. Right, Jeff?

Yeah, he goes over some really cool stuff, guys. He's going to talk about his recon assembly line. That blew my mind. It absolutely blew my brain. I have never thought about recon or detailing in this the way he does it. So that's super interesting.

Yeah, and, and hang on to the end because at the very end he gives us the two greatest decisions he's made in the, in the car business. And it's a teaser, Jeff. They're really awesome. So stick around.

I'm going to give you a little hint. One of them does have to do with one of our sponsors or could primaland. Right, Great sponsor of the podcast along with Buckeye. But if you're looking for money and you want to take some of Donald's advice here that he gives you at the end of the podcast, primaland is a great place to get started. They're good guys to call. So without any further chit chat, here's the episode.

You are listening to the Independent Dealer podcast with hosts Luke Godwin and Jeff Watson. Thanks for having me. By the way, my name is Donald Sullivan, Virginia native. Our primary dealership is in Fresh Fredericksburg, Virginia. We also have another dealership in Norfolk, Virginia. We employ about 75 people. We have a bunch of different segments to our business, you know, that not only decrease our time to time to market but also create other revenue opportunities for us, you know, throughout the year. We have a repair facility, repair and service along with the parts department. We have a 21 man assembly line recon shop. They, they do a ton of car detailing. They crank out about 45 complete details a day. A day? Yeah, and that's, that's full details. That's not what some people call them. If you're from the south. Normally, you know what I'm talking about. But yep, you know, we buff the car twice and wax it once. We're cleaning the engines, we're painting fender wells. We're, we're doing it right, you know, so we also have an auto body and paint division and we have a, a trucking division. You know, we vertically integrated into trucking just to again decrease our time to market and that's grown. We have about, you know, we have 10 car haulers and we have a fleet of about 10 trucks. You know, do they do well? It depends on gas prices. So, yeah, it's a lot of. It's a lot of investment in that. But, you know, when things are good, it's good. When things are bad, it's bad, you know.

So I tried to get into that a few, a few years ago and was talk out of it.

Yeah, I can, I can. We can do a podcast just on that. I have a lot to say about trucking.

That's. That's wild. Donald, that sounds like quite the operation you've got. So what I want to do is let's rewind to the beginning. I want to know the origins, like how did you get into it? How did you get started? And then let's work our way back to the present day.

Yeah, because Donald, Donald, I think you said y' all been in business 33 years, is that right?

Yeah. So my father started the company in 1990 and we were primarily a wholesale remarketing company. This is the only thing that I've ever done. I've never had another job. I've never had the opportunity to work in another industry. From the time I was a young adolescent, even into a teenage years, if I wanted to spend time with my dad, I did it on bid lots and auctions and, you know, he was present athletic games. But other than that, I didn't really see him, you know, so my family was, was worked really, really hard, but they operated in the wholesale remarketing space. And when I got out of college and before, during and after college, I stayed in the car business. You know, I. I worked and I did things to continue to develop myself, primarily buying cars. You know, that's what I did. But when I got out of college, I came and slowly took over operating the dealership. You know, that didn't happen right out of college, but within, within three years, I was operating the whole dealership and immediately opened up retail. We never had retail. We never sold a retail car for, for, you know, almost 15 years, we never, we didn't do retail. We sold about 150 cars a week wholesale. So we did volume wholesale and we operate. But, you know, in 07, when margins got compressed and in the economy kind of took a dump, we were forced to look in other ways to, to really bridge that gap and, and retail was, in my opinion, an opportunity to do that. I've always wanted to do it anyway, you know, so growing through that was, of course, difficult. But, you know, in that time I went back, I got my master's degree, you know, in business also. I did the CMD program through niada. And I'm always continually trying to develop and just polish myself, you know, not just intellectually, but, you know, in the, in the business atmosphere as well. So, you know, in, in our company staff since then is doubled. Our, our, our footprint has doubled our inventory. You know, back then we had about 500 grand in inventory. I've got about 8,9 million in inventory right now.

That's quite the difference. So when you took over, Donald, you were saying when you just, you were doing a ton of wholesale, the company was doing a ton of wholesale. And then when you started dabbling in retail, what would you say? I mean, were you doing 10, 20amonth, 30amonth, or did you jump instantly up to kind of switching a lot of those wholesale deals over to retail?

