#91 - Q&A with Luke & Jeff Episode 1

Welcome to the Independent Dealer Podcast, our very first ever Ask Luke and Jeff episode. Really appreciate everyone who submitted questions. We have got a handful of them teed up. We're gonna talk about hopefully some. Some really good information and get you guys quick, quick answers. According to Luke and Jeff, like I said, we are not professionals. We are professionals. We are not experts. Neither are we attorneys or lawyers, Luke. Right, so that's my disclaimer at the beginning of this episode.

Not at all. Not at all.

All right, here we go.

You are listening to the Independent Dealer Podcast with hosts Luke Godwin and Jeff Watson. Thank you so much for tuning in. Let's do this.

Okay, Luke, this is really, really fun. Seriously. The response from people has been great. I hope this is an episode we can do more frequently, maybe every quarter just to really quickly try to give some, you know, feedback to dealers that might have some general questions. I know in the forums there's a ton of good questions asked and answered. Sometimes it's a little hard to sort through all of the responses, but this is going to be our opportunity to kind of chime in with our two cents. Yeah.

Cool.

All right, so let's get going, Luke. I've sorted this. Probably not by priority, but we'll see how many of these we get through. One of the big, big hot topics, obviously, right now, how do we prepare our dealerships for what might be an upcoming recession, obviously a dip in the economy. I mean, I've seen my IRA and my stocks kind of dive and do what you want with that, but give us some tips or advice or what should we be doing?

So I live through the slowdown of 8 to 10 to 11, I guess. We've been a dealership for 35 years, and around 2005 or so, I was running everything day to day, general manager, and we weren't really prepared for what happened in 08. Not as my dealership, but as a industry as a whole. And the best thing every dealer out there can do to prepare for something like that is make sure your expenses are in order. Number one, manage your dealership like tomorrow, maybe the last day, because it may be. Don't overload yourself with inventory because it gets possible. I saw it where you can't sell inventory. You can't even wholesale inventory sometimes. So make sure that you've got a good supply of cars to retail. So if you're selling. If you're selling 40 cars a month, you need 40 to 50 cars. You don't need 120 cars. Right, Jeff?

Yeah. Tough coming out of tax time. Right. Because I know that I stocked up and tax time kind of got cut short, I think, by the virus. And so I am maybe sitting a little heavier and some of these higher dollar units that didn't move, I'm tempted to go dump them.

I look at it as actual good time to, for a slowdown to happen. And the reason I say that is because a lot of us did stock up, but it may have gotten us through the first part of the attack season and we aren't. Well, maybe some of us are rushing out to buy more cars, but I think at the moment, if we have a slowdown, hopefully you've sold off all that inventory you had stockpiled and so maybe, you know, I don't have to go back and source cars at such a level as I did. Because remember, guys and girls, when, when there is a slowdown, what's going to happen is you're going to, you're going to slow down the amount of sales you have. So if you were a 40 car dealership, you may end up being a 15 car dealership for just a little bit. If that happens, you've got to adjust your inventory, like Jeff saying. So you may need to move out of some things, you may need to reduce price to retail out of some things. So make sure that, that you have cash. Cash will be king when something crazy happens. So just be prepared. Cut your expenses and don't wait too late to cut staff.

Ooh, that's a good one. I like to talk about that. It's a scary, scary thought. No one wants to go backwards, right? And by no means am I saying bury your head in the sands or run for the hill. I don't think neither. Look, or I are naysayers or doomsdayers thinks that this is the beginning of the end. But what happens is it really comes back to every conversation that we've had. Are you tracking your expenses monthly, if not weekly? You know what I'm saying? Is your overhead matching your income? Hopefully not exceeding it. And do you have a flexible plan for that? You know, do you have enough people that are on commission? You know, are your mechanics on maybe a flat rate? Are your detailers paid per car? So when things start slowing down and contracting, you're not obligated to a high amount of payroll for a month or two or three until you decide that these people have just been standing around twiddling their thumbs for two months and now I have to take the painful step of cutting someone? No, if they're all on commission or piece rate or something like that, it naturally slows down, and obviously we don't ever want to see that. But, you know, that's the nature of it. Everyone's going to tighten their belt a little bit if it gets to that.

