#362 - Doing Your Dealership Your Way

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 Dealerships Consulting. This is different.

It is different. You and I are together.

I could actually punch you from here when I want to digitally punch you.

He had on physically punch you. He had on a T shirt earlier and he looked like a muscle boundary freak and so I wanted to make fun of him. But then he put this on and.

He'S doing push ups.

He was. He was actually on the floor in this coffee shop pumping him out.

Let's go.

And this is Garrett.

How are you guys doing? Great.

Garrett, thanks for letting us take your time. Yeah, we're excited to be here. Introduce yourself to the podcast community. Where are you at? Where are we at?

We're in Houston, Texas, right off 610 loop. If you're familiar, I own and operate the dealership called Ella Boulevard Motors. We've been in business since 1972. I'm third generation owner.

You. We are here. We're actually at. We're not currently in Ella Boulevard Motors because they got a lot going on. Getting over snowstorms. We walked across the street to a little coffee shop, which is really awesome. And what a really neat location he has. Very retro. And I just love it. I love old. Yeah, I love old gas stations. And a third generation dealer. It sounds familiar.

Yeah, yeah.

Our dealership, the building itself is probably early 1940s. Dealership started in 1972. Families owned and operated dealerships back into the 1950s.

Wow. That's. I mean, essentially my story.

Yeah.

Yeah.

And Garrett's dad still worked together and we met Fred and Really cool guy and. But he is still sitting in the dealership every day, my dad, six days a week. Yeah, My dad definitely would not allow him in the dealership.

Not to say that there isn't some. Some thoughts there around that, but I look at it from the perspective of else are you going to do? And my mom would probably drive you nuts and. But it keeps him sharp, keeps his mind sharp.

That's awesome. So the dealership has been around for a while. Your grandpa, your dad, everyone's been operating it. When did you step into it and how's that been? Because we always talk about that. Right. The second and the third generation coming in and kind of taking the reins. Sometimes it's really hard to tear those reins out of your dad's hands. How has that transition been? How long you been at it and how's it gone.

Been at it for about six years. Came from the private equity industry, investment banking industry for almost 10 years and wanted to learn how to operate a business. And when I came on, there was a lot of reluctant thoughts there as I wanted to come in and hard charge and change things on the spot, on the fly.

That's the private equity model, right? Just come in and change everything.

That's right. That's right. Buy it out, strip it out and move forward. Right. But it's been a good transition over the years and we've implemented some things that I think that if they didn't take place, the business would have ultimately failed, especially through Covid.

So let, so let's talk about that. When you got here and you're buy your pay here dealer, a lot of people that listen to or buy your pay here, but a lot of other dealers just like to hear how many accounts did you have when. When you got in?

Probably like a little under 150, 140 accounts. So somewhere in that range.

And, and so I think you said this word around 230. So you've grown about a 500 accounts.

Yeah, roughly. 230. 240 accounts, roughly.

Okay.

And we are not strict buy here, pay here. We're a hybrid model. Okay. I sell about 25 to 40% cash cars every month. And I'm not in the finance business. I'm in the cash flow business. I like to make that argument all the time. If they want to come and buy one of my most expensive cars for cash, I'm unload.

So I've always been, I've always thought that if, if you got a car to sell, I'm in the car business and somebody wants to pay me cash for the car, I'm going to sell it myself. But that's funny. You say you're in the cash flow business because a lot of people out there in the, in the buy here, pay here business, we're in the cash unflow business. And so that, that you look at that that way and bringing the private equity mindset into that sure will help you grow, correct?

Absolutely.

What were some of the biggest things you felt like you had to tackle when you got the reins or when you started digging into it were some of the things where you said, hey, you know, pops, like, we gotta modernize this, we gotta change this, we gotta alter this. Anything stick out to you?

Cash, cash payments. We. They had no system in place for taking credit card, debit card, ach, anything like that. So were they just Tracking payments on.

Like a little ledger 3x5 card.

When I took over for my dad, right before that switched him to a computer system first time, it actually was my dad's idea and he had done the research and there was one little local guy in town that did it and, and we did. But back then you still all cash payments. And that actually brings up one of our sponsors, BlitzPay. Now Gary, you said you're not on Blitzbay, but we're going to get you switched over soon. But you know blitzpay helps people modernize their payment processing.

Yeah. What did you guys go to when you, when you stepped in and started? You just go get a square app? Did you add an entire dms? Like what were the steps?

We actually use a local Texas DMS which is Auto Action. They're great. Their customer service is amazing. I would like to see them do a lot more and I know that they're capable of it. They recommended we use repay. We went all in with three pay and that has been working out really well.

