#314 - Business Inside Your Dealership

This is the Independent Dealer Podcast, Education by Dealers for Dealers. Now here are your hosts, Luke Godwin and Jeff Watson.

Hello and welcome to the Independent Dealer Podcast, brought to you by Buckeye Dealership Consulting. I want to go through a really different exercise with us here today, Luke. You know, a lot of times we talk about working on our business, working in our business. I want to talk about getting distracted, taking your eye off the ball, and maybe there's a way we can do this in a way that's productive. Right? There's, there's ways we can build businesses inside of our current dealership business.

Yeah, I've been, I've been known to get distracted looking for, yeah, I would call them get rich quick businesses, but it's just different businesses. Right. And I think it's just in our DNA as entrepreneurs to, to try to find the next thing to get bored in what we're doing. If you're like me, I've been, been full time in this since 2001. So, you know, I'm at, I'm at 23 years. And, and before that, in 96, I was almost day to day in it. So, you know, I've, I've almost 30 years in this. And, and I found it when our business got really tough in 22 or 21, I started, hey, let's do this, let's do that. And it got me distracted from our business. And I would, I would say look at 2022 and 2023 tax returns and you'll see that it really hurt our business.

I definitely. And that's where we want to frame this conversation up, guys. We always talk about not taking your eye off the ball, not getting distracted, not chasing the shiny penny or whatever you think could be a better deal for your dealership. But in the situation where you do have things figured out, you do have your business button down, you've great, great processes in place, you've got managers, it's humming. You can look at other revenue sources, or I would also say this is a good thing if you need to inject a passion back into your business, if you need to inject a reason to get up and go to the office every morning, because like Luke said, yes, it can be monotonous. We can get bored and burnt out with the car business. I found that when I am chasing a new project, or maybe it's another revenue source, maybe it's some other business inside my business, it does get me excited to go in the next day and build that. So don't take your eye off the ball while you're doing this. But let's, let's brainstorm some ideas that we've seen work and some that we think should work if you were to start, you know, a side hustle or a business inside your business, you know.

And that's, that's a good point. And the first business I'll bring up, Jeff and, and we've been harking this and telling everybody since we started that reinsurance is your first business inside of your dealership. And if you're not doing it, this is something you can start today super easy. And our friends at Buckeye can really help you get do that. This is not an advertisement for Buckeye. At the same time it is. What I'm telling you is this is your first side business if you don't already have it, right?

Yeah, it's the easiest one to set up. You should be doing it anyways. If you're a retail dealer, you absolutely need to own your own reinsurance company and sell your own back end products. Whether it's service contracts, gaps, VIN etching, key replacement, tire and tire everything. Yeah. Every service under the sun that you can sell off an F and I menu you should own. The numbers are the numbers. They just make sense. Everyone's doing it. These big businesses can do it the same way you can do it. So get that set up. If you're a buy here, pay here dealer, CPI and the numbers on CPI and the dealers we know that are steering into that strongly, it is massive because now this is money that is new found money. It's not money. You're just financing and you're just putting more money on the road. You are actually getting this and redirecting that money from Geico, from Progressive, from all state to you. And again the numbers are the numbers, right?

Yeah. And so a couple of things. We started our CPI business now advertisement so we're talking about business right now. Okay. We started our CPI about a year ago, Jeff. And my goal was to get to 40% penetration within our portfolio. And you know, like any business, it was hard to get going. You know, luckily it's not cash intensive but you can, you can start get going. And all of a sudden you don't have processes, Jeff and you start asking everybody and you, you've seen me at 20 group, you know, the last two or three times going guys, I need some help with the processes because people wreck cars, we got to get them fixed. How does it work? And that presents a problem. I don't have the processes and procedures. Set up to do it. But luckily I have the processes and procedures in place of my service department and my dealership that I can take my focus off of the stuff we do there and really dove in deep to cpi, trying to get more penetration, get better collection there and iron out the system we're going to use to get customers out of their cars, back into their cars and trade them in or trader out whatever we're going to do. Yeah.