That was it. You know, we saw an opportunity to start selling for much larger marlin. And I think our first month, man, we did 20 some units.

Okay.

And we were like, wait a minute, you know, there's something here, you know, and so it wasn't easy, though, because when we, when we first started to get into retail, you know, back in 07, it was a very, very difficult time, you know, and so it was, it was, it was trial by fire. Fire, of course, and we had a lot of failures and a lot of, A lot of things that happened that really slowed us down. But I knew that was the future. I knew that we weren't going to be able to support our overhead, our staff, and have, you know, sustainable future if we just did wholesale. Because, you know, back then used to be able to go to dealerships and buy all their trades. You know, you used to be able to make connections with folks and have relationships where you would constantly get cars. And, you know, right then is. I don't know if you guys remember, they didn't have V Auto back then. They had like, aax. Do you all remember that name?

I don't remember that.

Yeah, but it was, it was, it was the first inception of technology where you can see where other people were pricing their cars. You know, you can actually see that stuff. And then, nada. It came out with a digital book and MMR came out. That's when MMR came out too, if y' all remember that.

I do remember that.

And dealers were starting to understand on the new car side what their stuff was worth. And we didn't like that.

Yeah.

So it was becoming more difficult to buy these cars with a Paper book, you know, and explain to them, hey, is what it's worth, you know, rough the average trade, man, you know, and then it would do a shot at the auction because, you know, you had something. But that stuff that those times were over with and, you know, it was. It was an interesting time. It was. It was perfect for us though, because it really, really pushed us and forced us to get into. Get in details. So go ahead.

What did your dad do before.

Before 1990, he had another business that he partnered with somebody. It was called Sullivan Auto Brokers. Okay. He just wanted to end the partnership and start his. Start his own thing. But he's been in the car business his whole life. His first job was a gas station attendant, you know, at a service center. And then he started selling cars somewhere locally. But shortly after that, he was. He was selling cars wholesale in his late 20s. I mean, he didn't wait long before he started getting into it. Before on his own.

Yeah. I mean, our companies have been. Been in existence almost the same amount of time. And it's funny, the evolution. We used to do a ton of wholesaling as well, but what we noticed is like, you're talking about the margin is just continually decreased and. And we cut it out because we thought it was just. It was taking up too much of our time. It's monopolizing our time when we could. Could be focusing on buy here, pay here, and making that next jump. And y' all focused on retail. Oh seven though to me seemed like it was. It was still a pretty good time for. For wholesaling and a less better time for retailing. I know you said that y' all sold about 25 cars, but you didn't have. I'm sure you didn't have any establishment with lenders, and lenders were just running scared at that point. How did, how did that transition, I guess on that side, how did it work out?

You know, it was. It was interesting. I mean, our ACV was pretty low. You know, it was only about maybe 812 grand. So we were still in reach for most people to write checks. And. But we also, because of our. I mean, we had 15 tax returns under our belt at that point. So we were able to go out and get a couple lenders pretty quick. Able to get, you know, some sub. Subprime banks are easy to get. Right. But we were able to grab some prime banks and Wells Fargo actually signed us immediately. Wow. And they weren't Wells Fargo Auto back then. They were Wells Fargo dealer services. And that's when they really bought well, you know, and so Chase Bank, I don't know if you all remember them, they got out of the auto lending, but they were, they were really our middle of the road paper. And you know, we got signed pretty quick with a lot of banks because of the amount of time we've been in business.

What do you feel, Donald? What do you feel was your biggest, like a learning curve or what was the biggest wake up call as you transitioned from wholesaling, which I imagine you were probably wholesaling to the dealers in your community, right. And now you're switching to where you're now their competitor and you're selling things retail to their customers. Were there any lessons learned there or what do you feel is kind of the biggest wake up call?

You know, the wake up call was just the bridge, the, the gap, the gap in knowledge of compliance and just, you know, how to structure a deal and put together a deal jacket. I mean, with a wholesale deal you get one piece of paper and with a, with a retail deal jacket, I mean, it was unbelievable. But I learned very quickly. I mean, I, I learned very, very quickly and it didn't take long for me to understand how to do it all and I really had nobody to teach me, you know, so. But it, if you want to know something bad enough, you're going to learn it pretty quick.

