#336 - Hot Topics

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 and company and company.

What is that?

Luke's the company. They're the pros.

I wish I was Buckeye.

Well, you know, they do sponsor the podcast, so technically, you are on the payroll.

Oh, I am on payroll. Okay.

Very nice guys over there, always helping us out. It's really great to see their posts on Facebook. If you guys don't follow, you know, Bill and Brett and everybody on there, they support. Man, they are at everything, every convention. I know what's going on. Yep, Tiada is happening right now. We're sad that we're missing out on that, but I'm definitely glad that I did not have a Delta flight booked last week, because that looked like.

Still, I do hate we're not at Tiada. Those folks at Tiada, they used to be big supporters. We used to do their podcasts, and now they're not. They invited you, but not me this year. What the heck is that?

Yeah, they got sick of you like everybody else. But I'll tell you what, I would love to be anywhere other than here. We talk about this before, man. When it's hot outside, everything blows up. I think my shop has 15 customer cars in the shop right now, which for me is a huge number. We're just completely bogged down. I. I could. I've gotten to the point where I'm like, I've taken our shed, I've insulated it. I'm going to put a lift in it. I'm adding, like, a swamp cooler on it right now. Like, I'm trying to find every space possible to cram a mechanic because I can't outsource enough. I would love to buy a freestanding building somewhere in town and make it a recon shop, because we've said this for years. It's just so crucial to be able to recon your cars in a timely manner and have manpower. I'm feeling it right now more than ever.

Yeah. You know what also happens this time of the year? Your. Your techs have to take a week of vacation, take their family on vacation and stuff, and the heat destroys cars. When you get up to that 100 degree mark, everything breaks. And it is what it is. But last week was brutal. Here we have, you know, five appointments this morning, and we were down a tech from vacation. One new tech did start today, but he can't. Not a Lot of production being done today, and we got another tech starting next week. So, you know, we're able to hire them, but you run out of space at some point. Right.

Are these A's or B's or parts hangers?

So today we had to fire our lube tech last week or two weeks ago because of some shenanigans. You know, I actually mentioned before we started the podcast that management is very important. And I kind of found out the shenanigans going on when I was being a manager again after like two months of being on vacation, it seems like. But this guy that started day, he's a little more than a lube tech. He's a ctec, good parts hanger. We're going to use him as lube tech and recon parts hanger right this second. We still do a lot of customer pay work and we're building that. That back up. And so it's key to have a tire lube break tech when you're doing customer pay work because that's where the money's made.

Yeah, for sure. I, I think that's. And that's honestly probably the easiest type of tech to find right now. I know with like the ads I'm running right now. I indeed, I'm just bringing, I'm just bringing them in. Right. So I don't know if anyone has a better strategy for hiring a tech. We. It just, it's such a struggle. If you can't get them to set an appointment. Good luck getting them to show up. If they do show up, they're half. It's like a, it's a 50, 50 gamble whether or not they're completely out of their mind and crazy and you don't want them in your dealership.

Yeah, Just make sure everybody out there listening to this when you, when you hire these people, because Jeff's right. You have to get them into your dealership. You've got to sit down with them. But you need your master tech to help interview these guys. I've hired techs before that said they knew what they were talking about, and I asked the questions that I thought were relevant and I said, yeah, this guy knows what he's talking about. And he starts. He doesn't know anything. So we bring our master tech into these interviews and he kind of interviews them more than we do, and it helps another guy. We got to start Monday. Jeff, to answer that question, is a btec. So I could use another. A tech, but they're, they're extremely hard to find.

Yeah, what we've done is we do a working interview. I don't know if anyone's tried that, but we found a lot of success with a working interview. So after the first sit down, we say, hey, come back tomorrow or the next day. Let's do a four hour working interview. We're going to pay you for it. And we give them kind of a simple project and we kind of see how they handle it. We see how they interact with everybody. That alone has saved us so many bad hires because someone talks a great game and they say all the right things. But then when the rubber hits the road and you see them actually working it, sometimes you're just like, man, this is not going to work, man.