So if you've got, if you can get the process started on the front end and get your salesman selling CPI on every deal that you write and get your collections manager to start moving people over to CPI that might drop insurance or have a lapse or have the wrong coverages or the wrong deductible. You start feeding that machine now all of a sudden you have 100 people paying you $100 a month. That creates some revenue where you can now start building those processes and hire somebody. You know, say it's 200 accounts, maybe it's 300 accounts on CPI every month and you've got a 30 or 40% expense ratio, a claim ratio on that. You're still pocketing 20 to 30 thousand dollars a month. That helps pay for an employee to administer the entire system. Because again, you are a business inside a business, Right?

Yep.

So you need to treat it like that. Yeah.

You know, and going along those lines, Jeff, I've gone down this rabbit hole before, but I've never jumped into it. And that's actually putting an insurance agency inside of my dealership. You know, it's something that I've been thinking about for, I mean, 20 plus years how, how to make this work. Because in my, in my state, in South Carolina, probably most states out there, you have to have liability insurance before you leave the lot. And there's an opportunity to capture that business by the cars you sell. How easy would would it for you to be just walk this customer into the next office where your insurance agent, your licensed insurance agent sits and sell the product. Then you can try to sell them renters insurance, you can try to sell them, you know, other property, other cars. Yeah, whatever. So I think there's an opportunity for that. We've not jumped into that yet, but I think it's something that I know some, I know some new car stores have done and I'm not sure of any independents that have done it, but I think it's a very good opportunity if it's done the right way. And I'm still investigating it. And hopefully we'll figure that out one day.

Yeah. I think if you jump through the legal hoops of whatever it takes in your state to have an insurance agent in house or on staff or a licensed employee, whatever it is, you're capturing that area, you know, you've already got them there. You could also, I don't know how many people run like accessories. Right. If you're, if you're a retail dealer and I know a lot of places really specialize in the upsell, you know, the wheels, the tires, the lift, the trim, the things that you can either pre position on the car or sell after the fact. You know, get them back in and add that to the loan and, or get them to pay cash for things like accessories. If you've got that. The retail space in your store to do something like that.

Yeah, that's a, that's a great opportunity. It's kind of like back end product. Right. And you do. The one caveat here is you have to have space and typically you're going to need a retail service department to do this. We always wanted to do this, but never had the space in our dealership to do it. Your customers buy wheels and tires. There's a reason rent and roll is, is a thing and there's reason there's places that specialize in lifting trucks is because people buy these products, they can be very, very lucrative. So I don't know how to do it because I don't have the space. But I'd be willing to bet you there's a lot of people out there that are doing it and doing it well. Jeff.

Yeah. Well, look at any new car store, right?

Yeah.

Oh yeah, that's. It's huge. Right. They want you to walk over to the parts counter and pick out all the customized crap for your new Jeep, your new car. And if I was selling retail units, I would definitely find a way to have either it in house and I would be selling my own upgrades or I would have a some sort of affiliate or rev share with the local accessory shop. Or whether it's tint, whether it's wraps, whether it's wheels and tires, you definitely need to have a connection. And again, you don't have to have it in house. You could have a relationship or a referral or an affiliate with some other business that's in or around you where you could send those referrals over and get a cut back for it.

That's a great.

Applies your service shop. Right. I mean we talk about retail service work. That is a huge, huge opportunity. I mean again, new Car stores, they basically live on their service revenue. Right.

Well, they keep the doors open, the lights on with service part of revenue. And I have been down this rabbit hole and, and we did it pretty well before COVID We. We gotten to a point where I.

Remember you texted me those numbers.

Yeah. About 30 to 40% of our. Of our service department was customer pay. You know, and the way we broke it down was we were trying. We were trying to get to 50% of our business as customer pay and then the other 50% as warranty work and, and recon. We made it. Covid pushed us back a little bit, but I think we're back on. Well on our way to getting back to this.

I don't want to go down this rabbit hole too far, Luke, but why did Covid kill it? Did you. You look, you lost an employee because you didn't have the work coming in. And so now all of a sudden, you didn't have someone running the shop that was pushing retail work. Did you lose mechanics? What was it that killed.