So, yeah, I mean, you, you had, I mean, in my opinion, you had the most important knowledge and that was the knowledge of the car. You had the knowledge of how much cars are worth on the wholesale side. And you knew how to. Well, you knew if you were selling them wholesale, somebody was trying to sell them retail. So you had. Yalls company had that nailed because, I mean, I've seen y' all wholesaling cars forever. So y' all had that done.

I think on the, on the F and I side, that was probably. To answer your question directly, that was, that was probably the longest learning curve. Structuring a deal properly, getting a callback, understanding what you can do on the front, what can you do on the back, and what's more advantageous for the store. Right. You don't always want to load everything up on the back because a lot of it's cancelable products, you know, so how to manipulate trade and allowances and how to read approvals, how to bump approvals with banks, how to develop relationships and see what they can do or they won't do. That stuff took years to learn, really. And once, once you, once we got that down, you know, our per copy Went way up. And, you know, we. We're still developing our F and I mean. I mean, still developing F and I. You know, F and I. I feel like, especially right now, where margins are at, we have to have these strongest F and I departments in the retail space, for sure.

But where was. Where was your. Your major growth from? Let's say you started that first month at 25 cars. What do you sell? Probably 150 cars a month now or so. I don't know. Was that a steady climb or was it. Did you see one jump in those, you know, in those last 15 years that. That got you up to that number or how did that look?

It's normally as we grew our inventory, our numbers went up. You know, I did see that as we grow our inventory, it required us to grow other things in our operation. But now there wasn't necessarily one big jump. The more cars we had, the more cars we can sell. So we learned quickly that we had to grow our inventory. The problem with that is, and the problem most dealers are facing nowadays is your current bank deals will allow you to get more money, but you shouldn't, you know, and it took me a while to really understand that my cost of capital was too high to scale my business, you know, so what I started doing was. I started working in three different areas, but one of them was floor plan. You know, floor plan for dealers. You know, just because a floor plan company will give you 2 million, you should not use 2 million, you know, because it doesn't pencil. You know, everything's got a pencil out. And you have to make sure that if. If you're going to max out this line and you. And. And. And if you understand your. Your rate of return per car and you understand your cost of capital, you got to put yourself in position for profitability. And that's what I realized. We were selling 190 cars a month out of our Fredericksburg store with about 200 in stock. And I was getting crushed. I was getting crushed in floor plan. And, you know, a lot of people say, man, that's a lot of. But understand when you're on a bad floor plan deal, you pay per click, you know, because not just is there an interest rate attached, but there's associated fees attached. You know, I don't have those deals anymore. But every time you sell a car, you pay. Every time you floor a car, you pay. Every time you do a clp, you pay. Every time you have a curtailment, you pay. You know, so the fees were outrageous in your actual Interest rate may be 9 to 12%, but your APR with all associated fees, if you do the math on the money, is normally between 20 and 30% and very, very difficult to sustain in that regard. So I realized that I can't do anything until I get cheaper money.

That's a, I think, I think we got to restate that point. I think that's an interesting thing to look at when we just. So many times you just focus on turn and when you tell me you have a 12 time turn that you're selling 190 cars with 200 in stock, I think you're doing great. That's perfect. That's great for your floor plan because you're getting those cars off. But you're telling me, wait a minute, dealer, you got to look at the. Just because you're moving a lot of cars in and out, that's not necessarily good because. Yeah, you're occupying that floor, you're utilizing the floor plan the best you can, but because of the frequency of the in and outs, you're getting hit with all those fees and everything else.

Yeah, and, and, and here's the skinny on that. I think we have a great car for a great price and I, I believe I have to that we have a better car than the next guy. You know, because of the work we do and the things we do to get the vehicle ready. My, my average shop bill, 1750. We spend money on our stuff.

Yeah.

But to sell that many cars, you can't have five and $6,000 fronts. It's not happening. You know, not happening. Doesn't matter how nice a car you have. So you heavily rely on your F&I department to produce when you're selling that many cars. And if you have a bad month in F and I, and or you got smoked on a couple of units on the front. And then you get pounded with floor plan fees. And selling 190 car produces a little bit of salesperson compensation. Right. It's tough, man. It's really tough. So you have to have your cost of capital super low to operate at that capacity.