Yep, you're right.

The other thing is having a slowdown like this. I mean, what a great way to correct the insaneness that's going on at the auction right now. Right. Like, everyone complains daily about these corporate buyers picking up auction pieces at full retail. Man. I'll tell you what. When. When Carvana and Carhop and autonation and all these other guys start cutting off their buying staff because they can't justify.

Them anymore, prices go down immediately.

Yeah. Instead of buying 50 cars, he's only buying 20.

Yeah.

What a great way to correct the wholesale madness that's going on. Exactly. Right.

You know, not all slowdowns. I'm gonna say this. Not all slowdowns are bad. Now, some people may jump on me about that, but there's ways to make money in a slowdown. You've got to be prepared. And that's. That's all we're saying, is be prepared.

Yeah. Yeah, absolutely. You know, I feel like we did an episode and I was trying to find what number it was. Anyways, I'll figure that out and I'll post it in the show notes. I'm pretty sure we had an episode that talked a bit about how to prepare yourself for a recession. So I think we expanded on that a bit more. It may have been back in the 70s, I think. Anyways, we'll figure that out. Luke, question number two. I want to get into buy here, pay here, lease here, pay here, whatever. I see the economy slowing down. I see banks tightening up. I want to start toting some notes at my lot here. What advice do you have for me?

Don't do it. Is my advice because you don't want competition or because. Yeah, number one, because I don't want competition. No, no, let's be serious. You better be well funded, okay? And I'm not. I'm not just saying that you can't do it. But what I'm telling you is if you. If you've got a million dollars, that's a good start. And I'm talking about a million dollars in cash, okay?

Line of credit, whatever, however you're getting that cash, right?

Everything. And that's to me, 1 to 1.2 million is a good starting spot. Now, I may get a lot of pushback on that, but I think that I honestly, it would be really hard to do it any other way. And they can't be done any other way. I just think that this is a business that eats cash and it's hard. The second thing is you can't dabble in it. I saw somebody ask a question the other day, hey, I've been a prime store this, that and other. I want to get into some buy here, pay here, buy here, pay here is not necessarily the car business, okay? It is the finance business, it is the collection business. And so if you don't understand that part of it and you just say, oh, you know what? I'm gonna sell, you know, 400 cars this year. What you're gonna do is you're gonna lose a lot of money because you're gonna, you're gonna sell those cars, buy here, pay here, and you're not gonna know how to collect them and it's gonna be gone. The money's gonna be gone and you're gonna be crying and it's not a good position to be in. So, you know, if you're going to be in the buy here, pay your business, be in the collection business, understand it, be well capitalized and know how to buy the right cars.

And I would say on top of that, Luke, I would say you need to, I mean, if you are getting into it, what's the minimum? You got to be doing 10 buy here, pay here deals a month, right? I would think that would be kind of a minimum depending on your acv. But if you can't commit, okay, if you can't commit to 10 or 15 buy here, pay here deals to really make it worth it to justify a full time collector, you know, you got to get that portfolio up to the amount of accounts where it justifies someone who can really give it attention. If you're just doing five a month, you're only ever gonna have, you know, 50 accounts on the books. And you're never gonna have enough income to hire someone to give it attention.

There's an inflection point and I don't know where that lies with certain, you know, with certain dealers. And that point is, maybe it's 250 accounts, maybe it's 350 accounts, but it's somewhere in there, if you don't have more than that amount, it's not worth your time and effort. Especially let's say we're collecting $400 a month per account. Well, you can do some quick math at, you know, 250 accounts, you know, hopefully you're collecting around $100,000 a month. Yeah. And you might say, wow, that's a lot of money. And that's what I want to do. Well, there's a lot of expenses that come with that, and there's a lot of. There's a lot of cash out in that hundred thousand dollars because you've got to replace your inventory. You got to do this, you got to do that. So there's an inflection point where this thing's going to eat money, eat money, eat money, eat money. But then all of a sudden, maybe when you get to that hundred thousand, $130,000 a month, you keep your expenses really lean at that inflection point, all of a sudden it's gonna start giving you some cash back. But you gotta suck it up until you get there and you've gotta run it up fast. If you don't run it up fast, then you're gonna be stuck behind that inflection point for way too long, if you understand what I'm saying.

