#373 - Tariff-ied

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. Luke, how was your first quarter?

You know, it's, it's a different first quarter for us, Jeff, but I would, I would call it a success. We selling maybe 50 cars or so in the first quarter, which could, you know, comparably, we typically do 150 or close to 200. So a lot less aggravation, a lot less stress. And 95% of those were retail or, you know, outside lenders, cash. And so it's a totally different ballgame that we figured out. I would call it success. The portfolio is, is, is coming down, but not as fast as I thought it would come down. Payments are coming in like they're supposed to. Not as big of a payment bump that we typically get during tax time. And I don't, I don't know, maybe other people felt that or not. But we never saw the huge payoffs that typically happen. We did see some, nothing crazy, but now we've started doing some, well, the service department, you know, trying to build the customer pay side really up in the service department. And yesterday I worked the phones in the service department all day. We've, we've partnered with a, a strictly service department advertising firm and good night. I mean the phone rang off the hook for people.

And these are, this is just specifically, hey, get your car service here at Godwin Motors. And they run Facebook ads and Google.

Ads and it seems mostly, mostly Google Ads. And I, I'm telling you myself, I answered and quoted over 20 repairs yesterday.

Wow.

And that's not counting our other service advisor who probably did the same amount.

Yeah.

And, and we got Maybe, maybe 7 of those yesterday to get their cars done. And I mean like is mind blowing.

How banned for service? It's not mine. It's, it's obvious. We know it. If anyone, if you guys are doing outside repair work at your shop or if you're sitting your cars out, you know, say you're an outsourced type, buy here, pay here. A retail location. You don't have your own service center. You know that at least in my town, every single repair shop is booked out the door and has been for 10 years.

Yeah, it's crazy. And it's crazy the way this advertising firm can make the phones ring like they do for service work. But I've never seen an advertising firm make the phones ring like this for car Sales.

Yeah, I mean, it's a much more competitive area, I think. Yeah. I just think the demand for service is so overwhelming that if they can get someone to pick up the phone and they think they can get their car in within 24 hours, you are going to land that sale. Right. They're going to come to you. Because if you go anywhere else, you're like two weeks out and people just can't do that with their cars. Right. So. Right.

Especially man, especially in the south when it's, you know, this time of the year and it's supposed to be 90 on Friday and the, and the pollen's ripping. You know, if somebody's AC is not working, they want it fixed right now.

Yeah.

Or somebody's windows aren't rolling up or down, they want it fixed right now. I mean, it's crazy.

Yeah, that's great. What, what is going to be really interesting today, and this is kind of our topic of the day, is what is going to announced from the White House at 4:00'. Clock. I guess technically that would be yesterday when this airs, but today being Wednesday, it's coming out tonight. We're going to know exactly where these tariff threats really land.

Yeah.

And that is going to play into all of this. Right. It's going to play into affordability from cars new, which pushes into used, which pushes into parts, which pushes into repairs, which pushes into customers keeping their cars longer, which means now we have even more service demand. It's really going to be interesting how deep these tariffs go, how broad they go and the duration.

Yeah, I was talking to my sales manager a couple days ago and I said, you know, I think there's already been a pop in used car prices because of just the threat of tariff. Right. On the, on the higher end used cars and doing retail now where, you know, our numbers a little bit higher than it was in buying or pay here and you've seen maybe $1000 jump or 1500 dollar jump. But I said we can't just run out and buy these because you don't know if the books are going to translate. And also with administration, you know, I'm, I'm a Trump supporter, you don't know if this is going to last more than three days. And so if you go and load up today on this market, what does it leave you two weeks from now when, when all this is resolved? I mean it's, it's a moving target like I've never seen.

Yeah. And that's why we say this. You know, obviously we're recording this about 24 hours early from really having clarity on what these are going to be. So there is a bit of hysteria around this and I think that's seen from all the new car stores across the country. I think they all saw kind of record demand over the weekend, over this past week of people just saying, hey, I was going to wait two to three months. You know what, I'm not going to gamble. I'm going to jump in now, I'm going to buy that new car now and just pull the trigger. Because who knows what it's going to look like, you know, a month from now, two months from now, I might as well just do it. So that's been all the antidote is that it is pushing people into that.

Market, you know, which could be helpful for our industry because if you've got that many more people buying sooner, they're trading their cars.

Right.

And so that puts more inventory for used out there because it, they have to take it to the auction.

They don't. Well, I think that's part of the issue too because I think a lot of these new car stores are holding on to stuff they wouldn't have held on to. They don't know what they're going to get. They don't know if they're going to buy more new that could be temporary, turn their mix more to use. Because I mean even like I was just talking to a dealer buddy this morning here in town and I think he sells like five to one used to new. So.