Don Donald, you, you just said something that, that I wanted to revisit. When it comes from the move from wholesaling to retailing, what was the learning curve like from recon and the wholesale side to recon in the retail side. And how'd y' all make that jump? Because there's a big difference.

Yeah. So with wholesale, we, we, we would make the cars auction proof. Right. With retail, we would make them to where if we were Selling them to our sister, you know, that they were whole, if that makes sense. Oh, yeah, not that. Because. Not that we sell a bad car at auction. You know, we had the same buyers every week. We took care of our buyers, we let them out of deals, whatever they wanted. They came back next week and bought 10 more from us. You know, the, the point I'm making is if the power mirror didn't work, we didn't fix it.

Yeah.

You know, I mean, we weren't, we weren't going through these cars like a fun, you know, so what that hat. What happened was, is that it was really taking a while to get the cars ready. And not just were we spending more, but what, what we also had to learn was. Hey, wait a minute. Our floor plan company is not going to floor plan all this money. Right. They don't floor plan the transport, they don't floor plan the shop bills, they don't floor plan the recon, they don't floor plan the advertising. They don't floor plan any of it. So, you know, I'm, I'm thinking 2 to 2, 500 a car. I need just in cash reserves to sustain with that car on the Internet. Does that make sense?

Oh, yeah.

So as you increase, that's another thing. As you increase your floor plan. Oh, I got more money. Well, go ahead and add another car, 100 cars to your lot and see if, you know, 3, 400 grand doesn't disappear out of your checking account, you know, really fast. Yeah. So, you know, we had to learn all that really, really quick.

So that's, that's interesting. I knew, I knew there would be a big jump. And honestly we had the same jump as well, you know, you'd go to a point where, oh, well, it's just, you know, it's just going to the auction, but it's the same as retail. It's really not, it's not even close.

It's not even close. Yeah.

And how. So y' all had a wholesale recon facility there. Now it sounds like you have a old fashioned Henry Ford assembly line.

Yeah, that sounds interesting.

How did, how did you get from there to now with recon?

Are you speaking just specifically with car detailing or the whole recon process?

Just the whole recon process in general.

Well, to be honest, the way the we, we built the dealership, bought the land, built it. So it was a pretty big, big facility. And the way it was structured, it was really conducive to both models, to be honest with you. The mechanic shop and the, and the Car detailing and the body shop. I mean, it didn't really change how we did things. I mean, now the cars still go into the repair facility first they get, you know, fixed, state inspection, PDI'd, everything done, oil changed, and then they just go right on into the assembly line for detailing. And you know, the detail line has. We haven't lost any of our customers. I mean, we obviously don't have 45 cars a day to detail. Right. I'm not selling that many. So we have a lot of wholesale clients that send us a lot of cars. Not just wholesale, but, you know, retail too. You know, not everybody has the ability to detail their cars or recon their cars the way we're doing them, you know, so I would say there was no interruption in that regard relative to the way our business was structured operationally. We just kind of changed a few things about what we did to the cars, but everything was pretty much in place now. We did at that point see the need for customer pay service. You see, before, we never opened the door to customer pay. But if, if you're, if you're having a successful retail operation, I'm going to say at one point, you're going to have to open customer pay service because you're going to keep sending your customers down the road for comebacks, going to keep sending them. Plus, you know, we're selling cars out of service. We want to see these people you buy, they buy a car once every three, four years. They're coming into our service facility six, seven times a, a year. You know, so they come in, hey, how you doing? How's Bobby Joe? How, how's Billy Jane? All of them, you know, and then they say, oh, I saw this car. That happens all day long. And the, the to be able to develop relationships and, and rapport with the local customer base is huge. So, you know, that was a big learning curve, customer pay service. You know, that took us a long time to learn. But, you know, what we have now set up is, you know, we're huge on technology. We have no paper in our dealerships, even an F I service, nothing. So, you know, cars come in the service, they get scanned in. Those vehicles are digitally dispatched to all the technicians. All the techs have laptops on their toolboxes. They enter all their notes, they take all their pictures from what's wrong with the vehicle. The service writers are able to, you know, show this stuff to the customers, email them, text them, get them approvals. All of our shop stream management is digitally dispatched and looked at parts Department is also communicating with this software. So that took a while to develop, you know, and we did not need that in wholesale, so. But yeah, it's. It just definitely took a long time to develop that part.

