#307 - New Year, New Goals, New Challenges

This is the independent dealer podcast, Education by Dealers for Dealers. Now here are your hosts, Luke Godwin and Jeff Watson.

Well, Luke, congratulations, buddy. We made it through 2023.

Yeah, barely.

What a year.

Barely. Barely. Barely. That's. That was a, that was a doozy. Better than 22, but still a doozy.

Yeah, it was more so at the end of the year, you know, kind of really started to taper off. So we're going to see how 2024 starts out for us or if this continues on. My guess is, you know, election year, maybe some interest rate cuts, things like that. I think we're going to, you know, stay above water for the most part. That's my guess.

I mean, I hope so. If not, you know, maybe we'll just go full time podcasters and, you know, and then we'll be.

All right, stop selling cars altogether. So, guys, in this episode, what we're going to do is go over some of our 2023 results, share with you how our dealerships panned out for 20 and then what we're looking forward to this year, you know, some forecasting, some goal setting, any, you know, kind of interesting things we see coming down the pipe for us. So Luke, how did your 2023 end up?

Yeah, you know, we forecast every year, Jeff, and, and we try to hit our goals and, you know, we did. We actually had a pretty good year. I, I forecasted 430 car sales. We did, you know, 394, which, which is good for me. We had a couple off months. January was really slow for us in 23 and that kind of threw off our whole year. My forecasting for the year, if we'd have hit, we'd hit January, we'd been really close to, to our numbers. So on the sell side, we were a little light, but still average, I think 33 cars a month, which I'm happy with. Collections were pretty strong for most of the year. We, December was hard. The last quarter is really hard with collections. December we had the largest, you know, loss charge off event we've ever had. Now don't get me wrong, we, we have one of the highest portfolios we've had. Take aside 2021, when Covid, you know, in the midst of COVID.

But I.

Forecast 83 charge offs for the year and I charged off 82. So I was spot on there. That was spot on. And the, the, the repo loss was actually less than it was in 22 per car per event. So I was happy with that. You know, we struggled with getting Cars ready for about half of the year. Finally got parts back and got our, our shop situated well again. So we're really on a trajectory to grow this coming year. And so we forecast growth this year. We, we grew a good bit last year too.

I find it interesting that you say that the, the repo event you per, per account you got. Right. But you're saying your severity, because I'm seeing the opposite. And some of the dealers we talk to, it's, it's the severity of charge off has increased because the book values have dropped so quickly. Right. I mean, I look at the stuff I'm charging off and I'm like, what in the world. This guy bought this thing like a year ago and he's, it's worth half of what he paid for it. You know, like, I've had some pretty severe charge offs. I think I'm up my charge offs year over year from 2022 to 2023 are not quite double. About 63% up.

Let me say that I forecast, I forecasted a loss of 6,000 and some change per event. Okay. And, and we were at like 59, so I hit it pretty, pretty dang close. But we were a little lighter. But compared to last year, yeah, we're up 20% compared to last year's severity. So we were up. Yeah, we were up.

So when you say you forecasted it, you forecasted it just knowing that, yeah, you know, your severity was going to be up, but year over year it is. Yeah, that's, that's definitely what I saw. You know, the charge offs a lot. Most of my expenses were definitely up. Employee payroll surprisingly stayed flat.

Mine was, I don't know, I got.

The same amount of people, but it stayed pretty level, which seems odd.

We, we hired, compared to the start of 2023 to now, we're up about five employees. So ours was going to go up.

Oh yeah.

And we were like, to start with, but it went up or you know, if I had the same staff, it would still be up because we finally got some good people that we needed to keep. So I think that was the, the main key and we moved some key people around too.

Yeah. One thing that made me happy is my, my leverage ratio went down. So if you guys know like your leverage ratio is going to be, you know, the debt against your portfolio and the size of your portfolio. Right. What do you owe? How much of your actual portfolio, if you're a buy here, pay here dealer, do you actually own? And so for me that dropped about 10% which was really good. So I'm down to the, you know, mid-30s now, which for me is great. I don't plan to borrow or leverage it more, but I have it available. You know, I'm not so leveraged that I'm in trouble.

