#377 - Can't Teach An Old Dog New Tricks

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, you look a little hungover, man.

As you know, I don't drink anymore. Not hungover, but I'm. I'm shower deprived for the last little bit because of lack of water at my residence.

You should have stayed in Vegas.

Yeah, no doubt, no doubt.

Not that the Caesars was any nicer than, you know, a house without water, but it was. It was quite. You know what? I'm gonna throw this out there. If anyone in the SAS world can figure out how to make hotel check ins completely contactless, I mean, the technology's there, right? Like just. Yeah, the mobile key thing. Like I upload my credit card, I upload my driver's license, I do all that through their stupid little portal. And then for some reason, I got to go wait in line for 30 minutes to give the same information to some guy who's going to do a bunch of clickety clacks on a keyboard and then hand me a key, which can be done on my phone. So just eliminate all that. It's not like they're upselling. They're not doing anything. They're literally just clickety clacking for 30 minutes. It was miserable. Caesars was miserable.

It makes no sense to me that they have. I mean, I can't imagine how many people stay in those hotels every and every.

Every night.

But there's. What? What do you think? Couple thousand rooms in there?

Oh, yeah, man. I mean, it was. It was. It's nuts.

It's. Couple thousand rooms and they have like four people checking you in. Yeah, it's. Steve Jordan showed me a picture. He got in like at 11 o', clock, and I bet there was 200 people in line. You're like, yeah, yeah.

And it doesn't. I mean, that's everywhere, right?

Yeah.

I don't understand what is going on at the fundamental level of hotels and hotel booking software and whatever runs their dms, their management system that doesn't allow for this. We.

We could definitely get into the SaaS business there and probably make some money, I think.

Well, it's something core because all of them have that problem. I don't understand it. Yeah, They've got like 4,000 guest rooms at night. Wow. Anyways, funny you say that though. Could the same thing be said about your car dealership? You know, I talk about how miserable it is to deal with people and check in and driver's license and this, this, this. And we kind of do that in our dealership sometimes too, you know, like, do we. Do we look at our processes and try to streamline and say, wait a minute, Our. Our BDC asked for all these documents. Why is our salesman asking for them all again? Like, talk about infuriating a customer. Like, dude, I went through the whole approval process on your website. I gave you all my crap. Why do I have to give it all to you a second time now that I'm sitting in front of you?

Before COVID we would make people fill out an application online, and then when they got to the dealership, they had the handwrite one, you know, and after like probably 150 times of somebody going, why do I need to do this again? We decided that the one time.

Why do we need to do this again?

Yeah, you're like, you know, so I know there's things that go on in our dealerships that, that infuriate other people. We. We don't see it, but I know it's there. Even in the, you know, the customer service on the repair side, you kind of. You still have some of those same, same issues, People waiting and waiting to pay. And there's way better ways to do it. We just, you know, it's hard to move away from the way it used to be done.

That's it. I mean, that's the answer, but it's the way we've always done it. Yeah, you're right, man. And that's one of the biggest issues in some dealerships is they cannot get out of their own way and say, hey, I know that my great, great grandpappy did it this way, and we've done it the same way ever since, but it's okay for us to change things and do something different. You know, we have a, a guy down the street that has kind of done some weird stuff in the car industry. And supposedly the rumor is he's opening a. A employee less car lot. So he, he wants to do a little mom and pop car lot, but with no employees. I don't know how you're going to figure that out. I don't get it. But good for him, you know, and the spirit of reinventing yourself, reinventing your dealership, looking for ways to make your processes more streamlined and more customer friendly, I think is really kind of the.

Yeah, he probably won't make it. Right? I mean, that's. And I hate. He probably won't make it. But so. But it takes pioneers like that to, to kind of to go forward and try something for us all to learn. I think maybe Carvana, if you look at that was Carvana's initial idea, right. We're going to be salesman list. And I think Carvana has probably succeeded in being salesman list or salesperson list. And nobody thought that would be done, right? Nobody thought that, hey, consumers just going to go online and, and click self help, no help and buy a car they want. Well Carvana's proven that. Yeah, they, they will do it. And they like, and consumers like to do it. I like to do it. I'd rather never speak to anyone if I'm buying something that I know. So, so here's the thing. In the future it's gonna probably be that way.