I lost mechanics and capacity. Capacity. I lost capacity to. To get the work done. And you know, another thing, we started selling so many cars during COVID that we had to f. We had to focus so much on recon. And we didn't have our recon. We had it. We had ironed out pretty good, but not well enough to put the retail service work on top of it. So, I mean, that's what happened. And the capacity, we're now back to proper capacity. And I've made some changes in the service department. Like I told you, we. We actually. We fire two people in the service department, our manager and our writer, and put the old service manager back in. That had actually got us to that point. So I think we're going to be heading in the right direction and we look forward to making it work because, yeah, there's a lot of money in it.

Again, it's a business inside of a business and you have to treat it that way. My issue is I don't have the capacity on the space. I only have four lifts. Those are taken up with my own recon and my own buy here, pay here warranty. And I tell my guys, I say, I don't want you taking on a two hour job from a retail customer. That's going to make us 200 bucks as opposed to getting a car ready. That will make us 5,000. Right. So don't step over dollars to pick up pennies.

Yeah.

But if you have the space and you can slowly build it Out. Now all of a sudden it's that buffer of like, okay, maybe my recon, my make ready has slowed down. I can open the doors a little more to retail. I can schedule some more customers. And even if you're in the buy here, pay here, I mean, there are repairs that our customers are doing, are not covered under warranty, and they're doing them down the road at some other place. Why not have it come in house? And whether they pay you cash or whether you add that as a side note, if it's legal in your state, all of a sudden you're keeping your collateral running, you can mark that up and you can add it as a side note or refinance it into their loan. It's the same thing as selling them another car. Right? Like, you know, we joked around one time about that refresh program. I'd like to go out to all my customers who are two or three years into their loans and say, hey, bring your car in. We're going to give it a full inspection. We're going to fix everything that's wrong with it, give it a new detail and get you back into it and just add that as a side note to your account or refinance it into your loan. Refresh. Refresh your car, refresh your loan and stay in your vehicle. Because maybe you're so flipped you can't trade it in. Maybe you don't want to trade it in. You like it anyways, that retail work is still a good opportunity. Whether you're, you're a retailer, buy here, pay here, get some of that service work.

Yeah, for sure. You know, Jeff, this is one I hate, but I'm going to bring it up because I've been in this business, got out of this business, and that's car rentals. It's. It's a money maker, buddy. It is a money maker. It is a headache and brain damage maker as well. So just to, just to let you know, if you. But this kind of goes along hand in hand with your service department. It's very helpful in your service department if you have rental cars because you can, you know, give them out if you, if you're doing a job over a certain amount, let's say it's a 5 or 800 repair. You give them the free loaner until you get the car back. It really helps your service department with warranty work. It helps your service department because some of your warranties are reimbursing per day. And also for, you know, really good customers, it's a great Idea to have rental cars that they can just. That they trust you already. They'll trust you over enterprise. So, you know, go help them out.

Yeah. And, and what I've said and what I've noticed in these things is rental car is an all or nothing business. You either got to be all in and you got to have a fleet and you got to have someone to manage that fleet, or you got to be completely out. Because the onesie, twosies, threesies, that is the brain damage. Right. Because you don't have someone dedicated to give it attention, Check cars in, check cars out, inspect them, charge for damage, collect the money. It just becomes this. Nobody pays attention. Nobody looks at if they smoked in it or if they backed into something. So you've got to have a fleet and someone in charge of that fleet. That's my opinion.

Yeah. I've known dealers that had 200 cars in their fleet, and it was mind boggling at the amount of money they were bringing in. But they had multiple people dealing with that every day. The biggest we ever got was up to 50 cars, I think. And it was so much money in it. I mean, it was just.

I mean, but that's a lot of brain damage. So it's similar to me, Luke. Like, the other one is transport, Right. So a lot of dealers start looking at transport bill and they start thinking, oh, man, I'm paying grand a month in transport, 50 grand a month in transport. I could just buy my own, you know, my own diesel or my own roll black or my own fifth 18 wheeler, like, maybe. But again, you've got to treat it like its own independent business. And does it float on its own? Right. Can you make it survive? Do you have the people that can, man, something like that? Because that is a logistical and a liability nightmare.