Service departments are so key to retail facilities, in my opinion, to buy here, pay here facilities as well. Because every time you send that customer somewhere else that you. You run the chance of losing that customer. And it's really hard to. To get that through your head. But all you're, all you're worrying about is selling the next car. But until you can get to the level to, to learn that and to figure it out, you're losing money. And that's. I mean, you were, you're spot on there.

You got to be.

You called your recon line, assembly line. Now I just, I gotta ask the question. I don't want to go down that road too far, but are you literally rolling these cars through like an assembly line type recon situation where, like, one guy is just doing glass, one guy is just shining tires, one guy is just shampooing, like.

Yes. Yeah. And it's not one guy. We have two to four people per stage. There's about 10 stages. Right. But like, for instance, when they get to the buffing stage, right, and they're rolling down an assembly line, it's not like, you know, the car stays in one spot and then, you know, people are jumping to the car.

You have a track, you have like a, like a, like a car wash type track that these things on.

And it's a, it's a 200. It's a 200 foot shop. And they start from one end and they go all the way down to the end.

Oh, my goodness.

Yeah.

Crazy.

Yeah. And I have a video to actually, if you guys want to see it, I can send it to you. But each, each stage is its own thing. Like when they get to the buffing station, I have two buffers, one on each side of the car, and they buff the whole car once with a compound, and then they buff it again with like a glaze. And they're buffing a half a car both times, right? Because they're. One guy's on the driver's side, the other when he's done, the car rolls up and then it goes to the interior part cleaning station. Everything that's a hard part, including leather, gets scrubbed, right. If it has cloth seats, they don't get scrubbed till the next station. But. But yeah, that's the, that's the, the stages in which they go down and the last Thing we do is we, we paint the walls. So it's a pretty cool process. And the, the only way we could do it that way is the assembly line method, you know, so because you.

Don'T want to train 21 people how to do everything, you can't have 21 pieces of equipment for every single. You know, if you had, if you had 10 different detail bays with two guys in each bay, that would be a, that'd be a nightmare of parts and, and training. But you're saying you specialize these guys and they are doing 10 or 40 buffs every single day to get really good at it.

They're very good at it. And you know, efficiency is a huge word there, but also, you know, it's, it's a safer environment. There's less movement, you know what I mean? The cars are less likely to bump into each other because we don't have cars pulling in, pulling out, pulling in, pulling out. It's just, it's, it's just very easy. I pay people full time. I have two people, their full time job is to take cars into the assembly line and when they come out, park them where they go. That's, that's what they do all day, you know, full time job. So, yeah, it's a pretty cool operation. But, you know, back before we built that in this building back in 2000, in the early 90s, we did it the old way and we only got about 60 details done a week, you know, and we had a crew of about 10 people and two of them worked on a car at a time. And, you know, if they could get two cars done a day, it was great. But that's, that's kind of the old way we did things. When we built this, we realized, you know, we could speed this thing up. Man, let's, let's kind of mechanize our people.

Where did you, what did you base that on? Was it something that you came up with or did you see? I, I think this is sort of how our CarMax does it. I'm not sure. How did you figure this out?

So we did that before CarMax was big, you know, that we were doing this stuff in the 90s. I can't take credit for the detail. My father is the one that engineered it and, you know, that was his vision with the wholesale remarketing thing. When we built the shop, to be honest, I thought the detailing was going to go away when we started retail, but the need for it never stopped. So we kept that segment of our business because, you know, it was the most profitable thing we did in our service department. Way more than repair, way more than body shop, trucking, anything. And you know, we, because of our reputation in the area, certain dealers will bring us 40, some of them 60 cars a week, you know, and, you know, that, that helps, you know, keep that machine going for sure.

Yeah, yeah. It seems like economies of scale are crucial to have that kind of an operation, to be able to specialize. Yeah, you've got to be doing that 40, 50 cars a week types thing to keep to have a big enough operation where you can specialize everyone. So, Donald, I want to talk to you, getting into the retail side of it, right? So your sales team, what kind of, what kind of a situation do you have there? I mean, when did you start kind of growing your sales team? Because I imagine doing that kind of volume, you've got to have a pretty healthy looking sales floor.