Yeah, that's a great thing to do, you know. Do you own all your inventory as well?

Yeah.

So, you know, some people, they leverage their portfolio and then they floor plan their inventory too, which is whammy. That's a, that's a recipe for disaster. You know, our leverage actually went up. Now we don't have a loan against our portfolio. We have loan against property and some other things. But I actually did that in the year to ramp up my inventory heading into this tax season. Because I really think that this tax season is going to be really good for, for everybody out there in the buy here, pay here space.

Well, speaking of tax season, Luke, obviously, great time to talk about our partners. Tax Max. Now is the time, guys. You can still get signed up and take advantage of the Tax Max program. It is. So right now in my dealership, we've done six Tax Max deals already. One of them was actually a W2. So you're listening to this. On the 4th of January, we have a customer who already has their W2 in hand.

Really?

And we filed for them, they're getting ten thousand dollars back and we got the full six thousand dollar advance that's in our account today. This is the fourth of January. I just got, I'm printing a check for six thousand dollars today from Tax Max. She is taking six thousand from the advance, four thousand that we're deferring from her taxes, another four thousand from the government that I'm going to get through the EV credit, which we could talk about later. She's going to put $114,000 down on my 2022 Tesla that I'm into. $18,000.

That's. That's crazy.

It's got a bunch of miles. So my first buy here, pay here Tesla is being facilitated through my Tax Max program. The only way that could work is if you've got $10,000 down from your taxes.

Yeah, that's a insane amount. And to have it on the third, that's, I mean, a W2 this early is great, but I tell you, Tax Max makes it easy. So I'm glad to see that you're already, you know, hammering away.

Yeah, yeah, it's. And, and on top of that, we have, you know, four or five other people that we did deferred downs For. So definitely call the guys at Tax Mex, get set up, use the code VIP. You'll get 40% off the setup. They have their file and drive, so you can just put a banner right on your website. The customer clicks on it and just files everything on their own. You wake up in the morning and you see you got a new tax return sitting there. So it's been great. We've been training all of our sales staff on how to use it. It's crucial to get that money into your account this time.

Sure is.

So looking forward, Luke, going into 2024. I'll touch on that tax credit thing real quick because we're using it for a handful of these EVs and hybrids. That's been a small strategy of mine going into this year. Right. Taking advantage of the used EV tax credit. There's a handful of cars that actually qualify that work well as buy here, pay here cars. You know, the Chevy Volt, the Bolt. I'm trying a Tesla Model 3. I don't love the Fusions and the Optima hybrids that are on the list. So the C Max is, you know, questionable. The Priuses are out of my price range. But if you guys haven't looked into that, look into it. It's up to $4,000 tax credit for, from the government on qualifying EVS. You get the money directly to your dealership. Supposedly, once they get this website figured out and the customer uses it as a down payment today, it's, it's, it's pretty crazy deal, which I, I think once everyone gets on board, and I've seen it already a little bit on some of these Volts that I've been buying, the prices are just starting to reflect it.

Yeah. You know, we had some. You and I had some discussions about this. A lot of discussion about this, I think, and, and I, you know, I decided not to. To pursue it this year. You know, sometimes I go off on a tangent on, on a, on a business model and it, and it, it takes me away from something else. So I decided to, to stick with my current model. No. No Teslas yet. And, you know, but I think it's coming to the buyer. Buy your payer space. So I hope you do well with it.

Yeah, it's been interesting. And I know we argue that a lot. Guys, when you listen to this, don't get distracted by shiny objects or shiny pennies for sure. And I get to get too far down that road. But on things like a Chevy Volt that I can pay six grand for, get four grand from the government. That really makes sense as a buy here, pay here car. And they're fairly decent reliable vehicles too. So it's not like I'm stepping too far out of what I would typically put in my portfolio. So that's one of my strategies for 2024 going forward, as long as I can make that work. Luke, what do you have? What are you looking at for 2024 as, as a strategy or as an angle or a plan of attack?