You know, it's funny. I was talking to a. A friend of mine at a softball game last night. He's in the logistics business, and I think he owns 200 trucks. And, and he said it's been the worst 18 months in business because of freight prices just being driven down so much compared to, you know, compared to Covid. And, and I said, yeah, man, I spent 120 grand last year on transportation. And it's just driving me insane. And, and he's like 120 more or 120 less near for. I said, no, man, 120 total. He said, don't. Don't worry about $120,000 total. I said, man, I thought about buying a truck. He said, that'd be the worst thing you could ever do, cost you another 120. He's like, it's, it's so horrible. You know, talking about brain damage, he, I mean it just, it's, it's crazy. Some of the businesses you can get into that can be, can be brain damage for sure.

There's probably a point if you're buying 100, 200 cars a month, you're in a rural area, you're transporting a lot. So just like we talked about with your service department and bringing it in house for those that outsource all their recon work, there is a dollar amount where all of a sudden the return is completely worth it. Right?

Yeah.

For transport I'm sure it's, you got to be at a way higher multiple.

And running the same routes all the time.

Yeah. For retail like a retail mechanic shop makes sense because now you've got convenience, you've got quality control, you've got all this other stuff. A logistical transport company. You've got to really save a lot of money in order to take on that kind of headache and liability that these guys do for you. So that one would be far down the road. One I would do that I think is very, very easy is the auto spa. You know, whether it's in house detail and you've got a detail bay and a recon center where you can do, you know, full details, carpets, paint correction, you know, waxes, clear bras, you know, maybe get into tint when you can offer those kind of services a little bit kind of our retail side but especially if you're a high end retail that is seems like a no brainer to me. You've already got the guys, they're trained, you know, outside of like paint correction and some of these other, you know, buffing you, you know, you really can't screw it up too badly if you're not getting into some of those areas too heavily. But that, that to me would be something that would just be an easy, easy add on.

Yeah. You know our friends at Friggin Motor company in Oregon, they do a great job at auto spa and it's something that we tried and it's so dependent on the people you hire. There are amazing detailers out there that can do everything and there are people out there that think they're detail detailers, they can't do anything. There is, you have to inspect and expect quality work and if you don't have time or if you don't have someone on staff that's really good at that, it's you, you just, you don't get the quality of work and people don't come back. So it's a business. You have to build overtime and you've got to have the right people in place to make it work.

Yeah, it's again, all these have the right people in place running them. Right. I mean, I know for a while we had our mobile, you know, spray down van. We had a van with a water tank inside of it that does our lot, you know, twice a week and we were hiring out to other lots and our guy was driving around and spraying their cars down. And that worked really well when he was managing it. But when he left, yes, we lost the ability to actually have that done efficiently. But, but it's an avenue that you can, you can pursue if you're going out and helping other dealers do details on site or at least spray down their lots. Luke, one thing that when we brainstorm all this and we come up with these ideas of what dealers have done and not done and things that have worked and things that have not worked, it really is so much of finding the guys who have done it and asking them the questions, look, when can I get there? When should I not get there? And that's something that you're going to get a lot of it. Buy here, pay here, United. So if you're not already signed up April 23rd, 24th, 25th in Las Vegas, you've got what, a month and a half, two months to get registered, get your tickets back at your hotel book. So now is the time to make it happen. It's going to be one of those events where you can ask dealers directly, have you done this? Did it work? What should I avoid? Or should I just not even go down that road completely?

For sure. And I'm going to be there. Jeff's going to be there with me, wrapping it up every, every afternoon. And I promise you, CPI will be talking about and will be discussed and there will be sessions on it because we're going to get to the bottom of it and figure out how to make money doing the first thing we talk about.

Yeah, it's all dealers learning from dealers. One thing that I found that a lot of dealers do really, really well and this would be, it's almost in the side hustle business. Inside of business is the real estate.

Yeah.

So much of what we do, if you aren't making a dollar on selling cars, maybe you're making a couple of dollars in your reinsurance company, hopefully. But I hope that you own the land that your Dealership's on, right?