So you already had the DMS in, in the store. You didn't have to add that and convince your dad. Okay. It was there. He just hadn't turned on any kind of a merchant.

And to the capabilities of what the DMS was using or had the options capable of, he might have been only using 25 of it.

Right.

So now we are really using the full capability of DMS system.

That's interesting because I think for a long time there were a lot of state specific dmss and it was easy. And Texas being a place big enough to support something like that, if you ever. I mean do you think about switching to a larger. Is it cloud based or. Or not? So do you ever think about switching to a. A larger DMS and we have no DMS sponsors. Anybody out there wants to sponsor this. The DMS is worth the crap.

I've looked at a few. But again it comes down to the customer service that I get with Auto Action that, that really keeps me on board. And are there some things that I think could be a little more fluid? Yes, but at the end of the day that isn't going to get replaced with the customer service aspect.

Yeah, that is such a big deal. And customer service is such a, a staple in the buy here, pay here business. I tell you there's vendors need to be listening to us right now because if your customer service isn't great, it's really easy to switch.

Right.

But yeah, Blitzpace Customer Service is great.

Yeah. So when what Else did you change when you came in, you, you added some payment processing to the DMS situation. Did the, did you change the model? Because I know obviously all of us back in the day, it was like, I got a $3,000 car. I'm into it. Three grand, I need three grand out of it to roll it. You know, we were getting our full. Yeah, we were getting our full cash out of the car before we put it on the street. Did you change the philosophy of how the deals were structured?

Yeah, I think that the ACV increased maybe slightly a couple thousand bucks. We lowered the down payment maybe a couple thousand bucks. We were notorious through the years of getting monster down payments that would essentially bust us out of the car even into the profitability range. Whereas now where, you know, maybe 20 to 30% of the ACV is, you're down, or 15 to 20% of the sales prices you're down.

Did you, did you change it because you had to, or do you feel like your, your, your dad was losing sales?

We were losing.

Obviously everyone would love to stay with the old model, and there's probably some dealers out there that will still hold to it.

We were losing sales and it was, it was flat out on, you know, obvious when a customer walk on a lot, look at a 10 or $15,000 truck, and we would want three or four or $5,000 down payment. But they didn't have that kind of money. They had 2500 down. But they were good credibility.

Well, we even talked about this morning, Garrett, and, and I still. You talking about wanting to grow to 400 accounts. And I said, we started talking about your down payment. I said, the first thing you're going to have to do is lower your down payment again when you lowered that down payment.

Not the first person to tell me that.

Yeah, yeah.

I've got a few guys in my camp that are saying, you know, lower that down because our down payments are still astronomically high they compared to the industry average.

So if you look at your average down payment, your average down payment is probably similar to my average down payment. My average ACV is $13,000. What's your average? 6,500. So, you know, if I, if I had the same down payment percentage, I'd be getting $4,000 down for my car. And I can tell you I would sell zero cars a month if I had to get $4,000 down. And so if you look at it at your first growth initiative, I think it would be to lower your down payment some.

Sure.

How do you feel about that, what does that make you? Does that make sense?

It's cringe worthy.

Right.

But the thing is, is, you know, I'm looking at, from a qualitative, almost even the psychology of it, if certain markets are different than other markets, and I'm a firm believer in that, what's done in Houston is not going to be the same in South Carolina. It's not going to be the same in Colorado or Illinois or Utah. I personally think they have the money. I'm working on lowering the down payment. And you miss 100% of the shots you don't take. So ask them, say, hey, I can get you in this car for 2,000 down, but I'm going to hit you with a $500 quick, you know, or I can get you with this for 1500 down, but I'm going to hit you with a $750 quick. And so I push and push and push and ultimately they will agree or if they are really good credibility buyers, I will go ahead and roll the car and just go with it.

I think, I think we all lose deals. Not all of us. All of us who are used to down payments lose deals over a 500 difference in down payments.

Correct.

And I was talking to Chuck about this during 20 group probably four or five years ago. And, and this is what finally made me figure this out. Luke, he, Chuck asked Luke, what. What's the difference in the capital dollars down payment? I said, well, it's a lot. And he said, it's a one month payment. That's it. If you can get that car on the road earning quicker, that $500 comes in really fast. And it's almost a mentality switch that has to go off in your head.

And that's kind of, that's, that's a great point because over the years, five or six years that I've been a board and took over everything, our down payment has come down by 50%.

Yeah. I mean, and then that you got to give Garrett credit where he was getting half down before, now he's getting 25% down. It might be a while before he works to the percent or 5% down like us guys have settled for.