My plan attack is growth and I've been talking about that for the last six months is that we have a, you know, we have a number in mind we want to get to and I believe we can do it. It's, you know, it's, it's about inventory, it's about getting it ready. It's about making sure that you have the policies, procedures in place and the staff in place. And for the last two and a half years, we have not had the staff in place. We do now and we're going to go full throttle. And if I have to leverage a little bit to get it done, I'm going to do it because I know that sometimes it takes leverage to, to jump to that next level and then you pay your debt down. So not a big deal. If you've got room to run this year, we're going to, our plan is to, to get to about 36 sold a month average in our, you know, hopefully to 40 here in the, in 25, but get there, add about 60 or 80 accounts to our portfolio and you know, keep the machine running like it's supposed to try to try to combat these charge offs somehow. We have our managers meeting today and it's going to be a, a big topic of conversation. We, we've really, we've really had some unexpected weird charge offs in the last 60 days that, that don't make a lot of sense to me. And we've got to figure out a way to talk to customers and try to try to get ahead of it. I'm afraid that sometimes we're not getting it ahead of, of obstacles that, that we could might see coming. And then if we don't get ahead of it, then disaster strikes. And I think that's what happened in the last 60 days. It really, it took the, it's a difference in, it's probably the difference in 10 repossessions or 10 charge offs, which is a, it's a big number for me in the last 60 days and I, I just can't handle it. I got, I got to get those charge offs now, man.

Yeah. You think that there's situations that are blowing up because they're not getting personal attention?

I think it's personal situations happen in these customers life and if we're not attuned to exactly what's going on and maybe what they're telling us, then, then we're not doing, we're doing ourselves injustice. Not that we're doing them injustice, but when a customer has a life situation, we've got to figure out is that life situation going to affect our account or is it not going to affect our account? Is it something we can give a customer a deferment and keep that customer paying or is the account so far gone that we need to make a decision right then and not wait? We need to learn to use our tools better. Pulling carfaxes on, on cars that we, we haven't heard from customers on. See if there's a, an accident, call the, call the police and see if there's a accident report. You know, looking at the GPS all the time when we, when we're not communicating this, some things that I really believe that our collectors, our collector staff's not using their full potential and their full array of techniques to handle these, these charge offs.

Yeah. Well, based on your recency, you're definitely, you give, you give a very long leash. I do a lot of customers and that, that can come back to bite you when they, when they get too far out, too far gone. It does.

You know, I want to give everybody a benefit of the doubt, but there's a point where the benefit of the doubt is too much. And I think maybe we, we had that problem in the, in the fourth quarter.

Yeah. So that makes me think of one major change I'm making in 2024 and I'm switching my payment processor. You know, I've been using one for a long time. And if you guys remember, a few months ago, I did, we did an episode on the battle of the payment processors. And I compared the three major brands out there. The Good, the Bad, the Ugly. Did a consumer report style breakdown and I actually went with a different company at first and got the contract over and then found all the fine print and the added fees. And I just said, whoa, whoa, whoa, no thank you. So I signed up with blitz pay. I'm going live in the next day or two as soon as IDMS gets their act together and hooks up the integration. So I'm switching over that direction to blitz pay to use the automated texting situation. The ability for customers to get in and load their own wallets and interact with their own stuff. I'm going to be completely cashless in the Office pretty soon. BlitzPay is launching their cash network. So people will be able to make cash payments at the, you know, Walgreens and CVS and around town. And I don't want people calling in to make payments. I don't want to take credit cards over the phone. I don't want it to be beholden on them getting us between nine and five to give us their credit card number. No, I'm going to direct all my customers to use their portal, to use the login, to use those resources they have. And, and that's part of the reason why I'm switching over to blitzpay is I like their back end.

Yeah. And We've been using BlitzPay since March of 23 and just, we really had some. It's, it's been really good for us. Their technology is way better than what we previously had. And integration into IDMS and other software out there is pretty good. So it's something I recommend doing. And Jeff, you usually go against everything I say, but after, after you went through all this, you ended up on Blitz.

That's true.

Yeah.

You and a couple other dealers reached out and said, man, you're just going to want to go with blitz play. And I was like, I don't know these other guys, I like all this stuff they're doing. And then sure enough, no, no, no. It turned out to not be true. So.

