#348 - How I Built This With Corey Scruggs

This is the independent dealer podcast, education by dealers for dealers.

Now here are your hosts, Luke Godwin and Jeff Watson.

Well, hello and welcome to the independent dealer podcast, A very special live edition brought to you by Buckeye dealership Consulting. As usual.

Yeah, they did their own ad. I love it.

They did it right before. It's great. This is a special how I built this episode, Luke. Yeah, A live one. And we're with.

We got a live one.

We got a live one on the hook.

Okay. And that's Corey Scruggs from Memphis, right?

Yeah.

Okay, so this is gonna be a super interesting story. We're at lease here, pay here summit and we're gonna talk about someone who started in the car business and was a pretty big lease year, pay year dealer, and then pivoted in the middle of COVID to do something a little different. I'm not gonna give it away. He's still lease here, pay here dealer, but he's doing something different as well. Jeff.

Yeah. Corey, thank you for joining us and introduce yourself, Give us your backstory. I mean, how did you get into the industry? What got you started in the car industry to begin with? Just help us understand kind of the birth of Corey into the car industry.

Yeah, so I think the birth would be that I started buying and selling cars out of the newspaper. Right. So making some extra money on the side.

How many times have we heard that? That from the. From the. How I built this. Well, I just started buying a couple cars and some. Yeah, so that's how you started. How old were you?

Probably 2007 at that point.

So you were like three?

Yeah, yeah, they were.

They were big wheels.

And actually a buddy of mine that's here went to work with him after that, kind of caught the bug for car dealership. We would buy cars, sell cars, start. Started to finance cars. That was in Little Rock. I moved back to Memphis probably two years. So 09, 2010, went to work for car mart as a buyer for about a year and a half and then opened buy here pay here dealership at that time. And it's kind of how we started.

So when you went to work for car mart, you were doing your own thing. Why open a buy here, pay here? Why not just go into normal retail and just keep flipping like you've done before? Why buy here pay?

I think the attractiveness of the residual income, instead of wiping the slate clean every month in terms of selling cash, we wanted to build the residual monthly payment income.

That's always attractiveness of buy here pay here until you get about four months in and you don't have any cash.

Yeah. God told me one time that when we had no debt, I think we had about million and a half dollars worth of receivables. And he said, this is the most money you'll ever make.

So do you have a lottery or how did you fund it? How did you get started? How do you just walk out one day and say, I'm gonna do buy here, pay here? It's very capital intensive, right?

Yeah. We had some friends and family capital at first that we put in the road, and then the first lender that we had, I don't know if I should say the name, but prominent, and then ended up with LHBH about three or four years after that.

We should, we should go down. So we're here at least here, pay here, Summit and their capital provider. But you have to, you know, you have to kind of get to a point where you can actually get money from, from a real provider. Let's go down that rabbit hole of how you can talk friends and family into giving you money to do this super risky project. I'm not sure you're a great salesman.

Apparently they might rethink it now at this point.

How do you do that? I mean, how do you go and say, hey, buddy, I need some help here? What does that conversation look like and how does it work?

I just think that probably because I didn't know what I was getting into. Right. And just to be honest with you, I don't know, I couldn't tell you. We did it though.

And would you get 20,000 a time, 10,000 a time? What does that look like?

No, it's a bigger number than that, probably.

I think you had some rich family. Nice.

I think. Wasn't me. Just again, people we knew, we kept asking. So I think we had a couple, three or four hundred thousand to start and then put that in the rest.

I think that's a good lesson, though. We talk about like all these guys talk, where am I going to get my money from, what avenues? And we talk about that first. You start with, you know, maybe your trust fund baby. That's a great way to get started, right? Yeah. Yeah, maybe I won the lottery. Okay. I'm going to try friends and family. Okay. If I can't do that, do I have a home equity line? Can I get a line of credit? Can I get a regional bank or a local bank? Okay, now can I talk to one of the big guys? You know, and it's like that progression of Capital providers to find a fit based on your size, based on your financial statements and stuff. What was that first conversation like when you said, hey, I need to get off this, you know, kind of these small dollars with family and friends, and I need to get to an institutional lender. What, what made that catalyst?