Yeah. But it's gotta be a commodity purchase. And that's where cars don't fall into that category in my opinion. And that's where Carvana is tripped up a little bit. Because think about it, those places where you can buy digitally with no customer interaction, right? Amazon, Totally fine. I'm buying something, I know exactly what it is. And if not there's an amazing return policy and that's the key to their success is as long as they keep which the return policy with Amazon has gotten. Read more and more ridiculous as the years have gone on. But the same with Tesla, right? They can deliver you a brand new car because it is what it is. It's. I mean it just is, you know what you're getting. There's not a lot of nuances to that car. If there is, good luck trying to get it fixed. And that's the biggest frustration with Tesla is if it doesn't fit inside their box, you, you are in trouble. You're never going to talk to a decision maker. Similar with hotel rooms. They are what they are. Man. I know what I'm getting. A double queen. It's a hotel room. Is it clean? Yes. Is it not? Okay, now we have a problem. Right? So the problem with used cars is a 2014 Toyota Camry is not just a 2014 Toyota Camry. Right. And I think that's the issue you run into when you're talking about these self help customer things. You can have all the pictures and photos and walk around videos online possible. But they want to touch it, feel it, drive it and negotiate.

Okay, I'm okay with that. But new car stores shouldn't have have salespeople at all.

Then that's a business model because they want to sell back end product.

Well, I think and it's the way.

We'Ve always done it, you got franchise laws.

Right. But I think that a, a new car is, is a commodity purchase.

Yeah. Like a Tesla.

Just like a Tesla. And I know what I would want to buy on the back end if I were buying any back end products. I don't really need to be educated on that. Maybe that's cause I'm a car dealer. But maybe, maybe you, maybe you purchased every, maybe you purchased a car online, but maybe you had an F and I person do this virtually like you and I are doing to sell you the products you need. And it's part of the, part of the whole experience is. All right, you picked out everything. Now let's talk, let's talk. What you need for this car? I don't know. I, Yeah, I would never walk into a new car store in my car ever. Ever. Well, yeah, I would, I would call somebody and say, this is all, I have it ready for me, I'm coming with a check to pick it up.

But remember, that's what the talk was in Covid. Oh, we're no longer going to have these big flooring lines and these big new car lots. We're going to have one of each model that you can go and drive and experience and then they'll all be made to order and it'll just get shipped right to your door, shipped to the dealership and you'll pick it up. Right. That was this whole just in time philosophy of during COVID that lasted about two seconds when manufacturers realized they had to hit production numbers and to keep their stock price up. And so they produce them, ship them, and now dealers got to push them.

I still, I still think that's the way of the future because it, it just, it makes more sense. I, I think the franchise model's idiotic, but I will get shouted down by most car dealers about it.

Yeah. And, and, and, and here's my counter to that. I think that when I have to purchase something and it's a dot com or a corporation, it is either the most slick, easiest process I've been through or it's the most infuriating, maddening process and there's no in between. Right. Like I said, you go to buy a Tesla and as long as you fit all the boxes and A plus B equals C based on what they're saying, it's fine. I, clickety clack, I order a line, I send them my credit card, it's done. I pick the car up, it's ready, I drive home. Now, if I have to do Some special financing or if I've got some weird thing where I want to pay half with card, half with check, or say I show up and there's a big scratch on the driver's door like now it's, now it's infuriating because nobody has the authority to say yes or make things right. And that's the beauty of the franchise model. As the managers, the owners are on site and have incentive to make sure you have an amazing buying experience and can get outside the box to solve a problem for you. Right.

Yeah. The pickup, when I, when we bought our Tesla new, the pickup was less than a $70,000 buying experience.

Yeah, well, that's a, that, that's a bigger problem for Tesla. They're becoming a cheap brand and, and that's not good for them. But you have to argue that like the Carvana buying experience isn't going to replace the mom and pop dealership. No, for the touch, the personal touch, the ability to solve problems if they arise. Anyways, so with all that being said, what I was driving at the beginning of this argument was you see these guys that do show up to things like Buy Here, Pay here United last week and do have an open mind. And that blows my mind because there were Buy Here, Pay here dealers that have it figured out. Massive 30, 40, $50 million plus portfolios, multiple stores. They've been doing it for 30 years and yet they still come to convention to learn.