And you know, if you look at, you know, there's, if you look at your expenses out there, everybody, this is something that you really should, should be looking at. But I tell you, credit card processing when you're in our business is one of the biggest expenses you could have beside personnel expense. So you really need to keep your, keep your eye on it, keep your thumb on it and find the best, best deal out there. Jeff, I think somebody told us they, they saved like nine grand by listening to our episode. Right. Or something like that. Wasn't it a crazy number?

Yeah, it was wild. That when you look and you audit those expenses and that that would be the. You know, one other thing I'm doing this month is I'm going to sit down and we've talked about this before, guys, but look at all those expenses. Everything in your p. L. What is it? Why is it there? Does it need to be there? I question every single one of them. So I'm, I've already cut out a couple of people that like some services, even the people that clean our office, it just, it got astronomical. And I finally looked at it and I was like, wait a minute, what are we paying a week to have someone come here and do a half assed job on our office? That's crazy. So we reshopped it, we found a better cleaning company and it'll knock it in half and it's a couple hundred dollars, no big deal. But all of those add up.

Yes. This is something I've been doing for the last 90 days and I've been digging and digging and just as something as simple as this, y', all, and this is something you really need to do in 2024 if you didn't have a chance to do it in 23. You know, we have three different buildings and we were paying three different Internets because we couldn't figure out how to get the Internet from our main building to our other shop. Well, I kept talking and kept asking, well, finally we figured out you could beam it across to each other. So we've done that. It's going to save me a hundred dollars a month. And you know, in that shop, well then it's a hundred dollars a month. But if you keep digging down that rabbit hole, there might be four or five or ten, one of those hundred dollar a month fees that you can do away with. And it's, it's not it. Chuck Bonanno used to always say this. It's not what you're saving every month. What you look at is, okay, what is that savings per year? And then times five, that number will make you think twice about what you're spending.

Yeah, it's, it's definitely. You start to lose that. I think as you scale. It's just so hard to pay attention to the, the nickels and dimes when you start getting bigger and bigger and bigger. But I think that's what kills some of these scaling dealerships is they start to lose track. And all of a sudden their FedEx bill is a thousand dollars a month and all of a sudden their, their gas expenditures are through the roof. And like you said, they've got 15 different subscription services and they're paying three different vendors to give book values because three different people signed up for it and who's providing the uniforms and it just, all these things get just out of control. And it's, and again, it's like, Luke, it's not even about the money. It's about the fact that you have your hands in your dealership and you know what's going on, right? That's almost the bigger point. Like I'm fine, I'll spend the money, that hundred dollars that I saved on the cleaning lady. I'm going to spend it on something stupid, right? It's gone. It's not like I'm really saving any money, but what I'm doing is paying attention to what's going on in the dealership so that it doesn't just become this kind of runaway train.

Well, well what it could do is it could save you enough money to actually get another product that will help you a lot. And so, you know, you could do away with six or seven different $150 a month things. And then that, that one piece of software that you really think you need that you couldn't afford, all of a sudden you can afford it. It changes your business. So have your pulse on Your expenses in 2024 is something I have really locked down on and I plan to, to advance that. Jeff. The one last thing that I think that I'm really working hard on this year, and I really started last year is, is our CPI penetration. I tell you, I've been asking some of the best dealers out there and typically all the best dealers in CPI are from Texas. So I've been talking to a bunch of my Texas friends and, and figuring out how they do it. This is something that can make you a lot of money. It's something that, that can save your, save your customers a lot of money. Average insurance rates in South Carolina went up 47% last year, Jeff. That's a big number. So some of the, some of our customers insurance is more than their car payment. So if you can cut that by 20 mean if you can cut that by 80%, you're really doing a lot for your customer. So we're building that cpi. We're trying to build a network of repair facilities for when CPI damages happen because they're going to happen. And so that's one of my major goals in the first quarter is get this nailed down, get the process nailed down so I get my customers back in their car quicker and also make money by, by doing this. It's, it's, it's a great product. I hate I waited so long.