Well, I'm very fortunate. My two brothers also work with me. So. And a lot of times when you work with family and you bring family in, it's a situation where you have to. Or it's an uncomfortable situation. But my two brothers are very, very high performers and we're very close to each other. We work every day together, but we also go to the same church, we sit together in church and then we hang out after, you know, we're together, you know, eight days a week. And, you know, that's super important in my opinion, just for the cohesiveness of our operation. But they have been with me pretty much since the beginning, you know, maybe a little bit after. But they are, they, they, they're superstars, man. And they. I didn't, I never really had to go find really, really good talent in that regard, you know, to, to, to help with sales. But we have developed people under them, you know, and that hasn't been a huge, you know, very difficult task. You know, I think training is important and management's important, you know, but, you know, our, our sales team isn't huge either. I mean, we don't, we don't have 20 salespeople. You know, I don't, I don't hold that many so.

Well, Donald, you know, we talked about, before we got on air here, we kind of talked about what's going on in the retail environment right now. I know we all have, we all have our own ideas of where this is going, but you're fighting it every day with, with banks pulling out, with money costing more. What is the state of, of our economy in the, in the car business? Right now and where you think it's going.

This is, this is a hot topic in my opinion. When the Feds started to raise interest rates, a couple things started to happen. But, but in, in my opinion, this is the worst year that we have had in the car business. And, and, and could get worse next year if, if certain things don't change. But what happens is, you know, when the Fed raised rates, a lot of folks, you know, their cost of capital tripled. Okay. Just, just dealer. Dealers alone. Okay. Which certainly produced a harder situation us for, for us to remain profitable. What happened also is consumers rates went up. Right. We're getting called back. You guys control your own rates, I'm assuming. But you know, we get callbacks from banks and we're selling 850 beacons, you know, 8, 9% interest rates, you know, that, that's very difficult for them to swallow when they're signing up for 199 just a year and a half ago, you know. And so because of that, when, when interest rates go up, their payment threshold really hasn't changed because nobody's getting raises right now. Right. So what's that due to the value of our inventory, it crushes it. Right. We have huge margin suppression. And so we're seeing margins go down. We're seeing folks's interest rates go up. Our cost of capital is going up. They're less likely to buy stuff on the back because they're trying to keep these payments manageable. They're absolutely crushed in their trades because they bought stuff in Covid. Right. So we're over allowing on trades, trying to make car deals. And we're also seeing that customers are, that we're seeing bad credit. We're seeing the condition of the credit in America start to decline. Okay. And, and a lot of times, you know, this isn't a good thing. But we're also seeing on the other side, banks are starting to get tighter. Right. So we're getting dirtier paper, you know, and then the banks are getting tighter and tight. Like if I get a 700 beacon on a credit app, I don't get excited anymore. I don't. I gotta get an approval first, you know. You know, I used to get a620,610 and this is done. You know, it's not that way right now. And we're seeing, like you said, banks are starting to pull out. So what this is causing us to do is if we are going to make it through it, we have to, we have to pretty much sell cars for a lot Lot lower margin. A lot lower margin and hope to make it up on the back, hope to make it up a volume. And that's the gear that we're shifting into. Just because, you know, my call, my, my overhead's huge, you know, it's not going anywhere and I can't fire all my employees because, you know, I'm just not making good money on the cars. I, this ecosystem, every part needs every part, you know, and so it's, I'm not pessimistic, but it's, it's, it's probably the hardest, hardest time in the economy that I've seen in a very long time. And if feds raise rates again, it could be detrimental, I mean, even a half a point, it could be detrimental to the state of our economy. So I'm hoping that doesn't happen, you know, for sure.

What do you think the, the UAW strike, how's that going to affect us right now?