Yeah, I think we were. I mean, we ran into a wall, you know, we didn't have any more capital to throw it at that point, and we still wanted to grow. We were at a, I think a NIADA meeting and we met. We met Primal in there and then we sat after with Bill Benick, who, who was a founder, a co founder at the time. We sat with him after his meeting about raising capital and we hashed out a deal in about an hour and a half or so. He came and visited us and I think we were probably one of their first, like 10 dealers maybe.

Oh, wow.

When that happens, when you, when you've been so dependent on getting money from friends and family or home equity, line of credit or credit cards or whatever, when you get that first infusion from a capital provider, do you immediately pay those people back? I mean, how does. Is that where that.

No, we leverage that portfolio. We leverage what we had at that point.

Okay, so everybody else just stayed on the hook, Right? I like that.

Yeah. And they've added on since then. So.

Okay, what was the surprise going from? Excellent. Hey, I'm just going to cut a return check to my friends and family. Maybe you're paying them interest, maybe you were paying them something to having an institutional lender who's kind of got their, you know, kind of claus tentacles in your business. How was that?

Yeah, we didn't know what we were getting into. We didn't know what a borrowing base was. We just said, okay, I'm sure we can figure it out. So, yeah, challenge. And yeah, we just jumped in and, you know, we just rolled the sleeves up and whenever it got tough and executed.

So I've heard this a lot of times when you talk about people who get these lines that their business in the next 12 months doubles sometimes in size or triples in size. Did you experience that same injection of cash and what it did for your business?

Yeah, absolutely. And I think I would probably do it different now with maybe some more keep it in the lane or have more idea of how much we wanted to grow per month. But we're. When we did it, we just put the foot on the gas and went.

Do you think you grew too much and got over your skis?

Absolutely.

What was the biggest issue being over your skis at that point. Was it inventory recon? Was it, as Tim talked about this morning and that five lines, what got out of whack the fastest?

You know, I mean, obviously collections was tough, but, you know, we always. We always tended to keep it in. In, you know, in the road with borrowing base and management of it. We paid attention to that a ton because that was our cash lifeline to keep operating. Yeah.

It seems like when you get the money, it's so easy to go up an acv. Right. Oh, now we got the cash to buy a nicer car. I want to buy a nicer car. But you didn't necessarily attract a nicer customer. And then the next two to six months, you're like, oh, darn.

Yeah, that was the path.

I think we were.

$3,000 car, you know, kind of moved up to six and then progressively up from there.

And if your collection staff isn't trained and doesn't exist, then you really have a problem with collections. Right.

We were collecting staff. Yeah. Me, my brother Kyle, my partner. I mean, it was US. US 3 sold, collected, did everything.

And then we've all been there. I can recall sitting at my desk selling cars and then collecting when I wasn't talking to a customer. And so, I mean, that's. That's how you develop your collection skills. That's how you develop. How you train your new collection staff to do it, is by doing it yourself.

Right, right.

I'm sure there's people out there in the audience that. That are still collecting every day, and there's nothing wrong with that. There's a lot of money to be saved doing it. And you. You know, what we found is it's a lot. Customers will pay the owner of the business a lot faster sometimes, and they'll pay your collection staff for sure.

Right.

All right, so when did you transition from buy here, pay here to lease here pay here? You obviously went from one lender to another, and that facilitated a change in, you know, business models. Basic fundamental. What made that move?

Maybe two or three years after we started doing buy here pay here, we changed to lease here pay here. Sales tax was a big obstacle for us in Tennessee, you know, 10% sales tax. So the leasing was super attractive. Keep more of the down payment in house and then pay the taxes on the payments as they came in. Yeah, that's bankruptcy was another issue where we are that. That was helpful.

So in Tennessee, is 10% of the sales price. Correct. And paid up front.

Right.

Oh, buddy. So leasing is Much more attractive. Cause you can pay it monthly.

Right, right.

And how about the income tax portion of it? Was that a big. Was that a big reason to switch or.

No, I think more of the sales tax was the biggest reason for us. But that was a, you know, a nice. I guess when we switched to that, it was. It was nice to get that benefit with the depreciation and everything.