Yeah, but that's not, that's not a Toyota store and that's not, that's a, that's a Mitsubishi store or a Nissan store or.

No, no, no, he, he has, he has all of them. They've, they've got I think 10 or 12 brands and I think a new car store is really just a front to be a mega used car store. Right. I mean they make a lot of money on those used and if they don't know what they're going to, what their new is going to look like in two to three months or they think they're going to be priced even higher, then the consumer just looks for the value and says, hey, okay, cool. Instead of buying new, I'm going to buy one or two year new used. And because it's more affordable, I think it's just the same thing as in those Covid days. It just pushes everything up the spectrum.

Yeah, yeah. And I missed the market in Covid. You know, I was, I was probably, you know what I'M saying now when it comes to. Yeah, prices might be affected. How long is it going to last? I didn't think it was going to last very long in Covid and I honestly don't think it's going to last very long now. I think it's going to be resolved fairly quickly on cars from, from Canada and Mexico. I think that's going to be resolved pretty quickly. And we don't even bring cars in from China. So, you know, parts from China is going to. Going to create a problem. I think that is the biggest problem to be concerned about. If I had to guess.

Yeah. And, and, and again, like you said, there's the carve outs and the, the administration talks about the four buckets of cars. Right. There's the produced, you know, manufactured, assembled here with mostly US parts. There's the Manu. There's assembled here with mostly foreign parts. Then there's the, you know, assembled outside the US With a mixture of parts. And then there's the manufactured and assembled completely outside the U.S. right. Like the Jaguars, the Mercedes, those types of ones that are brought in, mostly high line stuff. So you've got these different buckets and we don't know how the mix is going to land. We don't know if USMCA parts up to a certain percentage is going to be, you know, exempt from any kind of a tariff. So a lot of that clarity is going to come in later today, hopefully and it'll take days and weeks to really pan out. Who's going to pass that along? Because here's the deal. Just because you put a 25% tariff on a, you know, a Volkswagen 3 Series that's brought in, it doesn't mean the Volkswagen has to pass that 25% on, on that make. Right? Right. They've got a lot of options. They can eat some of it. They can spread it out amongst other models. So the OEMs are also fighting an affordability issue and a market share issue. They don't want to be the ones that have to jack the price up on their midsize sedan and be competitive with every now they're way overpriced compared to the alternative. So I think some of those guys are looking to wait and see what the other OEMs do before they make a move on any pricing strategies. But some of them may just eat.

It and some of them had a, have a ton of inventory already built sitting in the US which people aren't necessarily thinking about. And, and so, you know, if it, if the tariffs brought forward A bunch of buyers, then we get through this fairly quickly. I mean, I honestly, I don't see, I don't see how this could last more than a month or two. I don't. But you know what you mean the.

Actual tariff itself or the sticker shock or what?

Both. I don't think the tariff will last all that long. Especially, especially Mexico, Canada. I don't think that's gonna last very long.

Yeah, I think the Mexico Canada thing could be, you know, if you're USMCA compliant, I think they're going to kick that stuff out maybe. Now as far as the, the final assembly being outside, you know, that's, that's an interesting question of whether they're going to exempt those, those manufacturers in Canada and Mexico that are predominantly made with parts from Canada and Mexico. If those can get in and, and is it just going to be a straight reciprocal. Right. Like, hey, if we send stuff to Mexico, you hit us with, you know, 10 or 11, we're going to hit you with the same.

Yeah, right.

Which again, you look at those. Why do we bring cars in from Canada? Why are we importing all these Canadian cars? They're cheaper. Why are they cheaper?

Because a dollar to Canadian is so.

So you're, you're bringing these cars in. We don't export there, you know. Well, if we try to put stuff into Canada, those get hit with the tariff going into Canada. So the reciprocal side of it makes a lot of sense. Now if you're just playing a game of chicken to see who can keep these tariffs on longer, you know, to try.

We can't. Well, the chick. We're the biggest rooster around, so we can, we can do it. But does it make sense? I, you know, I'm a free trade guy. I, I think trade should be free everywhere. Yeah.

So it's not fair. They're doing it to us. We can't send stuff over to China.

Right.

Europe without a huge tariff.

Yeah. You know, if you're going to do it to us, we're going to do it back to you. I think it's totally fine. But you also got to think of, do we really want to make the $0.01 widget in the U.S. i don't think so because number one, we don't have enough workers yet. So, you know, for what we have. So, you know, there's all kind of political ways to go with this and I don't understand most of them, honestly. I just know that parts mostly come from China and that's going to really. Those prices, tires and, and just parts I think are going to be astronomical.