Yeah, I think so. What you're saying is there's like a critical mass. Like you need to get to 200 accounts as quickly and smart as possible so that you can spin off enough cash to justify the headache, the collector, the, you know, and if you maintenance, the warranty claims, the repos, the bad debt that you're going to be taking, not to mention you're probably paying down a line of credit or paying back some investor. Right. So.

Yeah, yeah. So one of the big things is it's just you can run it up. I'm gonna say this and it's gonna be kind of weird. And listen, listen to what I'm about to say. You may not need to be very. You may not need to be too tight getting to that point, because the looser you are with the financing, the faster you can get there. And once you get there and realize what's going on, you can tighten the screws a little bit. So don't be too careful about that run up if you've got enough cash. Now if you don't have enough cash, you've got to be really careful. But you need. To me, it's almost more important to get to that critical mass than to be too tight. Would be my. Would be my opinion on that.

Yeah, my. I mean, I've been at it for 10, 12, 13 years, and I don't know if I've ever gotten there, you know what I'm saying? Definitely not gotten to the point where I'm spinning off Enough cash where it's paying off all the debt and I'm setting sail. It's, it's a continual, continual process. And when you think you got it figured out, you're gonna get hit with a recession and you're gonna hit with a ton of charge offs, you know, and you're gonna ride it to the bottom or for the last five years, we've been battling subprime banks for the good customers, you know, and what I say on that is make sure you've done some research on your market. You know, I know Luke's ACV at his buy here pay. Your store is way different from mine. You know, I barely get anyone that can do a 400 or $500 a month payment. Whereas I know there's, you know, buy here pay here is in Texas where It starts at $100 a week. You know, that's their beginning payment on some of that stuff with $1,500 down, you know, I'm, I'm lucky to get $500 down outside of tax time. So it definitely depends on your market, you know, the makeup of car. And that has to do with a lot with how deep your pockets are too.

Yes, you got to have deep pockets.

Do some performance. Okay, Luke, moving on to the next one. Now, we get a lot of traffic to our store, but most of the people that come in cannot get financed for a credit card. Yeah, Macy's or something. The easiest thing. How do we improve the quality of our leads? The quality, not always the quantity. But is there a way or some trick tip we can do to improve the quality?

So, yeah, I mean, simply, yes, you can. The best way to improve your lead quality is to improve your car because people who have really bad credit know what they can buy. Typically. Okay. And so what will happen is, is if they come to your lot and they see a bunch of lower ACV cars, then they're going to know they're going to qualify. Typically. Right. But if they come to a higher end store, they're probably not even going to walk on the lot or send you a lead via email. So your the brand and we're going to talk brand here in a minute. But the brand of your dealership will determine the quality of your lead. If you've got a dirt lot, you're going to get a lot more dirt lot credit people. Right. If you've got a very nice lot, you're going to get a lot higher end lead. So that's one thing I think that really controls the quality of your Lead. The look of your website controls the quality of your lead. What you're advertising. You know, if you get on TV and you get on radio and you get on Facebook and you say, we finance everybody. Guess what you're gonna get, you know, but if you get, if you get on TV or get on radio or wherever, and you say, hey, these are the things you need to qualify with us. You need to make $1,600 net a month. You need to be at your residence a year. You need to be on your job a year. You'd be amazed if you told people exactly what it takes to qualify at your store. A lot of times you get that exact customer to. You got it?

I got it. I would add to that, Luke, is it's not necessarily bad. And that's my thing is I get it. Cast a broad net, you know what I'm saying? You're going to bring in a lot of stuff, but then just have a better system to sort through it. You have a better system to foster those people that can't finance a hot dog today, but they might be able to do it in six months and now they're in your CRM and you're staying in contact with them, you know what I'm saying? So, so don't, don't. I mean just broom in somebody because they gave you a low ball offer, you don't like them or they're trying to get into this car. The other, you may be the one that has to educate them, hey, listen, I got nothing for 500 down and $200 a month, like just doesn't exist here. Go shop around and then you'll be back and then we can really talk for sure.