Yeah, I mean, it's almost an immediate cash injection when you go from not paying 10% every month of your sales tax. So that's a big deal.

Right. I mean, hold down payment in a.

Lot of cases, especially when you're growing. So to move this along the timeline, you get to leasing and where did you max. Like, where did you hit your peak? What was the size of the portfolio employee scale of operation?

We were like 1700 accounts, three locations. Wow. A couple 12 to 15 employees at that point.

Only 12 or 15 employees with that many.

Yeah, we didn't do any reconditioning in house. Everything was sublet. It was.

Didn't have to sleep, didn't have family.

Yeah. Collection staff, sales people.

Wow, that's. That's impressive. But you know, if I look at it, a lot of mine is recon. Like a lot of my staff is recon. So that makes a lot of sense.

So wait, you were doing all your recon outside a lot of sublet, right? Oh, a lot of sublet.

We had two techs in. In a, you know, lean to garage. But yeah, yeah. But yeah, every. Everything was. Or we would buy from wholesalers that had, you know, recon the car.

The. You know, this makes this interview that much more interesting.

Yeah, yeah.

Well, you'll see. We're getting there.

You'll see. Well, I got one more question on that line. Was that by design? Did you get there by design to have three locations and that many accounts? Or was it just like a freight train that was moving and you just wrote it?

I think it just happened. Yeah. Not really by design yet. Some opportunities came up. You know, know, we would say, hey, we want to be here. Go find a building. When, you know, obviously I would do that a lot different, you know, now than I did then.

It's so interesting to me, the beauty of joint of starting in the industry and the buy here, pay industry when you're young, and it's some of the hardest hurdles because you're young. Right. You don't have a lot of experience. But the throw caution to the wind attitude that we had when we were young. Right. I wouldn't take the Risks now that I took when I was younger. Right, right. And I think a lot of the, you know, maybe older dealers that get in, they're like, oh, man, you really. You really just went pedal down, didn't you? You know, like, as an adult, we're maybe more cautious. So it's kind of cool. As when you're younger, you just kind of like.

What's kind of more funny is, like, all of us smaller dealers are trying to get the 1700 accounts and can't.

Figure out how to do it.

And you just rode the wave and got there. That's. That's interesting. So you kind of peaked out, I guess, in 19 or so, or right before COVID Right, okay. And Covid hits. What's going through your mind?

I mean, you know, a lot of staff got nervous. So, you know, we had a lot of people go home or want to go home at that point. So collections was easy. We had already kind of done remote collections and had the opportunity or availability to do that. And we had done some sales where we were doing delivering, but really didn't. We didn't do a ton of it. We had done several. And then we decided, hey, we're just going to run with that model and then go straight sales, delivery, and collections. Our collectors were at home on their machines and stuff like that.

And at this point, you still didn't have in house recon?

No, we had had a recon facility before it got imminent domain by the state, and I said, I'll never have one again.

Really?

Yeah.

Imminent Donate. They need to put a road in.

Yeah, they had to put a road in.

They.

Not.

They.

They bought it. Knocked it down. Yeah. After that, we. We. I just said, paid you 10 cents.

On the dollar and moved on.

And we were renting. So. Yeah.

So when did you make this transition? Now, because, you know, we're painting the picture of COVID You're at your peak, everything's running. Things start getting a little shaky. You're trying to sell through Covid. When did you mentally decide to change to. To starting more where you are now?

Yeah, I think we. We just looked at the ACV of the cars and just forward thinking back, like, when. When are these values going to fall? You know, the bottom fall out of the values? And. And we just kind of. We started really looking for opportunities to. To add value to the purchases. So we started building cars, and then we started selling some of those wholesale, had some opportunities with some bigger dealerships to. To sell wholesale to them, and we just kind of made that Change to go more wholesale. And then our portfolio reduced, started reducing.

I think we, I know I did, but a lot of people felt the reduction in portfolio about halfway through Covid, where either your, your accounts are paying off quickly or we couldn't replace the cars. And all of a sudden you lose 200 accounts and you go, what happened? Right, but you had already before that started switching to, I mean, some more wholesaling, you know, because you saw all the potential money to be made in wholesale, right?