Well, you say astronomical. You say 25.

Well, they're already, parts have already gone up an astronomical amount since 2020.

Yeah, and exactly. You talk about inflation, you talk about supply and demand, you talk about cost of everything. Right. Energy cost, all those things.

You know, when you're, when you're quoting like yesterday when you're quoting a window regulator, that's $500, you know, for the repair on a, on a 18. On, on an 18 year old car.

On a what? A McLaren? A Jaguar?

What did you quote that on an Audi A4. Okay, but, but still, I mean that's an Audi A4. That's not a really high end car. But when it's 500 for an 18 year old window regulator, I mean.

Well, that's because your labor rate's 400 an hour.

Well, it's not 400 an hour, but, but you know, it's just like you're like, holy cow. Like. But the people, the people will pay it because it's cheaper to, to fix that, you know. 08 Audi A4 with, with 90, 000 miles it is to go buy a new Audi A4 because a new Audi A4 is 60 grand.

Yeah.

So, you know, I, I don't know. I know that, that new car prices and payments are at the top. They can't, I mean the consumer can't handle much more.

So yeah, technically they've come down a little bit since 2022.

Technically. But we're still talking about 800amonth almost in, in, in car payment for a new car. Average car payment. I mean that's. Yeah.

And more like 500 for used, I think.

Yeah, I mean, I think 560 or 580, you know, and, and I can tell you this. Buy your pay here customers, once you start pressing over that 5 to 550 range, it's a real problem and, and your, your charge offs will go up dramatically. So I don't know, I think, I think if you had to go up on buy here pay here customers to 600, you're going to cut out 90% of your market because people just can't afford it. People just can't afford it.

Yeah. I mean again, if wages don't keep up or you don't move upstream in your market, then, then yeah, I mean you do eliminate. I mean it's the same thing as before. If I could still offer a 250 to 300amonth payment like I used to. Oh man, 500 down. Sure. I would have all the customers in the world questionable if I would want those customers driving my cars. Because you know, obviously there is a, there is a point where you can be too much in the cash cars. Now if those were quality cars, maybe that's a whole nother conversation. Right. Because back in the day that was a 160,000 mile car still now it's a 250,000 mile car to have a payment like that. And I don't even touch a three to four thousand dollar ACV anymore. So that, you know, if I could sell that nicer car and it was a three or four thousand dollar ACV and it had 160000 miles, then maybe that would be a home run for everybody. Right. But again, not the reality we live in. What's interesting and, and we'll talk about this a lot. I think if I hear pay here United down in Vegas in a couple weeks, which I'm really excited for, man.

I don't know about you, I get to come and play golf with you one day.

Yeah, you come up here, play golf, we're down there. We're going to have a good time in Vegas. So hopefully you guys are registered. I think the early bird hotel stuff maybe ended today or tomorrow. So you may have missed the boat on the good hotel rate but there's plenty of places to stay. Still a great deal. I'm sure they're going to sell you a ticket still to the event if you want to get on their website and join us.

Yeah, I mean it was like 199 a night and honestly that time of the year Vegas isn't going to be that much more expensive. So if you missed out on the hotel deal, don't worry about it, go ahead and get you a hotel room and register. And also because you're going to get to see Steve Levine in compliance, you know, compliance unleashes and compliance is still a big deal when it comes to two tariffs because what if you have to up your price because everything up, you know, make sure you have everything together and, and not just charging people these, you know, junk fees or whatever. And you know, tariffs are going to cause ripples across all of this and we've got to stay on top and be regulated and everything else we do.

Yeah, yeah, yeah. I have so many interesting compliance stories from this week that I saw from, you know, people pricing, you know, the Tesla pricing with the.

Oh yeah.

With or without the incentive. And I'm like wait a minute, if that price reflects the incentive, then your Retail price is over 25 grand anyways, like. And then the other one's like, this price is only available with qualifying trade in. Like, wait a minute. What's up?

What's a qualified trade in?

What's a qualifying trade in? Like, that is a hundred percent deceptive. Someone do that dealership right now.

I guarantee you, I guarantee you, Steve Levine would not let that happen. He would edit your website and go, hey, buddy. Hey, buddy. This doesn't work.

Yeah, all my cars are a dollar with qualifying trade in. And I'm gonna undervalue your trade in. Like, this is that. That is the most nonsensical disclaimer I've ever seen at the bottom of a description. And it just drives me crazy. The. The other thing I heard was a former OEM CEO, he said, some of these new car guys, along with tariffs, maybe what they'll do is have their msrp, but then they'll have an addendum with the tariff.