We do that with every other position except for technicians. Couple reasons. If technicians don't have their tools, it's hard for them to do the job right. And technicians are so hard to hire if. If we believe that they are the right person, we just hire. Just. Just because. But I'd say that really works well with detailers. Every detailer we hire, we come in, they do a detail, we pay them cash and see how well they do. Sometimes they wash the car and they leave and then that's fine. And then other times they detail a car and you walk out and go, did you detail it? And they're like, yeah. You're like, here's your $40. Have a great day. But we found some good hires like that. It's really good process. Really. You should all do that.

Yep. They always say, slow to hire, fast to fire. Right? And sometimes, always. We are the exact opposite. We're so desperate, if someone's got a pulse, we bring them in, we put them in the position and we get them going and it nine times out of ten backfires on us. What I'm also seeing is to stay on that thread is an incredible amount of. Just like you said, what is the tolerance for. For things not working out and things blowing up? Right? So my mechanics have had their hands on a car, whether it's a new inventory, we've done our inspection, we've recond it, we've done our second drive, we put it out on the lot and without fail, something will break the day the customer buys it or the day after, or if it's a customer car and we did some sort of warranty work, we give it back to them and there's some sort of an issue, like do you have some sort of a number metric or what's an allowable amount for like comeback come back. Basically, you Know these things not done. Why do we always have an issue regardless?

So you remember how Beauty and the Beast starts? It says a story, oldest time. And that's the story, oldest time. We have one sitting in the, in the shop today that we sold last week. And what's crazy is you can go and look on our inspection and one of the things was on the inspection, like why is it back in here? Why was that not done? Somebody dropped the ball. I don't know what the allowable number is, Jeff, and I think the number, I think the number that actually happens is less than what you perceive it as happening. But if you don't track it, you don't know. I would think comebacks have to be less. Comebacks in the first, first two weeks should be less than 10% and probably less than 15% for 30 days. But we are dealing with cars that, that you just never know. I mean, when you're dealing with 100,000 mile cars, things break. They could. A buddy of mine, just to make you not feel bad, we put a set of very expensive tires on a 2022 Escalade three days ago. Then he goes, luke, this thing's pouring oil. I'm like, thank goodness we didn't mess with the oil. So yeah, we get it in this morning. And I just figured he got his oil change somewhere and the, you know, somebody left something loose. Well, the freaking harmonic bouncer is about to fall off a brand new Escalade.

Wow. Yeah.

We're talking about $110,000 car. So it's not just used car people that this happens to. This happens to, to brand new manufacturers too. Yeah. Mechanical things break. You've got to understand that. You've got to prevent as much as you can with a great recon process. Make sure everybody's doing the job properly because it can cost engines, which I've had happen.

Yeah.

Because.

Yeah, that's probably the answer. The, I think the answer to that is less. What's the number? Less? Right. Like it's just less than what it was last month, less than what it was the year before, less than what it was the quarter before. As long as you're having less, then I think you're good. Right. It's like it's never going to be perfect. You're never going to get to zero and you don't want to be at a hundred. So just work on being less.

I think that's a great philosophy to have less delinquency, more recency, less comebacks, less repos. And you know, you're always trying to find that metric. More sales. But. But I think you're exactly right. Track it so that you know. And I'm guilty of not tracking it. So I don't know what the number should be.

Yeah, I find it a very impossible number to track. People say they track it. I'm like, dude, this is so. It's so, like, opinionated. Well, was that a go back or was it a. Is it a part failure? Is it a go back or is it a secondary issue? Is it a go back or is it, you know, something that you decided you weren't going to do at the time of sale and then it became bigger? So it's just.

I think. I think if you track it, you have to tell your service manager or whomever is tracking this. If a car is back here within 30 days, it doesn't matter if it's a parts failure or a lack of recon. It's got to be tracked, it's got to be noted. Then we can back things out and maybe we find a secondary thing we should be tracking other than a comeback. Well, you know what? We decided we noted an oily during inspection, but we thought it was the oil seep, so we didn't fix it. Yeah. So maybe you look and go, okay, next time we've got to pay more attention to that. And you build. You just build your process better every time.