It's, yeah, it's the, it's the mark of a great dealer. And I, I'm not saying that dealers that don't go that there aren't great dealers that don't go. But I'd be willing to bet you some of the best dealers go to at least one conference a year and, and mingle with other people, learn new ways and, and get educated. And that's what, that's what we're all talking about is how do you make your dealership that 1% better every year? Because most dealerships go back 1% every year. If you're not advancing, you're, you're, you know, retreating.

Yeah. And that's what's, what we find is those dealers that, you know, guys that I think have, they're the smartest, most forward thinking dealers I've ever talked to and some of the most successful yet they come here and they're asking very curious questions of everyone, you know, and they're looking for that 1 or 2% tweak. That for them is a massive, I mean, that's a massive change for them because of the size of their operation. And so that's really cool. A lot of those do focus around expenses because that's one place in large organizations when you can shave a little bit off of your expense. Maybe your commission to some software provider, maybe you find a new software that gives you some better scale. Those make big differences for both big guys and small guys.

Yeah, I was in a dealership yesterday doing kind of like an expense consulting day, you know, and it's, it's interesting to see what other dealers spend their money on. And, and you go home, you know, why do you need that? Why are we spending, you know, thousands of dollars on this piece of software that, that, that I don't think moves the needle for you. And I, and I'll tell you why it doesn't move the needle for you. And in it's. And like I told this dealer, it's not about finding $20,000 in savings in one spot. It's about finding 500 here, 1,000 there. And I'm talking about monthly expenses. 500 here, 500 there, 200 here, a thousand there. Next thing you know, you've shaved $10,000 off your monthly expenses. Now, Jeff, would you Enjoy having another $120,000 directly to your bottom line this year.

If it did not come at the expense of something else? Yes.

If it didn't come at the expense to something else, totally agree. But if you have one phone system, Jeff, that's costing you 1500amonth, and I could make a, I can make a recommendation of changing to another one that's going to cost you $500 a month and they both do the same thing. You would do that, right?

Absolutely.

And that's what I'm talking about.

And there's a lot of. We talk about this software creep where I guarantee you right now you have a vendor that has a plugin for an existing software that would completely replace another software that you're paying as a standalone. Right. You don't realize that they added the feature, this booking tool for $50 a month and yet you're paying, you know, Experian $500 a month to get the exact same booking tool that you need to send off to your lenders so that they all start overlapping and you can get the economies of scale within the same vendor for the most part when you kind of bolt on these extra little add ons that all these guys are trying to do. Because then for them it's incremental revenue if they're providing you with a CRM they also want to provide you with your website. Right. If they're doing your, you know, inventory management or your shop management, they probably also want to handle, you know, all your booking or your, your payment processing or something. So speaking of payment processing, that's another huge pickup. You know how much I've saved switching to Blitz paid last year?

Probably 40 grand.

Yeah, yeah, I was like 336. Yeah, almost 40 grand last year that I did not come out of my pocket because I switched to Blitzpay. I went to a self help program for my customers and now they're covering it through the, you know, convenience fee model. But not to mention the time saving because my phone is not ringing off the hook on a Friday morning. It still rings a little bit, but it does not ring off the hook on Friday morning with customers saying, can you run this card number? Can you run this card number? No, no, help yourself.

That's what you know, if you look at the dealer's expenses, especially by your pay here, it's is personnel, it's advertising and it's credit card processing. And if you aren't using a model in which you can charge the consumer, you know, a fee for using a credit card, you're losing money and you're losing a lot of money. Especially those who collect, you know, 2, 3, 400, $500,000 a month. You're, you're costing yourself 10 grand a month probably.

Yeah. And that's what I'm going to do with my employee cost too. As soon as they go to no tax on tips. I'm just going to convert everyone over to a tipping model here. No more, no more commission, no more hourly. Excuse me, sir. We function fully on tips at our dealership. If I provided exceptional service, would you consider tipping me so that I can pay for my children's braces?

I don't even have the words for the stupidity of not allow. Not making people pay income tax on tips and, and overtime. But anyway, I digress.