Yeah, that, that is one of my other major, major changes that I'm fighting right now is I'm switching my reinsurance company over to Buckeye. All of my cpi, all of my warranties getting set up with that service contract company. So yeah, switching my full reinsurance over to Buckeye finally after many Many years of dealing with them and knowing that they're a great company. It's a, it's a learning experience and it's something I'll share a little bit more in one of these episodes on switching. You know, switching any vendor is painful sometimes hard. Reteaching processes, figuring out the ins and outs and the nuances of, of what, how they operate. So yeah, there's a bit of a learning curve. But yes, I as well, I'm going to focus. You know, our. Right Now I'm about 10% penetration on CPI, which is nothing, right?

Yeah, I mean I'm at like close to 15 and I've been working on it.

Yeah, I mean, but that's, that's a minimal number, but it makes a big difference.

Yeah, it does.

You get that to 50%.

Our goal when we set out was 40% and I think we can get there by the end of this year. But it's going to really take the processes and procedures nailed down to get it done.

Yeah, it's quite a lot. Okay. And Luke, in closing, Anything else for 2024 advice for dealers, things they should be doing this first week of January?

You know, I, I think we hadn't really talked much about. Well, we talked about some high level, you know, dealership management stuff, but we hadn't talked a lot about retail dealers and retail dealers. I think, I think 2024, if you don't have your, your stuff together, you may be in some trouble. Make sure you develop those relationships with those banks. Make sure you're taking them cookies to the credit union. You know, you're taking donuts. Whatever you got to do to keep those relationships up because these big banks are going to drop you. Especially if these charge offs, which we've seen in the fourth quarter continue. They're going to start running for the hills. And when they start running for the hills, you got to figure out what your next play is and if that's getting involved with CAC or if that's getting involved with Westlake or getting out of involved with us. They're not involved with CAC and moving toward more of a credit union, better credit model. And this is something you've got to have on your radar. You've got to have those relationships and you know, pharma just, you're those relationships going to be the difference in retail dealers that make it in the next two or three years and retail dealers that don't.

Yeah. Having options. We've talked about this too, guys. Having those backup plans to your flooring line Having a backup plan to your number one lender that's buying all your deals. Yeah. What. What is my plan B and plan C? If these guys decide to pull the plug on me or they tighten up, man, it can be detrimental when you have all your eggs in one basket. Right.

Yeah. Same with advertising, too, Jeff. If you've really, you know, if you made the last two or three years by. By advertising with a certain vendor, and then all of a sudden that vendor's not working for you, you got to have your pulse on that, your finger on that pulse, because advertising is a lifeblood if you're. Especially if you're a young dealer. So you've got to. You gotta know what's going on. You gotta not pay too much, and you got to make sure it's working.

One other thing I look forward in 2024 is continuing these episodes and the podcast. It's interesting. We're. We're what, five years into this thing? Something like that. And I feel like right now we have more. More ideas and more content to cover than we did maybe a year, three. You know, I felt like there was a time when we kind of stagnated and said, well, what can we talk about now? It's like, man, there is actually still a lot of stuff to cover because it's just continual. And maybe that's the benefit of having a host that has a really short memory or a bad memory, because I feel like I could just rehash these items over and over and over because I'm not actually learning them or taking them into account. But, man, there's so many things that we can do to have a better operation. It's really never ending. I don't know that anyone ever does it. All right. I hope that's not the case, because I know I'm not. There's plenty of stuff, I think, man, if I. If I had taken all the advice that I had heard on this podcast and put it into action.

Yeah.

I would be massively further ahead than I am now. Right. If I had taken action on every good idea I'd heard, I would be running the best operation in the country.

Yeah. You know, our network is getting bigger, Jeff, and we invite anybody out there that has not ever reached out to us to please reach out to us. Make sure you're on our YouTube. YouTube channel and subscribing there, subscribing to the podcast and leaving us review and telling us how we can be better this year. Right. Telling us how. What content you want that we aren't producing. And there's some content that you think you can bring, you know, some knowledge to reach out to us. Let us know because we'd love to have you on.

Absolutely. Absolutely. Well, Luke, that's a wrap, man. Happy 2024. We'll see you next week.

Thank you for listening. Please leave us a review. We'll catch you in the next episode.