Yeah. Or it is what it is. We didn't get away with it this time, you know, and now we'll do the real.

And there's. That's right. And there's still some. There's still some leeway you got to have, because what's an oil leak in my mind, Jeff, Might not be an oil leak in your mind. Might not be an. It might be an old leak in somebody else's mind, so.

Totally.

Yeah.

And. And when we say less, it's the same thing when we talk about repos. You touched on that, and that's one of the headlines out right now is delinquencies are up. Right. Repos are 23% higher than they were a year ago. Is that the stat?

That is the stat. And I think that that's probably. That's to be expected from last year this time. But what's not to be expected is 14% higher than 2019.

The.

That's a real number. And I believe I know why that happened or why it's happening. It's because of pricing of cars and why. And people are so far upside down. There is no way Out. And the only way out is to repo, which is going to lead to bad credit.

Yeah. Oh, yeah. I remember the days back in, like, oh, eight, 2010, you know, and people were just dropping cars off and saying, I'm walking away from my negative equity. I don't care what happens. Right. There's just there. I just never see sunlight. I'm not getting out of this. So I'm willing to just say, see you later. You know, it's such a. Such an interesting philosophy that people get into where they're just. They feel like their backs against the wall and they're just like, well, the bank to come pick it up.

Well, I'll tell you what happened here at the dealership. One of our technicians, he. He came to me and he said, luke, I just need some advice. I was like, all right, you know, shoot, what we got? He said, well, my wife and I bought this 2020 Dodge Durango back in 2022, maybe 2023. Anyway, the payment is $1200 a month. And I said, man, what. What were you thinking? He said, I. I don't know. I wasn't thinking this, that, you know, I'm like, yeah, that's. That's a big number, right? And I said, well, let's. Let's see what we can do. So I look and he's like, 15 grand upside down, right? I was like, there's really nothing we can do. I said, what you should do is call the bank and just tell them what's going on and see if they can reduce the payment for you. The bank would even discuss changing the payment. I mean, not even discussing Jeff, like, absolutely, no. And he's like, it's going to. I'm going to have to turn this thing in if you all don't help. Nope, not helping. So if that's happening to him, it's probably happening to people all over, right?

Yep.

And that creates repos.

Yeah. And the real question is, what are you doing for the guys in your dealership that are coming to you saying the same thing? Right. Are you like that bank? And are you digging in and saying, no, take a hike, buddy, or is your collector trained to work with them and try to give them some sort of a break or a payment arrangement or even a refi.

You know, we just. Yeah, you have to be on that. You have to train with your collector about that because you will get turn ins. We were sitting in 20 group, I think last 20 group, Jeff, the one that you didn't come to. And. And I was arguing a point that 600amonth for buy your pay your customer is outlandish that, that we think that they're going to buy a subpar car and pay $600 a month is going to create a lot of repos, a lot of charge offs. So if you keep trying to push that payment up, your, your charge off is going to go up. If your car doesn't meet the same criteria. Right. If you're getting $600 a month for a car that's half as good as my car and you can come to my lot and get it for $600 a month, what are you going to do? Right. For sure. And so you got to be aware if you're buy here, pay here customers, if you retail customers, people, it doesn't matter. But if you're buy your pay your store, you've got to pay attention to your average car payment. It gets out of whack. You're going to get a lot of repos for sure.

And I think dealers need to be aware of that. And that'd be the question is when you're setting up that matrix or your, your, your underwriting guidelines of what is allowable, is a 24 month at, you know, $600 a month worse than doing a 36 month at say 500amonth? Right. And you're like, oh, well, we're stretching that out a whole nother 12 months and I'm not getting my money back and I'm not getting my, you know, my street. I'm not getting clear on this car for another couple of months. Now is that better than saying, well, I'm going to strain this customer to the point where they might just repo within the first 12 months because they can't handle the payment.