Yeah. Opportunity for there. We were a little bit nervous about the values and it didn't make as much sense at 13, $14,000. We didn't want to make an adjustment on car. We thought we still wanted to get the car that we could turn a couple times. So that car goes from 8, $9,000 to, you know, 15, $16,000. Just got more difficult.

Yeah, for sure. And that's, you know, I asked about severity of charge off. That severity of charge off is reflecting now because of that increased AC Vol.

Right.

And it's gotten super difficult for all of us to continue at that rate. Right. Burns cash.

Yeah. It makes it very expensive, barring more money. Yeah, we'll talk about that too. Where do you sit now? What's your operation look like now as we kind of fast forward into what your current business model makeup is? Give us that kind of breakdown.

Yeah, Majority wholesale. We still, we still retail 40 to 50 units a month. And then we're wholesaling somewhere between 150 to 200amonth. Wow.

Wow, that's a, that's a large operation.

Yeah.

And you decided all of a sudden you were getting back into recon.

Yeah, we did, we had, we had another recon. We had two recon facilities at one point, two smaller medium sized ones with a guy that we had done business before. And then now we have one recon facility. It's like 28 door bay doors. We have 16 techs. We have in house, paint and body. So.

Yeah, you know, I've always joke with dealers, you know, just, or even customers. Sometimes they go, oh, I want this car. Well, I'll just run down to the used car factory and pick it up for you.

But you, he is the used car factory.

You invented the used car factory.

I don't know if I invented it.

But you were, you were running a model that has essentially used car factory.

Yeah. And, and again, for us it was figuring out how to add value to the cars. And then at some point we feel like we could, you know, use that for our benefit. Putting cars back out on the road.

At some point, that's something. It takes a leap of faith to build value in a used car. You're going to wholesale. I feel like if I ever build value in a car that I'm going to wholesale, I. I never get that value back out. How do you change a model and allow your consumers, other dealers, to realize that value that you're building?

Yeah, I mean, we sell a car to the market. So, I mean, when all these dealers go out to auctions and things like that, they're competing against each other in the market. So we don't do anything that much different. We just have to find the car for cheaper. And then. And then that usually is us adding value to the build of that car. We can't go buy four. Zero cars and advance them. And that's just not how it works.

So you're fine. You're finding a way to leverage the knowledge you have about recon.

Right. I think opportunities that we find when we buy on the front end also.

Well, we always say the money is made on the buy.

Right, Right.

And it still is, even in this mop.

The buy and the recon. Yeah. So talk to us about that more in detail of the buying situation. Is that something you're doing? Do you have a team of buyers? Do you got like people just scouring Facebook and Marketplace, or do you.

Yeah, we have. We have three buyers. We have, we have three inspectors, one full time, a couple guys that just do. You know, when we send them out, they actually work for some of the auctions. So we send them out lists of cars that we want to inspect, looking. You know, the opportunities that we found might be mismana, mislabeled crs or mechanical issues or things like that. We have them go out, put their hands on them, and then. And then we go out and bid or bid in person.

Where's the arbitrage? I mean, so for us out there that buy a lot of our cars, we don't source them from someone like you. Is it finding a1.9 that's really a3.0 or is it finding a 2.5 that's really a 4.0 or is it. Where should we be looking if we're trying to source these cars?

Yeah, CRs. I mean, I'm sure everyone here has bought a car that was a 4.0 and then got it there and it wasn't right. Or, you know, the same thing when A car's a 1.7 or a 1.9. Sometimes they are. Sometimes Sometimes they're not and then sometimes mechanically they're, you know, mislabeled, I guess you could say. Because the relationship between the auctions and the finance companies. Right. Whenever they, they're doing the inspections and doing the CRS from the, from the finance companies, if they're getting those mechanical inspections wrong and they're failing after the fact, then the auctions end up owning the cars. So I think they tend to be a little heavy handed sometimes in the.

It's called cya, right?

Yeah, right. In the, in their major powertrain issues. So, you know, really the best value we find is when you're buying a red light car with a lower CR that has, that the powertrain is solid on.

Do you have to have boots on the ground to make this work?

I think so.

Okay. There's no other way to do it.