And, and you said something really good. Don't groom these people. Don't be rude to these people. These people may end up being a 700 credit score sooner than later. Talk to them, sit them down, explain their credit report. You'd be amazed how many people are going to respect you and come back and buy for you because you took the time to talk to them.

Yep. Okay, our fourth question along those same lines. How do we brand, brand our dealerships?

First thing, first thing we got to have is a mission statement, right? Or we have to have an idea of what we want to be. And we can't be everything to every customer. Right? We've got to decide what we want to be. What are we? Are we a family store? Are we a turn and burn store? Are we a price sales car store? You know, are we hometown one stoplight in the middle of BFE store, you know, whatever. You got to decide that on your own, right?

Yeah.

Once I decide what I am, then I can brand. So TV is huge for branding, you know. Jeff, you think branding's.

You think TV's dead in my market?

Well, I don't know. So. But if radio. Radio is branding, you know, because you can't. In our size dealership, you can't. You've got to film a commercial, and it's got to be able to run for six months. Right. It's not like these big stores that say, I can film a commercial this week, next week with each sale. So what we're doing is we're branding ourselves. We're getting on tv. You know, we. My trademark line, we finance you, not your credit. That is us. We're a family store. My. My whole dealership's gonna be on our website. Our whole dealership's gonna be on our. On our TV ad. My daughter's gonna be in our TV ad. And that's the brand we want. We want people to feel comfortable when they're here. So, number one, we decided what our brand, what we wanted our brand to be, and then we tailored everything we do to that brand. You're wearing the same color shirts every day. All the exterior you're building looks exactly the same. Website looks like you're building. Your commercials look like you're building. Everything looks exactly the same. And you got to know what you want to be.

Absolutely. That's the point. I was going to pitch in there, Luke, make sure you're consistent in your message. I think a lot of times as dealers, we may chase what we think is new or exciting, or we may be off topic or off brand, or maybe all of a sudden we start buying high end cars instead of low end cars. Or we have, you know, yellow stickers and we. When we should have red. And for me, my colors are green. I decided everything was green. We give you the green light. That's our slogan. You know, so all of my stickers are green. All of my promotional items are green balloons. Building ads, you know, everything we do has that green light feel to it. And I think for us, and a clean look, you know, the whites, the blacks, the bright green, something that kind of has a clean, open, you know, inviting type feel. So if you have those opportunities, guys, you know, if you can. Again, a previous episode, we did freshen up the store, you know, get some new banners if you need to. Make sure you have a consistent message all the way around.

You Know, one dealer in the country that I say you really need to look at when it talks about branding is Tracy Myers. We've had him on the show before, but Tracy decided years ago the brand he wanted. You know, it's big crazy hat. It's goofy commercials. You know, he's. He's out there. He's a wrestler promoter. You know, he's. He's this guy, right?

Yeah.

But he knew what he wanted his dealership to be, and that's what he branded it as. Some people don't like it, but he sells a lot of cars. Cause a lot of people do like it, so.

And he's authentic to it. His personality. That's the other thing. Don't fake it. Don't think that you can be one thing. We had a dealer in town, in my town here, who. Who was running the Rich dealer program, you know, and the Rich Dealer program is very out there. You're wearing pickle suits and you're yelling at the camera, and you're this, this, this. But him in person was not that. So you knew that when you heard him on the radio. He was forcing the high energy. He was forcing all this stuff. And I just don't think it stayed consistent with him. And I think he got off of it for that reason or whatever reason. But make sure you're. You're staying true to yourself, too, or.

You know, even just true to your brand. You know, some people can fake it. I'm not one of those. But if you decided that you have a brand, stick to your brand. Don't. Don't waver from it.

Okay. All right, Luke, this next section, we've got a few more to get through. I want to do some rapid fire with you. We got about four or five more. We're gonna do some quick, quick question and answer. What is the best way to educate ourselves as dealers?