Yeah, that'll cause a little bit of a mess in the, the tipping culture. That's already a little out of hand. But the other part of expenses is the fees that something I learned at Buy Here Pay Here United that caught me off guard was there was a specific commission and I won't talk about detail, but I did not know what I was paying for a specific product that I have here at the dealership. I did not know what my fee was. I could not pull it out of the top of my head. It was a little bit embarrassing because it's one I should know. Right? It's not forefront. It's not like I deal with it every day. I deal with it once a quarter, once a year even. But those are the. Those are the ones that get you. Right. It's like it's the unmanaged expenses that you're just like, oh, well, you know, it comes off the top, so why do I even worry about it? Right?

Or.

Or that's a. That's a tax situation. Or that's just taxes. And it's like, no, you structure this a little bit differently, and you're paying Uncle Sam 10% less than what you would be, and that's saving money. It's the same as increasing your revenue by 10% or your net profit by 10%. If I can save 10% by just structuring my income, better.

Yeah. There's so many tax savings out there where you can just move money from one hand to another hand and save yourself 20%. Right. And you got to make sure you're doing that. But you want to talk about a fee structure when it comes to expenses is so many people have their. Their expenses set up on a auto draft or something like that, so they don't really ever look at the. At the actual invoice. And what can happen is, is a vendor will go up on your price and. And you don't realize it. And it's. What happens is, six months down the road, you go, hold on, didn't this used to be $1200, and now it's $1400 a month? Well, did you. When was the last time you looked at your invoice? So another tip out there is make sure you look at your invoice. And Jeff, you bring up such a great a point about, I just don't know what I pay for that. I encourage every dealer to know exactly what you pay for your dms for your website, what your advertising expenses, what your payroll is every month. If you can know just those numbers off the top of your head, you're way further down the road than most dealers. And it's. And it's easy to. To be cognizant of expenses when you know all those numbers. And if something does change, you can go, hold on, hold on. I was paying 1200 last month. Why is it 1400? You can go back to that vendor and say, I like your product. I'm not sure I like it 200 more than I did last month.

Yeah. And we have that situation. We use a payroll company, and so I'd pay That payroll company, a percentage of payroll dollars. And, and that percentage worked out okay when I was small, you know, 30, $40,000 a month in payroll. But now that I'm a hundred thousand dollars a month in payroll, that percentage doesn't make sense. I mean, I could pay a full time person to run payroll here for me at that cost. So those are, and it's not like it takes them that much more time. Right? So those are the things that we have to be continually auditing. And we talked about this in previous podcasts. So go back and listen to those expense audit ones line item by line item. And we sit down with the shop and I said, look guys, our uniforms, rags and mop heads, what's going on? Why are we getting 15 bags of rags every single time? Oh, that's because the rep gets paid to tack on five dollar bag of rags every time he shows up. So he's just gotten out of control with it. Right? All those little things that just keep creeping and creeping and creeping and one.

Thing that keeps creeping and Jeff, I, I talked to a bunch of dealers when we were out there. I didn't go to a lot of classes, but I talked a bunch of dealers. I mean, I talked to a lot of dealers. And interest expense is killing everybody.

I didn't think that's what you're gonna say.

Okay, well, it's interest expense and floor plan expense and, and seeing a dealer pay both interest expenses for your portfolio because you're borrowing every dime they'll give you. And then also flooring your cars through next year or through AFC or through whomever, your profit is going to all these companies, you know, and I love some of these companies out there, but I'm going to tell you, paying, paying 40 to $50,000 a month in interest and then another 10 to $12,000 a month in floor plan expenses and you're only taking home 5,000 net a month. There's a, there's a real problem.

Well, I get that there's a problem and we say this all the time, but what's the solution? I don't get it. If I'm a dealer, the only thing that I can look at in that situation is is my overhead too high? Can I do the same with less overhead? Right. Personnel, rent, expense. And then the other big component which I would like to talk about is am I a dealer who's trying to take too much off the table? Because when I was young and when I started up until like honestly not too long ago, I paid myself $3,000 a month, Right? That was my salary. I was 36,000 a year. And my partner at the time was the same. We were just barely making ends meet. Right. We didn't have a second home. We didn't have this, that or the other. We didn't have boats. And we weren't taking week long vacations to Vegas. We were in a 20 group and we felt it. When we went on 20 group and it cost three to four grand, that was a big deal. But we didn't let the lifestyle creep Gideon. And so when you say interest is eating dealers alive. Yes, it is. But the solution is to try to use more of my own capital. I don't have more capital.