I'm sure there is. That's, that's just how we do it.

Right.

Okay.

Yeah. It seems like you got to be turning over all the stones. Right. And like you said, you're, you're, you're physically looking at it because yes, it looks like a 1.5 on the pictures and that inspector fully thought it was a 1.5. But your guy looks at it, says, no, no, no, no, we've seen this before. We can do this no problem. Like, here's a value add type unit. Because he's physically looking at it, right?

Yeah. There's opportunities we find all the time with certain cars or certain makes. We write up memos on those cars, you know, to where we've seen this a bunch of times. It looks like a motor sometimes. We bought cars in, in OP that have certain issues and been able to, you know, fix those without putting motors in the cars just because we've seen it a bunch of times. So we kind of have feel like we're R and D lab at our. I love that too.

You write in white, white papers on, on certain issues with cars. I love this.

Yeah. Then the inspectors can review them, they can see it, they can see how this particular problem acts and codes read and then we can say, hey, this is that opportunity. Right. So we really talk about opportunity with our inspections people more. When we first started, we would have them go and do like a CR type inspection, but trying to get that inspection back and say how were they thinking when they, when they did the inspection? And then they take, they took a lot of time. So we would really go out and do, take them out to do it, how we did it, which kind of refined that process. To make it shorter.

So when you have a. I'll call this my walk in cars. Do they have technology with them like iPad or a code reader or how do they, how do they make sure they're getting this to your, to your understanding? Because they could write something but wouldn't speak your language.

Yeah, I think we're pretty specific in the notes when we send the, when we send the inspections out, right. And then obviously they recognize the opportunities that we've written memos on in certain range of cars, years, stuff like that. But also notes. We have some people that would buy structural cars. So you know, we're trying to identify why it's structural. You know, I've had them get turned cold structural because they had, you know, a ground wire from a, from a sub in the back, you know, so that's an opportunity for us. But if the car is, you know, hood's all misaligned, it's a piece of junk that's hard to see when you're buying online. So that was the boots on the ground.

I love the idea of the, of the finding that, that arbitrage or that niche, right. Like you're like, we've identified this car and we have a lot of dealer friends that do the same thing, right? They're like, I have a mechanic that's just amazing at rebuilding those 3.5s. He can do it in 20 minutes. It's no big deal. Everyone's scared of him. My dealership, we buy the Chevy Volt a lot with a V. Everyone's scared to death of them. But like, I've got a mechanic that's figured out all the ins and outs so we can build some value there. So I think that's so interesting that we see dealers that find these little, what do you call them? Like, nuggets. Yeah, little nuggets. Little hobby cars, little like passions.

Do you have both of y', all, do you have like parts cars sitting around on stuff that you normally buy?

Sure, yeah, yeah, we do. I mean we'll, we'll buy cars. We'll buy cars that we can put together, you know, use, use parts off the front bag, you know, power drain, stuff like that. So yeah.

Do you have any luck clearing up silly like brandy? Because I know sometimes it's like, oh, announced frame, right? And so this frame thing follows that car through its entire life and it is silly, right? It's some, it's some CR guy that was too heavy handed on a screw or something. Do you have any luck going back and getting that Taken off the history of the car?

No, not, not typically joints. No, I mean in my experience once the auction calls it that they're, they're not going to take it away. Sometimes if that auction that you bought it at can but you know, there's.

Nothing like $11 hour employee ruin the history, decimating the value cost him $15,000 of, of inventory value. What's the biggest challenge, what was the biggest challenge in making the switch from the lease here pay here model exclusively to, to this wholesaling recon model?

I guess building techs. Right. That was probably one of the, the biggest challenges that we had also I guess kind of implementing our strategies to the technicians so they're not thinking like service more recon wise. Cause again you can recon your way out of profitability pretty easy real fast.

And all of us have been there. How'd you go about hiring 18 techs? I think everybody in here would like to know that because that's a hard job.

We have a guy, that's all he does. So we have constant funnel for techs up. We're constantly trying to improve our technicians. We're measuring them on efficiencies and we're trying to you know, identify the ones that aren't as efficient and then, and put more in place. So we never stop hiring techs and hopefully we won't.