And you know, and I'm not arguing for lower down payments at all. What, what I'm arguing is if you need to grow, that's probably one of the first, that's, yeah. One of the first triggers you can pull.

Talk to me, Garrett, about other changes. What about compliance changes or like regulatory. Did you go in and say, whoa, whoa, whoa, dad, like we don't got buyer's guidance on everything. We don't have arbitration agreements. We don't have GPS disclosures. We're not calculating interest.

Right.

Was there anything like that? That kind of hit you with an epiphany when you.

Yeah, you know, I. I started recognizing there was a lot missing from the deal jackets that I felt like should be there from a regulatory perspective. And not that that the family didn't have the knowledge. It's that they just didn't think it was necessary or maybe they didn't know to do it. Right. They understand the legality behind it. And. And to my family's credit, especially my dad's credit, he. He ran a very good shop, but he kept it small by design. I'm a little bit different because times have changed.

Yeah.

Um, so, yeah, I reached out to Steve Levine at Ignite, and he did a couple of deal jacket audits and said maybe you need to incorporate this, this, and this. Here are the window jackets. Make sure that these are in all the cards, etc.

Right.

Yeah. And thanks for bringing up Ignite. Ignite to sponsor the podcast. They do great things, deal jacket audits. And we were talking at 20 group about credit reporting. And some people do report credit, some people don't. The auditing of your credit reporting is something that I argue. Every dealer should be reporting credit by your payer. And if you are, they have a great system to set up that auditing. So reach out to steve@igniteconsulting.com.

He did. He did my deal jacket audit, and I go back regularly, every couple years and say, hey, audit this. Make sure I didn't miss something. Make sure that I'm not. I got some button that went ski wampusy in my DMS all of a sudden. Like, there is stuff. And then you extrapolate that over two years worth of deals.

Oh, yeah.

You got a lot of potential exposure even staying on top of those.

And even website auditing. If you want to talk about something that can be scary if your website is offering something that you don't necessarily. I mean, there opens yourself up the law.

He did that for us as well, and it was. It was great. And that. That really took. Took over when I switched over to dealing first.

You ever seen these ADA lawsuits for websites that aren't ada?

Oh, yeah.

That's ridiculous, right?

I don't know.

How could.

How could your.

Your website be handicapped anyway?

But it's not.

You're gonna get sued.

It's not. All right, so. But, Garrett, I Came from a family business as well, where, you know, our dads, they did it the old way. They just didn't, you know how they just didn't know what they didn't know. What kind of pushback do you see for that as a whole of, hey, I still want to do it the old way and you're wanting to do something a new way. Do you still get that?

No, not as much as we as originally took place, but I think it's a little bit of a hybrid buy in because I mean, we are truly partners together and I, and I respect everything that he has to say, especially when it comes to cost of recon, etc. When it comes to the cars. And he relies on me from maybe treasury management buying cars as well as running the sales aspect of it and then just the overall operations of the business because he, I want him to step away and enjoy joyous life and take some time, but at the same time he's a stubborn old bull and sometimes you can't. Those go. Their work is never done.

Yeah, yeah, it's never done.

When you decided that reinsurance was a good thing and you wanted to put that in place, I know you're, I know your, your dad had a little pushback on that. How did that conversation go and how long did it take from when you first said, hey, hey, dad, we need to be doing reinsurance to when you actually got it going?

I, I think the key with reinsurance and I am with Buckeye Dealership Consulting, I think they are the absolute best. I got a visit from a guy named Jason Gosl. I know that guy randomly. And it was a recommendation from another guy that we all know named Russell Moore, a mentor of mine, Loosely, I guess, if, if I could call him that.

Yeah. I'm sorry, I'm sorry. You had this. Yeah, for years.

He was one of the first phone calls I made. He said, you need to reach out to Jason. So I reached out to Jason. Jason stopped by the shop. The thing with, with setting up a reinsurance business is you need to start slow. Don't hammer on every single product right out of the gate.

Yeah. Because you don't know what you don't know.

Exactly. So leg into it. Dip your toe in the water. That may not be what they want to hear, but that's the right way to do it. And I can be a great case study there because now my reinsurance account is fairly, you know, got some dollars in it and it's got some sizability to it and, and, but but that's not. The important thing is the risk factor is significantly reduced. I started with gap, move to cpi, moved to Warranty, moved to vsi and I actually just got off the phone with Steven Carter a couple days ago and, and Bill Elizondo was at my shop last week and about bsc.