I think it's better to get 500 for 36 months or for 30 months than it is to get 600 for 18 months. Yeah, that, that's my opinion on that. But you, it depends on how your cash flow is too. But there is a point where you can go too long on, on your contract if you don't have the car that meets your contract. Every time I buy a car at the auction, Jeff, I have in the back of my mind, I need a car that's going to last 100,000 miles. And that's, that's our recon philosophy, that's our buy on philosophy. So. And because I'm figuring 25,000 miles a year is what my average person is going to put on their car. If we can buy a car and Recon a car to that level, the risk of charge off drops significantly. If you put a 250,000 mile car on the street for 36 months, the chance of it being a charge off is dramatic. And it, and it's very dramatic. So just keep that in the back of your mind guys, when you're buying cars, when you recon in your cars.

Yeah, it's a very hard thing to look at that and say what is the life use? You know, and that it gives you, it makes you think of it like the leasing model does. Right. Because that's what the leasing model is, is. Hey, I've got an asset that's got to generate me $400 a month or $500 a month forever until it is used up. Right. So if I'm buying a 180,000 mile car, I've got to understand, I think it's only got 24 months in it if that. Right, 18 months in it. So can I recoup my cost of that car within 18 months and still be able to make money? Because good chances are at that point that thing is just time to throw it away. You know, with the exception of a handful that might go above and beyond that, it's a really, really hard thing for us to do in this market because it is hard to find a car affordable with lower miles. Right?

Yeah, for sure.

I struggle with that all the time. And I end up buying something at the auction and it's got 160000 miles on it. And after recon I realize I'm into it eight grand. So then I'm trying to sell it for like 13, 14, 15, and I'm like this thing doesn't even have a full life in it. I'm not and I'm definitely not taking this thing back in on trade someday, if it even makes it the full term of the loan, it is going to be worth nothing. So it's a very, very hard thing to make affordable with with the way prices are.

It is.

What are you doing with, with that being said, this is the time to talk about Buckeye and making sure you're having your, your warranties on it. That's the other thing I'm running into. With these amount of claims and the heat and the amount of cars I have in here, man, I, I, I'm probably upside down for a while on my reinsurance stuff. Is there anything you do to mitigate that or do you just kind of realize that it's all going to come.

Out in the wash so you Know, I've, I've been doing reinsurance now for, I think, 13 or 14 years, Jeff, and at some points you're gonna, you know, you're gonna be close to, to where it makes sense. But the longer you do it, the longer you invest in reinsurance, you make money. If you recon your cars properly. If you don't recon your cars properly and you use using reinsurance to fix those cars afterwards, you're going to be upside down for a long time. Stay the course with reinsurance. You're going to make a lot of money in the end. Buckeyes, where you go to get that done. But it is the only way to warranty your cars, in my opinion.

Yeah, if you're, if you're going to be stepping in and you're going to be helping customers out after the sale, a hopefully you're getting the tax deductible benefits of having a service contract or having a warranty or a guarantee set up that you can send off to your reinsurance company and save that money. And hopefully you're upselling them on a service contract so that you are making a little more money, you know, on that front end to make sure things happen.

Yep.

With that being said, make sure you're disclosing this stuff. We've seen some definite news articles lately about dealers who are adding on junk, bogus fees, dollar amounts, whatever, and they're getting, they're getting caught. It's not just the big guys. Sometimes it's the small guys, too.

Yeah. I think Geo sent us a, an article about a dealer up in Indiana or Indianapolis that was honest. Aids or something to that effect, I think was the name of the place.

No, guys, if you have to put any kind of integrable word in the name of your dealership, it's not good.

I don't know, it's like, it's like put, it's like putting a fish on the side of your building as well. You're just asking, you're asking for trouble if you don't do everything by the book. But I'm gonna say I was doing something that a lot of dealers out there do. Jeff and I just want to make sure that none of our listeners do this, because if you are doing this, you will get caught. And it's not that you're, you're bending the law. You are 100% breaking the law. According to the FTC, if you advertise one price and the customer comes in to buy the car, but you send them and CAC says All right, we're going to get these people done, but it's going to be a $2,200 fee. If you increase that price 20$200 to cover that fee. That is a hidden finance cost and it is 100% illegal. If you advertise the car for a price, you got to sell it for that price. Always remember that.