Yeah. And, and you know, sometimes you get the opportunity to own other dealership like properties that you can rent out to other dealers in the thoughts of maybe down the line opening up another store as well. So we, I think my dad, when he first opened, rented his location for maybe a year or two, then he bought it. He still owns that location. We, we moved about 12 years ago to our new location and it bought the land around our new location. We bought the location and then another couple pieces around it. I can kick myself in the tail for not buying. This was old Nissan store and it was six and a half acres, I think, and only about two and a half acres. And I kept going back and forth on buying the other. Well, I screwed up and I didn't buy it. I had plans to put a whole car wash facility there and I got talked out of it by, by two or three people. Well, that was a mistake on my part. I listened to too many people and should just gone with what I had. But there's always opportunity. And Jeff, you know, the great thing about real estate is depreciation. Depreciation's a big deal. But also banks will lend money on real estate.

Absolutely. So that's what we were saying is when you're a small business and if you can make an offer to buy the land you're on or move, the SBA loves you and they will come in and they'll do a 4060 rev share with your local or a debt share with your local bank. They'll give you a good interest rate and there's some strings attached, you know, some tie up periods and things like that. But it's, it's a great way to get, build wealth. Right. So like I look at my second location that I bought, it's not really paying for itself, you know what I'm saying? I'm, I'm, I'm feeding it every month based on, you know, the overhead that it's costing me to have it. But my thought is long term, you know, in 20 to 25 years now, I'll own that land free and clear. And it will have appreciated because the law of real estate is it appreciates over long periods of time, for the most part, unless you build on a landfill or a dying city, I don't know. So that's long term, put away wealth, right?

Yeah, no, I, you know, I, I kind of, I try to crack your skull about the, about having that second, second lot, Jeff. But I can tell you from a real estate aspect I've been there. That is a great piece of dirt. So you made a good decision.

And all the buildings are, they're all sinking into the ground. Yes, it's not so good, but the geographical space might be good if I someday knock everything down and, and put in real foundations underneath these things. So the, the other, there's two other businesses I want to talk about before we wrap this up. The first one is when we talk about that we talked about real estate and locations. You can have a dealership and own a dealership that owns a dealership. Right. Like you can be a buy here, pay here, dealer and across town you can have a specialty Jeep. You can have an EV only you can have a, you know, a high end, you know, luxury sports car dealership. You know the model, you know what works, you know how to sell cars. You have economy of scale, maybe within some of your products to open up a, a DBA or even a completely separate dealer license across town and have a separate business model, whether it's retail or maybe even it's a wholesale model. Right. Like you could run a wholesale model inside of your dealership and have a fully functioning wholesale shop if you can find the, you know, the arbitrage the ends and just run a dealer inside your dealership.

Yeah, I think that's again, I always caveat a second location to having your first location producing what it's supposed to be producing. Right. But I think there's an opportunity there for sure. A wholesale buying center, say is, you know, something that's kind of new to, to the landscape, I guess. And it's, it's, that's place where you can really make some money because you make some buys for yourself. You can get into the wholesale business there. But I really think that's a, a really good business inside of business that would work separated from your business in the same town.

Yeah, yeah, you're in the same vein of, of. I'm, I'm acquiring cars, I'm transporting them, I know where the end user is. And so I'm going to buy from the public and I want this to look like its own place. I've got my own llc, it's set up separate, it's got a location and I've got, you know, buyers either picking up cars or I've got people bringing cars to me. And then obviously the best stuff gets wholesaled right over to my dealerships. Right. And the other stuff goes to auction or other places. So I really, really like that one. The other one that we've Seen pulled off very, very successfully by a lot of dealers. And this is a bit of a shout out to our blitzpay guys. Blitz pays a sponsorship of the podcast. Obviously, if you are in buy here, pay here and you're processing payments through some of the other processors, we definitely recommend you look at blitzpay to make the switch to a more customer friendly platform that is going to get you paid quicker and faster.

Yeah, I think that's the difference in BlitzPay compared to other credit card processors, Jeff. And what we're going down this rabbit hole about is SaaS, right? And they are a service as a software company. I mean that is what they are. They, they're not just processing your payments, they're helping you with the software to make it integrated into all your, your dms, integrated into your collections process and integrated into the customer's phone. So it's a very good product. We love it and they save us money and they, they help us collect.