Yep.

So that it's easy to add and take off based on what that tariff's doing, based on the make and model and whatever. And it's like, okay, that's interesting. You would just addendum a tariff fee. Is that legal?

Is that legal? That's something I asked Steve Levine, you know, because it does it. I mean, you're right.

It is a tax. It's not part of the price. Right. Maybe if you're an oem, you. You could argue.

I can tell you import tax. I can tell my staff. I mean, my. My state regulators would.

Do they come after him?

Oh, they would come after you so hard on the. You may be able to do that on the new car side. I don't know.

Because you're physically the one paying the tax to bring it in.

Yeah. The manufacturer is, not you. I think only the manufacturer could do that.

What about an what if? What about our buddy we need to call. What's his name, that's importing from Canada. Yeah. Dare and just. Hey, man, that's a great idea. You're importing. You're actually paying a new import tax. Don't put it in the price of the car. Put it as an addendum.

Well, there's also, you know, a Chrysler, Dodge Jeep Ram dealer now too, so I'm sure he's got plenty to talk about there. Oh, man.

So you were talking about buy here, pay here. What I would like to say when you talked about payment to. To return and then the. And the payment to income ratio getting out of whack on a Portfolio, Right. What's so interesting to me is when you look at these large guys, right, like the, the drive times and, and these people that have massive data samples to pull from, they know exactly how to turn the dial on each one of those pieces to get the optimal return, right? Because you might say, well, if, if my payment gets too high, I might, I might price some people out of the market with these cars and they can't afford it. Well, really, it's, it's the affordability issue you got to look at. What's my payment to income now? Am I moving up the credit spectrum enough to reduce my charge offs, or have I just moved up the payment to income and now my charge offs start to tick up? Right. That it'd be so interesting if you had a lot, I don't know that guys like me have a large enough sample to, to, to kind of play that game and say, oh, well, if this month we go from 18% payment to income to 19% PTI, we actually. That static pool didn't charge off any worse.

I would, I would love to have the data and a data interpreter for drive time or Carvana or Carmax or, or Oak Motors or. Yeah, or Blake. You know, there's all like these really, really big buy here pay here dealers because you could, man, you could see what 1% does, right? I, I don't have, I don't have enough historical data to do that, but I promise you they do. And I promise you, they look. They look at it.

Yeah. I think we all have our own anecdotal evidence where we say, okay, this car, this make and model, with this miles at this price point is a golden goose, right? Like this car will get paid for it attracts the right customer. And I, in my tiny, tiny sample size of history thinks that's the best car to sell, right? Might not be the same for you, might not be the same for someone else, but we kind of start honing in on, okay, I got to keep it at, you know, 500amonth on this car with this miles, and it's got a really good chance of paying me back.

Yeah, yeah, I would love to see that data. I'd love to have my hands on that.

And I think a lot of guys, like, you know, our conversation with Robin last week at Blitzpay and all the data that they have, even from a payment processing standpoint, you know, you look at that and you say, okay, the best time to run my payments are actually Thursday at 3:00', clock, you know, or Friday morning. And that changes maybe per customer based on how they're paid, based on some other factors. But there's like this optimal time, you know, payday Friday at 5 o' clock because they unlocked their card and they know they're going to go down to.

The, you know, the grocery store.

Yeah. And so if I can hit them at 501 because it's a five minute drive for them to get there. That, that kind of data is just so interesting from, from an aggregate like large macro down to a micro like climate is so cool.

Yeah. Blitzpay, you know, somebody we use every day. I'm actually getting to the back end of Blitzpay now. Learn how to, to do reporting and things like login. How to log in. Yeah, how to log in. And I tell you, it's so easy to use, it's so easy to understand. I taught myself and, and actually I've, you know, I'm sure Blitzpay team, I mean, they like to talk to me, but when I start getting there and go, okay, well hold on. This report can be built a lot more simpler so I can, I can do this inside QuickBooks. I've been sending all these, all these, you know, recommendations. They're gonna, they're gonna probably block me at some point.

Yeah, yeah, yeah. Like I've done. Most of us have blocked your email at this point.

Thanks.

Just makes life so much easier.

Oh, good.

Send me this data. I'm like, dude, it's, it's 6 o' clock on a Friday afternoon. I'm about sitting in front of my computer. How am I going to send.

Well, hold on, let's be fair, Jeff. That was not 6 o' clock your time. That was 6 o' clock my time on a Friday afternoon.

It's 5 o' clock. Some bro.