And so it's kind of like a. You're just continue to pile them on top and the people who watch out the bottom watch out.

Yeah, I mean we're just not, we're not going to stop interviewing techs. My lead guy would be like we don't have any room. We'll be like, well we're still, we'll find some. We're going to figure it out.

Sounds like Luke's dating life. Very funny. Anything you're doing unique inside your shop for those techs, like to have 18 techs. I mean do you, is there anything you're attracting them with?

Yeah, I mean free lunch. I mean. Yeah, we do lunch on Friday. That's kind of nice for them, I guess.

Air conditioned shop. Like is it all the tools? No ac.

No ac.

Holy moly. Okay, okay, so what, you've got all these techs and, and you got to pay them. How do you, how do you pay these guys?

Hourly and then. And we measure efficiency so you know anywhere from 22 to 45 hourly and you know they'll have some opportunity that if they flag hours over, over the 40 that will, they'll get bonused off that and Then we kind of have a tiering for their hourly as they get more efficient. Yeah.

Do you care about ASCs, like certifications when you hire these guys or about.

No, not really. A lot of our guys have come from like parts dismantlers because we have certain guys that diag and then say, hey, what they need. And then we're just giving them the parts and saying, do this parts hangers. Right.

That's a super efficient way model to do that. Get your really good techs to inspect the car and then ship them out to let all these parts hangers do it. Right.

They don't think.

They just don't think. They just do.

There you go.

And they can really turn a lot of hours doing that, right?

Yeah. And that's part of it. I'd ask. When you're handling so much volume, obviously turn time is crucial. Right. Because you don't want to sit on something. The prices are changing. Your job is to get that thing through your shop as quick as possible. What advice would you have for dealers that you feel really turned the dial on getting that time to line or that turn time done faster?

Something we haven't perfected yet. So that everybody could probably help me out on that for sure. But I think right now we're like 18 days. But again, we're doing heavier type of work. We, we touch it, we're touching, you know, interior issues, tires, key extra keys for certain dealers that want those. So. So we're really doing a lot PDR. I mean, but yeah, I think we're between 18 and 19.

Do you have. So you have contracts with dealers that you routinely buy and sell to? No, contracts, not contracts, but essentially, hey, I'm going to buy 40 cars from you this month.

Yeah, I mean we get some, some ideas on volume from. For what people want, but people's, people's needs change week over week. Dealers are funny, right? Like this week they could use 20. And then you would talk to them and say, well, they were like, hey, well let me do 50 or 60. If they get full or sell slow, they would change. So no contracts, but we have several guys.

What's the biggest mistake do you believe that most dealers are making in the recon process?

Probably again, recon for wholesale and recon for, you know, for retail is a little bit different, I would say. But we path the car right. To say what it needs. When everybody first started buying cars, we would. And we didn't have a service center. We would buy cars, we would drive them. We'd say they were Good. And we'd sell them. And then as people get service shops and stuff like that, I think they, they start doing these huge inspections which create huge reconditioning tickets and allowing. Allowing the technicians to build cars out for you. I've got some stories from some old American Car Center. We're in an old American Car center building and we have some employees that were from there. And when they would recondition cars, they would see what was coming and they would order brakes and rotors for every car on the way before they even got there. That seems.

The American Car center in our town closed down. And so I said, oh man, there's some techs up there. And like they closed down on a Friday night. So we were going to go up there, be there at 8am Monday morning, and hire every tech. We interviewed one of them and they told us their recon process. And we were like, nope, we're not hiring any of those guys. I mean, it was bad, right?

Well, I think a lot of them were used to getting flagging 80 hours a week.

That's 100%. That's what they told us.

And then. And in our system, that's just not going to happen. There's no way.

What system are you using to manage your shop?

Yeah, so before we had a huge board with magnets on it and all the steps of the process and they would kind of move through. First we wrote them and then we would find that we had the same car in four buckets. So then we did magnets and then we moved them through. Now we use rapid recon, which is pretty much the same as that. Just digitally moves it through, assigns it to the text, keeps the notes together, all that good stuff.

Do you think that's a game changer to having. Having a software that, that handles that for you?