So what was it? Did your dad, because you told us when we were at your lot that your, your dad wasn't ready for that or didn't, didn't trust it. What was what changed in his mind that allowed you to, to talk him into, to that?

I think the amount of risk that we were taking from an insurance perspective on the cars we had out on the streets.

CPI portion of.

Correct.

And the gap, or the gap gap.

In cpi because we were getting smoked left and right with people that were telling us they had insurance, ultimately didn't. Total loss, accident comes along, we're left holding the bag. And that's one of the biggest things that I fight every day is I don't want to be left holding the bag. I didn't sign the contract, they did. And that, that's just me operating from like a business mentality. Right.

What, what did you bring from the private equity career you had into to the value painter space or into the dealership space?

I think the understanding of the math, right. You have to be very, very good at the numbers and know that backwards and forwards to really understand what you're getting and the value you're getting from finance perspective, a risk perspective and understanding what your interest rates are doing. But you know, we're in the risk business, so when I think about Buckeye, we're already controlling the risk on the dots, right. We're, we're financing costs. So there's risk, inherent risk there. And you're, you're borrowing from somebody else or maybe you're not, maybe you're somebody.

Are you borrowing from yourself?

Correct. Exactly. Right. So with Buckeye, like, well, man, I, I'll. If I have this risk, I might as well own the risk of the insurance as well and control the entire process.

Yeah, you know our business.

And that's kind of the takeaway I had from my prior. Yeah.

Our business is math and risk. And there's so many dealers that get into our business that don't understand the math or the risk.

Right.

And it's way riskier than the math. Let's tell you.

Yeah.

What do you tell a dealer who is, is in the car business now and trying and thinking, okay, I'm going, I'm going to go into the buyer pay your space and doesn't have a lot of cash to do it and maybe don't. And definitely don't have the education you have to do it. How do you, how do you fix, how do you fix those two? Because my dad had that problem. He couldn't get the mail.

Those two, I think, I think operate much slower than everybody's telling you. And don't believe everything you hear online or at the conventions. I mean, there's always going to be another mousetrap that's a better mousetrap.

Right.

Just do it your way, make sure you're profitable. And slow growth is always going to be the key to it.

I, I think you can't drive that home hard enough is slow growth. I think the ones people who I've never really, I think I've seen less dealers have major issues because they grew too slow as opposed to the ones.

Who grew too fast.

Right.

It's hard, it's hard to screw up. If you go, if you go slow enough.

If you go slow enough, it's like driving an ice.

Right.

It's like us this weekend.

Yes.

We're out here driving around Houston on snow covered roads. Just gotta go slow, man.

Gotta go.

Everyone will be fine.

And there's, there's some things to that, right. Like, yeah, kid, do I wish I could wake up and be at 500 accounts tomorrow. Yeah, that'd be awesome. Is it realistic? No. Now it's 10 years down the road. 500 accounts realistic. Absolutely. And I've got a lot that's pushing that direction. But, but that's the way you gotta play.

Yeah.

Right. It's, you know, add, try to add 40 or 50 accounts, slow it down. Try to have 4 or 50 accounts, slow it down. Learn to manage at different levels, those number of accounts before you jump up to that next level. Because I've heard some stories at some of these conventions and the, the guy's bragging and he's got 150 accounts this year. I'm going, good luck surviving next year. Yeah, I don't understand how they do that.

Yeah. You know, we were talking, Jeff and I were talking last night in a hotel about a dealer that is growing really, really fast. And you know they have, they have cash behind it. But you, you worry about it because you don't know what you don't know and you don't know how bad the risk is until you slow down and take a breath and collect some of it.

Correct.

And that's what maybe some dealers do. Is they grow so quickly.

Yeah. You haven't proven your underwriting.

Oh, man. Proven your, your collection strategies, all these things. And your, and your inventory strategy.

Well, your repo rate's going to go up as well. It's going to skyrocket.

And if it's high to start with, it's only going to get worse. But, you know, inventory strategy, I. We were out there looking at your inventory this morning, and you're selling a bunch of Toyotas and Hondas. And I think that's a great inventory strategy that leads to lower charge operates, better collection rates and better customers. And if you do repo it, a higher ACV and you bring it back in.

And on the flip side of that, we had a phase where we all learned that the, you know, the equinoxes and the traverses were not great.

Right.

So had I stuffed my entire portfolio with traverses and equinoxes back in the day, I'd be paying the price now.

Right.

So that's another, another lesson of slow growth is just the quality of collateral that you're putting in your portfolio. You know, as you're buying habits change or as the market change or certain makes and models prove themselves out as good buyer behavior.