Yeah. There is no cash price. There is no, you know, it is the price. Is the price. Is the price. Regardless of where you finance or whether you pay cash or have a bank or I get you approved with CAC with some massive discount if you sell the car and move forward with this. Now, you don't have to sell them the car. Right.

You don't have to.

One thing you got to look at, if you send them to CAC and there's some massive discount that it doesn't make sense for you, then you got to find a different car or a different customer or a different bank. Right. Or more.

Or more down payment.

Oh, yeah, yeah. Or whatever they need for that down payment situation. I get it. Like, that's not what we're saying. You don't have to sell them a car because they want to buy the car. And that's what's some interesting about the CAC model is guaranteed approval. Yes. Everyone is guaranteed to be approved on my terms. Not your terms. Right. Not because you just came in here and want the car. So I get it. CAC is going to require 99% down. Right. I have those customers too, sometimes. Hey, Mr. Customer. Yes, you are approved for financing. I will finance $5. You've got to pay cash for the rest of it. Like that's okay because you're disclosing that. And yes, they're not going to be happy. But you cannot say, well, sure, I'll finance this car for you, but instead of 10 grand, I got to charge you 15.

Yeah, no, it's just bad business. And it's. We talked about this before too, Jeff. Years ago. We first started the podcast was deceptive pricing on Cargo Ridge. And really this is, this is the same thing, is people put out a price out there that gets them to the top of every listing. Right. A lot of times they do that. And when people get there on that car, there's all these add on fees. It's no different than what Honest A was doing by adding. Adding fees to cost for. For financing. It's the same thing. Price your cars like you're supposed to and then you don't have to worry about it.

And why Don't I see more of those new car dealers getting fined?

They should be. I tell you what they do is they have a bigger lobby lobbying function than we do. Jeff, is the, is the answer to that question. But they deceptively price used cars every day. Franchise dealers do. Not all of them, but a lot of them do because they had, they had DOC fees, they had. Had captive finance finance fees. All these things. All these things.

Yeah. If that, if that, if that ancillary product cannot be removed from the car at the time of purchase, then it should have been represented in the purchase price you advertised. It only makes sense. Like I'm going to go out there and be like, hey, this car's ten grand. Oh, and if you want the wheels, it's another 12. You know, it's $2,000 to get the wheels on it.

Like, no, the best was the recon fee. You remember the recon fee to their bodies.

Shipping, destination, you know, all this stuff. Like here's the other one. If you, if I have to finance with your captive finance company to get that deal, a thousand.

It's a thousand dollars in redefine print. It's everywhere. It's everywhere.

That's wild. That's the same nonsense. So I can't get this posted deal unless I finance it with your captive finance joint. That seems, that seems sketchy as well. I, I don't know.

It does. I agree. Yeah, it's ridiculous.

That kind of.

Yeah.

So vroom. Got in trouble for it too. Just recently they got fined a million dollars for deceptive and misleading disclosures.

Which this is, this is interesting. Two ways. Jeff, why find broom? They're out of business. That would be my first conversation.

Well, assets left somewhere, right?

They may. But what are you doing? Because they're not doing business again. So why does it matter?

I gotta make those people whole. I assume that million dollars gets distributed out to those.

Oh, I hope so. Well, I hope so. But I, I'm afraid it probably won't. It's probably used to, to fund the FTC or the cfpb, whoever did it. But this is interesting and I, I kind of like where the FTC went on this and it said that. And I think everybody listening should probably take heed. If you're advertising a car as, as a certain quality of recon. Let's say you, you say that you have 90 point inspection. You better be doing that 90 point inspection on every car. And you better have record of doing that 90 point inspection on every car. And if a customer gets a car from you. And they complain that one, the inspection, the items wasn't repaired and it's below specification. You better be fixing that immediately.

Interesting. Do you show your customers that inspection and or what you've done to the car at the time of sale?