I like, I don't. I couldn't do it without it, I don't think.

Yeah, I've been so reluctant to. To spend that, whatever that 500 to $1,000 a month to do that. And I wonder if it would. I think we've got ours ironed out pretty good. But I think it's. If you're dealing with 400, I have 200 cars a month. You probably need something like that. How do you look at inventory management now when you're wholesaling compared to the way you used to look at inventory management and holding assets?

What do you mean?

Okay, so as a wholesaler, you need to turn it quicker compared to when you were in retail. Is that focus now shift Back to. Do you use that mindset now in the retail side?

Well, so we sell into ourself in retail. Right. So the wholesale produces and then they're getting a car that's ready to go and ready to sell.

Did they just get your leftovers?

No, no. Yeah, we tend to like a little bit different car, maybe a little different miles than some of the other people that we buy for. And that's kind of of strategic where. Where we want those different cars, import stuff like that.

Yeah.

Might just want program more program type cars.

That makes a lot of sense because you have different. And then that. We talked about that before. Like it would be hard for me if someone came to me and said, hey, I really want you to buy this type of car. And you're like, well, I don't know if you want that type of car. Like, I don't want to put that through my shop, you know. So if you have those dealers coming to you, they want this specific type vehicle for their program, you're like, okay, well I'll do it if you want to, but I need some sort of a commitment or is it. Or do you just kind of buy what you like and what fits your shop and then these guys take.

Yeah, I mean it is challenging to buy some stuff that we just don't want any part of sometimes. But typically the most of the lease here, pay here and buy here, pay here. Guys that we do business with, they all tend to stay away from similar stuff. Right. So a lot of their buckets overlap and sometimes with ours. So that's positive when we have the overlap.

Let's go back to what Tim described this morning. When you have, you know, all those processes and if you talk about wholesaling cars and reconing cars, is there a certain spot where you continually have a clog that you have to fix in the recon process?

Yeah, I think it changes all the time for us. So I mean, I don't know. I'm sure there's guys that recon and better. Way better than I do at this point, but yeah, I mean we identify different problems all the time.

How often do you have to assess that or is it something you do continually?

Yeah, I mean, yeah, we'll never stop. We learn stuff every day opportunity wise. But you know, problems that occur. Yeah, I mean that it seems like.

Every time we get our recon process polished and then all of a sudden I start seeing a backup either in body or in detail, and then I have to figure out how to fix it.

Yeah, we outsource some of the stuff, you know, that the sublet later at the end. I think the biggest thing that we identify is on the front end and trying to get the diag right. I think that's a game changer. You know, we talked in the other meeting about how cars will pile up and have problems. And rapid recon does a pretty good job of that because you'll see we assign certain days, you know, max to certain steps in the process. And when those cars become red bed in the system, they, they, they're too long in the days of that particular process. And it kind of forces you to, to say, hey, what's the issue? Right. Whereas it's easier without that to just kick it to the side.

Yeah. So. So talking about the fluctuation in inventory, you're buying a lot. That takes a lot of capital. So getting a flooring line for what's kind of a non traditional model, right. I mean, you're not flooring for a typical dealership. Like it's sitting out there for sale. You're buying projects. And so as a flooring line to come in and back you up and say, hey, yeah, we're going to, we're going to help give you money to buy cars that are really projects. Right. They can't just come seize these cars and take them and sell them. They're all builders. How has that worked? And of course, using lease or pay.

Your capital, I think, yeah, we use them. We have some private money also, but yeah, we use them.

What's the pros and cons? You can tell us the cons because they're probably not listening. But what are the cons of that flooring line or pros?

I think, you know, obviously the difference with private money is, would be that you have, I guess, less curtailment rules and all that good stuff. But that's the stuff that really keeps you, you know, keeps you in the lane to keep you turned in the cars. I think that's the biggest key, you know, is the, is to keep turning them. Win, lose or draw, you got to sell cars.

So what I kind of like the.

Idea of forcing me, you know, back to your conversation earlier. I have a lot of builders on the back, right? Because yeah, they come in and they just get pushed to the back back because I don't have someone checking bins and timing them out and saying, hey man, you got to get this thing out of here. So those start piling up. Yeah, it's kind of interesting that that flooring line actually forces you to be a Little better on your turn time, huh?