Has there been any change in your dad's strategy to inventory compared to yours?

No.

No.

I mean, I almost lean more on him as to what's going to be reliable and outrun a note than vice versa because again, he's the expert in terms of being in the business of being a Mechanic the last 60 plus years.

Yeah. I mean, we were sitting there and there's a CRV that Garrett can buy and. And your dad walks in after doing a quick inspection and says, hey, it needs this, this, this. Literally, the car was on the lot a second ago and your dad already has racked the car, looked at it and told you exactly what it needed.

Yeah, absolutely. Much money we're going to put in.

Yeah.

From a recon.

That's really, really. So before we wrap this up, let's, let's ask that question. You know, we talked about what you, what you brought to the table and what you changed or the improvements you made to your dealership. What would you say the lessons you learned from your dad and coming into the dealership and having that first and second generation, you know, already have built a foundation for you. What do you feel like were some, some like, epiphanies or aha. Moments for you coming in that. That maybe your dad has passed out to you?

I think that goes with anybody That's a second or third generation owner is, is that you may have the education, the background, you may understand the math really well, but there's something to be said for, you know, having time in the seat. Yeah, there's a, there's an education behind that and I think that needs to be well respected. Right. It doesn't necessarily mean that there's not going to be some internal discussion or even, you know, minor arguments here or there. But you gotta, you gotta listen to what the, what the old dogs are telling you.

Yes.

They've been telling you for a reason. And although the math may not make sense in your head, they're trying to protect their underlying portfolio. And that's something you got to really understand and, and take to heart when it's a, when money's involved.

Yeah, true.

What.

The one thing I want to do also before we wrap up is talk about his location. An old building in a great spot in Houston here, but it's a retro building that I just love it. What is your future look like at this location? And you actually talked about your dad purchased some property years ago. That sounds like it'd be a really good location too. But it's currently.

Yeah. So we have a second location that's already built out. He bought some land about 10 years ago. We developed it, it's ready to go. We have a renter in there. It's oil field service company because we're in Houston. The, the location here, you know, it's a, it's a retro building from the 1940s. It's time for some updates and we're going to take that in into account this year and over the next two years to get that up and running. Because I've reached out to certain individuals across the space and they tell me that everybody says the same thing. I hate hearing it, but they all tell me the same thing. It's like, well, if you update your bill and you'll get a little bit better client, you're gonna get a little better customer, they're gonna feel a little better walking through the door. So it's a necessity. It's not necessarily once.

Well, that's one thing you bring from the private equity firm and those that are in commercial real estate is, you know, you've got put away, you got to put aside capital, you know. Yeah. You have to have that put aside 2 to 3% every single year for those improvements that are going to come down the road. Right. And you can't just wait 20 years.

And then be like, yeah, well, now.

That it's falling down or now that our. Our image is different in the community. So, yeah, to your point, it's great. A facelift, a fresh coat of paint, you know, some upgrades here and there, I think do go a long way.

Yeah. New lights.

It's happening all around you in this neighborhood.

It is. I mean, this place is gentrified like crazy. It looks beautiful. It is this something. Is this something you see yourself doing very soon? I mean, how. Because I've done this. How do you go through a refresh and still keep your business open and.

Oh, that's a question for the ages.

I'm.

I'm. I'm trying to figure that out. If I have to rent a, you know, an Airstream and park it in the back.

Right.

I'm gonna do.

I'm doing. Yeah, I'm gonna do it, park it in the back and operate out of that while that takes place. But time is a. Time is definitively a factor that makes me very.

Yeah, you don't do it during tax season this year.

No, no, it's gonna wait mid summer. Historically, September has probably been our worst month in the last four or five years. So that's kind of coming into mind a little bit. So we'll see.

Yeah. And he's right across the street from the original Shipley's Donut.

Right?

We're gonna get some right after this.

We are.

That is really close.

That's right. Yeah. Yeah.

It's bugging me, this, you know, and I look across the screen here, and I think this is like your typical upgrade look.

Like you have your.

Your worn down, beaten location with no hair. You have your halfway upgraded location. Then you've got Luke on the left here with fully upgraded hair on the top of his head. So this is kind of a fitting visual that we have for you if you're watching it on the YouTube channel. Hey, man, thanks so much for your time. Really appreciate it.

Yeah.

If anyone has any questions or if they're in the area, can they stop by and see?

Absolutely. Stop by, say hello. We're at 3401 Ella Boulevard in Houston, Texas. Been operating since 1972.

It is a really, really cool location.

Really cool.

Really cool.

Thanks, Garrett.

See you guys.

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