And when you call them, make sure you mention the independent podcast sent you. They will give you three free months of the SaaS product, the software, and three free months of their cash network. So 3 and 3. It's a killer deal. Only when you say that independent dealer podcast sent you. So we've got some other dealers in our world who have spun off. They, they, they've gotten into the dealership and they've decided they needed to scratch their own itch with some sort of a software product. And then they decided, hey, everybody needs this thing, right?

Yeah.

So that's a great, great, great way inside your dealership to not only fix your own problems, but software businesses are big money, big, massively scalable and they have massive multiples on exit. Hard to do. Everybody would like to do it. We see them all at the expo hall, right? These guys all want to ride their seed round. They want to raise a big series A and they want to have some big exit to some private equity firm.

Yeah, God bless them, because I do too. There's some real, you know, the entrepreneur, they're trying to fix a problem, right. And the dealers we know that have, that have done this successfully, Jeff Carter, we had them on Vincue, we've talked, talked with them, had had him on before. And you know, one of the things that come to my mind is probably one of the oldest ones out there was Auto Zoom and MCMC that needed a, a software model to grade buy here, pay your customers. Right. And they were successful enough in implementing that into their dealership that they were able to take that product and sell it to other dealers and make good money doing it. So it's. If you're smart enough. I am not to do something like that, man. Knock it out. Because there's good money in it.

Yeah. And there's. And there's people who do it. Right. Obviously there's a lot of. Like you said, I don't know how to do it. I don't know how to build it. I would need to partner with someone that did and cared. I can't do it myself. Again, I'm not going to take my eye off the prize of what is my dealership. But if I had that opportunity or if I had that itch and can get with a developer, you know, they can be built. Right. And, and not to, you know, vinq is one that I use just for market days and pricing and things like that. I'm absolutely blown away with what they've done as far as a user interface and a quality of product.

And we are not getting, we're not getting paid zero to say this.

You would not know that they were born out of a dealership. Even though I know that Danny likes to sell that, hey, this is, you know, we built this out of our dealership, blah, blah, blah. They are a full functioning straight out of Silicon Valley SaaS product, man. That thing is. It is. I did a demo on some of the new features. I don't get how it works. I don't get how they can get that info. It's insane to me. Really, really well done. And we've got some other products that we use from dealers that have spun off that. Hey, man, this, this really. And I've got a ton of ideas for crap I would love to see spun off, but I don't have the brain damage or the ability to do it. I wish someone would.

Oh, you. Oh, you got the brain damage, buddy.

I would pay for that product if I could get it built. Right. Yeah.

Yeah.

So anyways, that. That is probably the kind of the max as far as some of these other products you build. And they're great revenue generators maybe for your dealership on a scale. Or maybe they're great lead gen or maybe they're great, you know, way to get cars because you spun off this little vertically integrated business that helps you out. Say you're spending, you know, If I'm spending $20,000 a month on marketing material, I might just go and buy a marketing company. Right. Or a branding company. Because, man, I'm already spending enough money there that I could Keep this company alive, you know? Same with like your retail mechanic shop, right? Hey, if. If I'm spending a half million dollar a year with a mechanic shop, I can pretty much keep a mechanic shop open. I might as well own it.

Yep.

Those software products, those ones have massive exit multiples. Right. You're building something that now has a huge, huge exit beyond just scratching your own itch and just kind of helping yourself.

Yeah, that's get out of the car business type money then.

Yeah, get out of there. Yeah, let's sell the old portfolio and retire to a beach somewhere.

That's right.

All right, guys, I hope this has been helpful or fun for any of you. This is the kind of stuff I really enjoy is talking about, you know, it gets you going. And if you need some excitement, I can't imagine you need excitement in the car business right now. There's already enough excitement going on with what's happening. But if you do feel like you get a little drag or it's gotten a little stale and you've got your operations and your processes in place, it could. It could be the time to look for, you know, other revenue sources or integrated businesses that might, you know, help get you out of bed in the morning.

Yeah. And we all, you know, sometimes we. We need to try something different to see if we can do it. So think about it. Think smartly. Keep your eye on what you're doing, and if you have any questions, hit us.

See you guys.

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