Yeah. And then you know, the mentality before we, before we did a lot of wholesaling, we would take course of the sale sometimes and then. And we wouldn't get exactly what we wanted and then we wouldn't sell. Our sales percentage would be low. Right. And then I think the, the one change that we made was when we take cars to the sale. Now we're going to sell them just to keep the people to come back at that point.

Have you, have you seen any slowdown on the wholesale side?

I think you've seen a margin change because the price points going down. So when, when we started and Covid was there, you know, we're selling, you know, 10, 13, $14,000 cars to a lot of guys doing in house financing. And now that that price points move down and margin just moves down with it. So yeah, it gets tougher.

This is the kind of little. Probably way too in the weeds logistically. But getting titles to them and getting checks from those guys, is that an issue? Like I couldn't imagine me wholesaling to a bunch of random dealers in my neighborhood and expecting to get paid on time.

Yeah, we did not. Not a lot of random dealers we do business with. We have a couple big ones. We do, we do work processes through auctions with new customers that we find. We have a couple auction relationships to where we'll run the sale through them so that they manage the title and the check. And then a couple of the bigger guys that we do direct with.

We're going to land this plane here in the next five minutes or so. One thing that I was wondering, what have you learned from the wholesale business model that you can bring to the LHPA or to the lease or pay your model?

Yeah, I think just, just identifying opportunities. Wholesaling is hard. You can't just go out. If we look at 100, 200 cars, we buy 5 to 10. Right. So really finding those opportunities and developing out the team that can go do that. So then if we go to refocus the machine back to putting this stuff out for us, then we get that value.

And we know this business in general is a law of averages, right. You win some, you lose some. Out of that 100 cars a month, how many of those are losers?

I don't, I don't, I don't really track that. I mean really, it's the group of cars as we sell them, so we really look weekly and then, and then it's more of the group, I think, you know, really trying to learn from when, where we lost and what we did wrong and eliminate those just helps you, you know, add value if it's yourself, or increase profitability on wholesale.

What I thought was interesting is you've changed this model, but you were very bullish on the next five years when it comes to lease your pay here.

Yeah. Yeah. So I guess the structure makes a lot more sense to us at this point with the price point. So, yeah, we're excited to, again, kind of redirect the machine that we've created to. To put stuff.

He's also got to stay bullish on lease repair so it doesn't get kicked out of his hotel room.

No, we really. Yeah, we are.

I mean, I think we all should be bullish. And what's interesting is you've, you know, you've got a model where you can produce the amount of cars you need and also keep selling wholesale to help the cash flow in that situation.

Right.

Yeah. That's. That's awesome. Anything else we want to add here?

I was just thinking how great it would be, I think, as a dealer, if you came from the recon side, you know, you came from the retail side, went to the recon side, and now if you do choose to transition back to the retail side, you have got a robust recon center.

That's.

That just to me, that is so great, because so many of us are dealers, and then we build a service center, right?

Yeah.

And it's always kind of mismanaged. It's always kind of the redheaded stepchild, but it's such a crucial part. And we know big dealers, you know, some of these guys have made massive investments in their recon centers because they know that's the future of cars. Right. Getting them fixed parts are harder. Cars are harder. More miles, more age. We got to recycle these things, keep them going, especially in a lease. Here, pay here. Right. The VIN number is the asset. Like, how long can I keep this VIN number on the road? And how many months of $600 a month will this VIN number give me so that.

That recon, if you can master recon, I'm pretty sure you can master buy here, pay here, elites here, pay here, whatever it is.

I think it's a key to collections, Right?

For sure.

Yeah. So, I mean, putting the right car from the beginning, right type of car, right engine in that particular car, you know, and then that just helps collections for sure.

It's. It's the right car. The right person should last the term. In general, Jeff, we're going to land this plane right now. And we just want to thank everybody. At least here pay here capital. Their staff is amazing. Thanks for bringing us out here, Corey. Thank you for being here with us today and sharing anything else.

That's it. All righty. Thanks, Cory.

Appreciate it. Appreciate it.

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