If the customer asked, I would 100% of the time. I debated this years ago about and it's something Joe Escoda used to tell us during a 20 group meeting. You're spending, you know, back then it was 8 or $900 to recon a car. Now it's $1500 to recon a car. You're putting in all that extra premium into that car. Why not put it in the listing? Why not take the ro, slap it on your vehicle service, your, your vehicle description page and, and use it as a selling feature. I think it's a great idea to do. We, we don't do it. I, we did it at one point, I think and I'm not sure it made any difference. But if the customer ask, I would more than happy to give it to them. And it's on the Carfax. If you look at the Carfax, it lists everything we did to it.

That's a good point. I, I definitely go back and forth. You know, sometimes we battle that philosophy of like, hey, we did all this stuff to this car. And they're like, well, why did you do all this stuff to that car? Why did that car need all that stuff? You know? And then it's like, oh look, this car was so clean, all we had to do was a battery and a set of brakes. It's like, oh really? You only had to do a battery and a set of brakes? So what am I gonna have to do next month? It just seems like maybe I'm, that's too cynical of me as a buyer. I put myself in their shoes, but.

It'S always like, yeah, but you say that. So last week a friend of mine brought his son's car in to get, to get some work done. And you know how quickly a two thousand dollar bill is on cars today. I mean it's, it's quick. So if you're spit, you know, why'd you do all that work? Well, I promise you, if you go into a local Firestone or Mavis Tires or anywhere like that, you're not going to leave there without a fifteen to eighteen hundred dollar quote on things that need to be repaired. So I, I think it's easily explained to customers because they've been through that cycle before.

Yeah, yeah. Do you find that it gives them reason to come back and be like, well, remember, you know, you're. You said you did axles on this thing, and I hear a squeak.

You know, it's like, yeah, yeah.

Oh, my gosh. Yes, we did. But here's another. Well, you should have done that too. Or you did this, and now this is a problem. It's like, oh, my gosh.

So now you bring. You're bringing up the ones that you remember now, Right?

I say that just because that's. Yeah, yeah, yeah. That's the cynical side of me. Before we go let everyone off, of course, we need to talk about our guys. Blitzpay. The. If you are in the buy here, pay here industry and you're taking payments, we see it time and time again. It's got to be seamless. It's got to be easy. I. I always try to, like, put myself in my customer shoes, both, both from a purchase standpoint and from a payment standpoint. Who are the vendors that I like dealing with? Right. I've been doing a lot of. I had an AC unit go out on a rental property that we have, and goodness, thank goodness, money aside, because those things are crazy. But it was so easy for him to. He sent me this, like, digital estimate and I approved it on my phone, and then I can just make the payment right on my phone. He's using a technology that just makes it so simple for me to interact with him. It's. It's awesome. And so I think about that from a customer standpoint. Are you using technology that makes it easier for your customers to be your customers?

Yeah. And Blitzpay is, is a great representation of that type of ease when it comes to making a payment. If you can make it easy for your customers, make a payment, they will. So make it easy. Use Blitzpay. And I just want to give a shout out to the folks at blitzpay. We. We had a couple issues come up. Just normal issues that you have with anything, and they went right to it, got it fixed. And I just, I appreciate, you know, Robin got involved as well, so just that, you know, that you have that level of help when you have a problem is super huge when you're using all the SaaS products that we use. Because, I mean, we saw what happened with a, with a big SaaS product the other day. Jeff.

Yeah. I don't know if anyone's ever used a, A global pay or a, you know, worldwide credit card processing joint. Oh, my goodness, man, it is. It's 100 different when you have an issue. You're talking either to the CEO or someone who sits right next to the CEO. Right. Like, that's difference from dealing with, you know, mega pay company who. Like, you're dealing with the. You've had five different reps in the one year that you've been with them, and you have no idea who to actually get on the phone. And they have no idea how to actually get into the software to fix a problem or to help you solve something. Like, it's just a whole nother ballpark, right?

Yep.

Cool. Hey, good times, Luke. Look forward to talking to you next week.

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