You know, it's a good question. I, I think, I think it's, it's going to not, I don't think it's going to surge the used car market like most people think. And this is why back in Covet, people had a lot of cash in their hands, they had a lot of buying power. And we experienced vehicle shortages then. Right. We experienced plenty of them, but it was the hottest time and the largest margins we've ever seen. Right. But this is not the same thing. This isn't the same thing. And if, if new cars, which haven't recovered yet, new car supply hasn't recovered, but if new cars get pinched again. Yes, I think indirectly it'll put demand on used. But I think people back then were a lot, they were operating really outside of, you know, what they needed and they bought a lot of wants, you know, and right now people are making, you know, financial decisions that are a little bit tighter and it's, it may serve. Only thing I think is going to happen is our, our prices are going to go up at the auction, you know, but the customers still aren't going to want to pay them, you know, and I just don't, I don't want to see, I don't want to see that strike happen for, for a lot of reasons, but I don't think it's gonna, personally, I don't think it's going to be what everybody thinks in terms of, oh, yeah, it's going to be another. No, it's, I don't think it is. I don't think it is. I think it's going to be bad for everybody for sure.

Yeah.

Like from a parts and a, you know, the, the outside standpoint, you know, when these part plants go on strike and if that's prolonged now, it really starts hurting us. Right. We're not getting used stuff or, you know, things are being distributed. What I find interesting, Donald, when you said about the, about trying to make it up on the back end from a retail stuff standpoint, and you're saying you've got these 800 credit scores that are getting a call back at 9% and you know, you happen to get the deal done and maybe you get a couple points back from the bank, but that guy with the 800 credit score is paying that thing off the second he can get it paid off. Right. I mean, he may have financed it for a minute just to get the deal done. I worry about the chargebacks, you know, for guys, for retail guys that are maybe making it up on the back end and then losing that loan shortly thereafter and getting charged back by the bank. That, that, that would be surprising to me. It seems like you guys have got this perfect storm situation going on.

Yeah. Chargebacks can be difficult also. You know, cancellation of products. Right. Those are much larger in terms of how it hits you. But, but, but, yeah, I mean, we get better rates than 9%, you know, depending on the term. I mean, we can still get it in the fives.

Have you lost any, any major lenders in your tool belt? Have any of them just called you and said, hey, we're done?

One, one. It was our first prime lender we ever had. And to be honest, we sent them one deal a year. Okay. They were that bank that wanted nobody less than 800 and amount financed over 60 grand. And you know, it just made sense. But you know, we did a lot of deals with them back, back, you know, days ago, but they got completely out of indirect lending. It wasn't us, it was just, it was just they were kind of done with it. And, and you know, when you see banks, you know, getting out of floor planning and indirect lending, you know, that's, that's another indication things aren't great.

So you're in your region or in your area, who are you seeing are the most friendly lenders right now that, that other dealers could maybe go talk to or knock on the door if they're trying to expand their lender options?

None of them are friendly. They're banks.

Who will return an email right now.

Yeah, you know, we have good relationships with our banks. I'm. But you know, I saw a T shirt the other day, it said and I, I want to find it and buy it. It says banks don't like you. And I, I really, really like that because I feel like sometimes and I'm just going to speak openly, you know, banks will look after their own interests first, you know, and I've seen so many colleagues get cut off of their dealer agreements when they didn't deserve to or floor plans when they didn't deserve to with no notice. And you know, but, but where we're finding our best rates right now is credit unions. They are, they are behind with the rate hikes. They normally take a minute to catch up and to compete with a lot of the other credit unions out there that some people, we have a lot of military and at the two dealerships we have, so Navy, Fed, USAA and all those other military style lenders, we're having to send a lot of deals to credit unions to compete with them, you know, and they're giving us good term, good ltv. And you know, that's, that's really where a lot of our papers going right now. I, I, I, I like better, you know the, I don't want to say bank names on here because you know, but, but I like better like your conventional dealer agreement banks and not the credit unions. You know, you call your rep, you structure the deal. You know, there's a lot of opportunity in the loan for the dealer. But I feel like man, with, with the FTC and the way they're pushing things and how everything got restructured relative to how we get paid, all that has changed a lot, man. And it's a lot of by the book callbacks and you know, category lending and you know the, but you know, we can still make money. It's just how we do, it's differently. So there's less communication with banks than there was 10 years ago. We, we call the rep every time we got a callback. We said every time we got callback we call the rep. Rehash. That stuff's over with, man. You call back, you get is what you get. You might, you might be able to, you know, call them and you know, rehash sometimes if they miss something and you know they did, but more than likely, you know, it is what it is and you just move on.