Well, okay, quit buying boats, quit buying inventory. You don't need cut your salary. I mean plow every penny back in slow grow. There are solutions to this. You don't have to borrow 55 cents every time you do a deal. You don't have to if you manage your expenses properly. And if you, if you plow everything back in, if you live in a reasonable sized house. Dealers are notorious about living way larger than their, than their income. I mean, what's that then?

They would need to maybe, and they would need to.

Okay, you look at your old timey dealers, you know, the ones that have been around forever and ever and ever and you know, they're wearing blue jeans, they're, you know, maybe some of them have planes, but they've been, they've been at it long enough to have planes. Right? But they, I'd be willing to bet you in their first 10 to 15, 20 years in business, they didn't have planes and, and they worked every day in the office and they're the ones that were buying the cars and they're the ones that were recon in the cars. They were doing it all. And I think the way, the answer is, the way to bar less is to do more jobs on your own. There's no reason for, for a dealer that's selling 20 cars a month to have more than three employees. There's no reason. And, and what you'll see is dealerships that have 20, that sell 20 cars a month have 15 employees or 10 employees. And, and that's too many. That's too many. If you want to, if you want to argue with me that you, that you want five employees, I'll listen to your argument. But 10 is too many and 15 is way too many. Right?

Yeah, and we talked about that too with, with some dealers there is, especially the guys that start getting into a corporation right when they get, when they get big money and they start adding levels of management. Now you've got this whole non producing level of employees that are all six figure and they have to be there because you've got multiple locations and you got VPs of this and VPs of that and managers of managers. That's when the model gets grossly overweighted on your personnel expense and eats you alive.

Every, yes, every time you add a location you're going to add a level of, of brain deadness and a level of expenses that you don't need. And I'll keep arguing it that there's no reason, absolutely no reason to have multiple locations if you aren't selling 50 cars at the first location. Now if you want to tell me you need to move because the location you have is Only good for 25 cars a month albeit move to a bigger location that can sell more cars. Don't open a second one that's going to sell 25 cars because that, then you've got two levels of crap is what you have. Yeah, yeah.

Especially if they're you know, over a couple hours apart and it can't be managed by one person. And it gets, it gets crazy. But, but, but the lifestyle creep, we both have a friend who is, who is just inspirational to me. You know, $40 million portfolio, makes a quarter million a month in CPI income and yet doesn't own a car, has a modest house and just stays humble like it absolutely mindboggling because we did see people in Vegas who probably spent the whole week there and we're in the suites and we're gambling all night long that probably shouldn't have been.

It happens, it's going to happen. That's the reason people go out of business. You know. And there's, you know, there's the same dealers that, that we see that live, that live correctly. There's people that live way below, there's people that live way above. You know, there's people that are doing it the right way and have multiple locations across the country. You know, you just got to be careful with everything. You've got to keep everything under control. If not it can get out of trouble real fast. Yeah.

And we do have an interview coming up that we're excited about to tease that a little bit about a large group that, that maybe got out over their skis. And we've got, we're going to talk just a little bit of the cautionary tale of, of how to not get over leveraged and, and and have the bank come knocking on your door and. And we also have a couple interviews coming out with different size dealers, small guys that just started out. So we got a couple of great interviews down there in Vegas we'll air over the next couple weeks. Pretty excited.

Yeah. It's great to see young blood coming into the. Into our industry. And those are the people that bring us new ideas. We don't know it all. I act like it most of the time, but I really don't. And I love to. I love to hear new tales, new demographics come into our business, which I think is exciting. Excited for the. For the newness that just comes from that.

Yeah. Excellent. Good chatting with you. Hope your water comes back on. I'm heading up to our state convention. I'm in charge of the Utah State convention, so this should be a lot of fun tomorrow. We got about 120 attendees there, so.

Great.

Should be a good old time. I'll. I'll send you the Cliff notes.

All right, buddy. We'll record something so we don't have to record every week.

All right, See you.

See ya.

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