It's, it's 5 o' clock somewhere and I'm in Mexico and you're complaining that I'm asking for this data to try to, try to make it better for the listeners of the independent dealer podcast. And you know, I'm always, I'm always helping my fellow consulting, you know, dealer and I'm trying to help out and you're sitting there complaining about it.

Yeah, well, it probably make it better if you just stayed in Mexico.

Thank you, Jeff.

I feel like you come back a better guy. You were there, you were a happier fella.

Oh, thank you.

So speaking of staying happy, when you look at this model and now you're stepping more to the service side, which do you think is harder running a repair shop or Running a dealership. Buy here, pay here.

Oh man, they have a lot of similarities. Buying your pay here is still probably one of the hardest businesses on the planet. And just because it has so many, you know, aspects of it, the repair side is okay, I don't have to go find a used part, right. And I don't have to remanufacture that part to sell it. All I have to do is call the part store and they, you know, or actually click two buttons in the part miraculously shows up and I've got a technician out back that knows exactly what to do to put it on.

So the customer either pays it or.

Doesn'T pay it or doesn't pay it. It's, it's, it's not rocket science. The, the buy here, pay here side is just, you know, it's five or six businesses rolled into one. It is difficult now. There's a lot of money to be made, but it's difficult. And I think, I think if you run the repair side properly, you might can make, you know, a third of what you can make on the same size operation, probably.

Interesting. I do find that is like a, it's, it's very enticing for me. I've looked at property in the area trying to say, hey, I need a standalone service center because mine just isn't big enough. And I'd love to open it up to the public ex, but man, the brain damage of having three times as many technicians, three times the interactions with the public. The. I think you can hire that in conversation.

I think you can hire it because there's so many people that have worked at, you know, Firestone or Goodyear or all these places that have been managers. You know, I think there are people out there do it, you know, large scale, buy here, pay here to find a manager that understands the business and can do it. For one, that manager, that manager is going to cost you a half a million dollars a year at any scale. And just, it's a very specific, you know, skill set. Skill set. And the service side, I don't think as, as specific skill set. And you know, technicians are the hardest thing. Yeah, that, that's the hardest part of it. Yeah.

And I think I start getting rose colored glasses because I've got a really good shop set up right now. My technicians are great. Haven't had a lot of knock on wood, a lot of drama with my current crew. So I started thinking like, oh, I could do this at, at three times the volume. You know, we could open up a, a service center and take on, you know, outside retail work. And, and I know the writing's on the wall. I, I see what's happening. I know that cars have got to run longer and we've got to repair them, and people are holding on to them longer, and that side is not going away. Even if you go fully electric with all these cars, I'm still repairing Teslas every single day here. So it's there and it's going to be there. But, man, like, like they talked about. Is it worth it? Is it worth the hassle and headache? Yeah. Interesting.

It's. Yeah, it's, you know, it's. It's interesting. We'll. We'll see if this experiment works. If it works, I'll. I'll come open one with you out there in Utah.

Yeah, yeah, yeah, yeah. This is, It's a great place to do it. Until it gets over 100 degrees, which we know in all areas, it's over 100 under 32, you don't want to be in the repair business. It's just brain damage. Everything's blowing up. Everything's melting down.

Okay, Dude, I tell you, within a month, it's, Everything's going to start running hot and everybody's AC is going to break and cars just aren't made to run over. You know, when it's over 100 degrees outside.

Yeah, we're loaded up. That's one thing tariffs won't do. It'll cost you more, but it won't make you a better car. That's. That's the issue we run into.

That's for sure.

Luke, I think we covered everything. Did we miss any advertisers?

Well, I think, you know, just to remember that, you know, your reinsurance is so important to what you do and, and there's, there's opportunity. Opportunities on the service side for, for reinsurance too, which we're. We're getting into. But have you done that yet?

Have you sold a retail customer an extended warranty?

Yes, I've done that in the, in the past. I've not. We. We haven't shifted our focus to that right now, but it's definitely something we can, we have the opinion, the option to do during check in, we go, hey, do you have a warranty on your car? No, I don't have warranty, but guess what? We can sell you a 24, 36,000 mile warranty. You know, our service contract. So, yeah, we do. We have all that ability.

But would it cover the current repair?

Absolutely not.

That would be interesting if you said. Hey, your repairs, you know, your repairs are 500 bucks. Or why don't you just pay, you know, 1900 and get yourself an extended warranty which will cover this repair and, you know, you've baked it into the numbers already. I don't know. Maybe.

Yeah. No, I'm not doing that.

Not yet.

Okay, cool.

All right, Luke. Talk to you next week.

See you, buddy.

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