So yeah, it's funny when you say, you know, the banks don't like you and, and I know we saw this back in the COVID days and even back even further in the 0809 days, but flooring lines, you know, banks that floor, those are the ones that, they're your best friend when you're taking those cars and you're paying your fees and your curtailment. And the second they get scared, you wake up the next morning and your line is cut back and they're at your dealership doing audits every other day. And, and those are, that's your lifeblood for a lot of dealers, right? I mean, they lose their flooring line, they're just straight up out of business business. You lose a lender or two, you're going to make things work, right? You're going to get scrappy, you're going to do cash deals, you're going to do. But when you lose that flooring liner, if it gets cut that back substantially, that's your lifeblood.

Yeah, yeah. And it's, it's not right, in my opinion, you know, because you extend credit to somebody, they build an operation around it, they hire people, they build infrastructure. They need the cars to operate, you know, and then they get it ripped out from under them. That's a hard pill to swallow. And, you know, a lot of these floor plans don't allow you to have other floor plans because of the UCC filings and the way they want them arranged. And so you can't really go out and get a second choice. So when they decide to rip the rug from underneath of you, you know, it's very difficult just on a whim, especially if you're having a bad year to go replace that kind of capital. So, yeah, it's difficult, man, for sure.

Donald, to kind of wrap things up. What's the best decision you've made in your business?

It's two parts. I'll say both. One is joining my local dealer association, Viada, to me is. It's priceless. I think the membership's 450 a year. I'd pay 4, 500 a year. I, I have met more relationships, more vendors, more banks, more customers, more opportunity through my, and I've learned a lot through my association. And I think a dealer that's not a part of their dealer association is, you know, they're missing the boat. You know, I don't want to call names, but you just, you don't, you don't care about what you're doing if you're not a part of your dealer association.

I agree with that.

But, but through that, the, the most, the best thing I've ever done for my business is focus on banks. And I split this up in three, three ways. Floor planning, dealer agreements and real estate, better your bank deals. Floor planning, you have to get better floor plan deals. You got to work on it every six months, every year, you got to get a better deal. If you're, if you're not getting a call from your floor plan company, you know, wanting to make your deal worse, that means they don't want you to call them because they know you can get a better deal. You know, if you're not getting pressure from them, you're doing pretty good. You know, you've got to press on them every, every two, three months, man, and just make them miserable. I'm gonna, I'm gonna shop you, I'm gonna keep looking. I need an extent, you know, better your terms, you know, decrease your cost of capital and eventually get away from your conventional floor plan companies and get, and get a real one. You know, where there's no fees, there's no curtailments, you just pay on the money utilization once per month. And it really puts you in a position to scale. The second bank deals that I would tell you is always, if you're a retail dealer, you guys are buying your payer. But if you're a retail dealer, you have to keep getting more dealer agreements. Even at our, we have 50 some banks in our store, you know, probably more than that. We don't use them all. We can't. But I'm always looking for more banks for indirect lending because they always change your programs. Some of them go out like we just talked about, and you never want to be held, not being able to, you know, provide a solution for your customer. The third, the third real bank deal is real estate. I'm going to encourage everybody that's in the car business to own the property they're operating in. If, if any way, we don't make a dollar doing this, we own the dirt and we're building our reinsurance companies, right? So, you know, why work somewhere 10, 20, 30 years and then have to give it back to somebody else? You know, always continue to develop. If you don't own your place, buy it. If you can't buy it, move and continue to develop with the actual real estate deal that you're doing. You know, when I first started this, I had a horrible real estate deal. Now, you know, they're, they're very, very good. They're very good. They have very long terms and very low rates. And it's really set us up for, you know, to, to just, just have something like, like I said, if this whole thing hits the fan, we lose everything. This place is worth a lot of money and so is the other dealership we have, and we own them, you know, so those are the three banks, man. Just constant, constantly focusing on banks. So even if you're in the buy here, pay your space, you can still pay attention to two of those. Yep.

Cool.

Jeff, you got anything else?

Donald, thank you so much for your time, man. We really appreciate this has been a lot to take in. Hope everyone enjoyed.

Yeah, thanks a lot for having me. Appreciate it. Dealers helping dealers. Please leave us a review and subscribe the Independent Dealer Podcast.