Well, listen to the podcast, of course. But. But seriously, join your. Your association. Be involved in your association. Go to convention. Go to national convention. Read, study. That's it.

Yep. How do we develop relationships with vendors?

Why? Why? The. The reason is because if you have a problem with a vendor and you have a relationship, you can call them, you can text them, you can do these things so you don't get frustrated. I like doing that. And people. Other dealers call me when they have problems with certain vendors because of that. Talk to your vendors. Talk to your rep that comes by. Don't. Don't leave them out in the showroom for 30 minutes while you're, you know, why you're not wanting to see them, go talk to them. They know you're busy, they know you're, you've got things to do. Talk to them, engage them, go to convention, engage with them on the expo floor. Do the things that you would want your customers to do with you.

Yeah, and I'd say be also real quickly, be careful of what you're saying. Some of these Facebook groups or your page or things like that, comments you make, the vendors are in there, they see what you're saying. It's not going to bode well when your rep sees a comment where you're bad mouthing them and then you're calling them up the next day trying to get some favor done or something through.

Exactly right. Exactly right.

Are there any third party lead gen sites that are worth spending our money on? Where do we spend our money in third party sites?

So of course there is. Or they wouldn't be. They wouldn't be there. Right. So there's a reason again, know where your leads are coming from. You know there's been a big hubbabaloo about Cargurus here lately.

That's a big one.

Yeah. And I can tell you right now that, that I hadn't paid Cargurus in a long time and I get free listings from them. And I can tell you this, we sell three to four cars a month from that. But that's because I know where my leads come from.

Three to four cars a month off your free Gurus listings?

100%.

Oh, don't let them hear that. They're gonna shut you down.

They're gonna shut me down. They can't afford to shut us down because of the Google ranking and everything. But, but what's interesting is, is it worth me paying $1,000 a month to car gurus? No, because they're gonna probably find my cars anyway. If your cars are priced properly, it probably doesn't matter what platform you're on. If you've got the right car at the right price, somebody's gonna find it no matter where they search. So being on one platform is probably enough. I think Carfax is, is worth the money because I can see all the leads I get from there. I can see what we close from there. So. And they're not priced out of, out of this world either. And if you're a car CarFax Advantage dealer, then it's very little to subscribe to their leads generation. But you know what kills me, Lou?

But here the deal. So the issue I have with that question is it's not one size fits all, right.

No, it's not.

I could easily say that my free car gurus listings have created zero sales in the eight months that I've had them on there. Right? Zero. I can't even contact the people. The people don't come in. It's only like my lowest low ball trash that even gets an email response. But there's probably dealers out there that are completely killing it on Craigslist listings or Facebook ads because of their demographic, their geographic, the makeup of their cars, their selling strategy, their image, their branding. So it all comes back to track your lead sources, your cost per acquisition, what is it costing you to acquire a Customer through CarGurus, CarFax, Cars.com, any of these places. You know what I'm saying? Does the economics make sense? Then great. I don't care if you're selling my leads to 30 other dealers, because I know that I'm selling enough to cover to make sense for me.

Right, exactly right.

Track them. Okay, back to a little bit of our buy here, pay here, buy here, pay here versus lease here, pay here is leasing, I hear. You know, I've looked into it myself. It's becoming more popular. What's the difference?

The biggest difference is the residual.

Right.

And some tax implications. So I'm not, I don't know a lot about lease here, pay here. I know a lot about buy here, pay here. State laws affected a lot too. So lease here, pay here is not for every state. It's not for our state. It doesn't. It's. The laws don't apply properly.

You cannot defer your sales tax.

You can't defer your sales tax. So there's a lot of, there's a lot of different angles to work. It's state specific. You need to talk to your association when it comes to lease here, pay here. And you need to really understand it from a tax perspective. Perspective. And actually there's maybe some tax laws that can actually that, that there's some big groups out here talking about right now that if you're under $26 million, according to the Trump law, you might be able to as a buy here, pay your store, wipe out all your inventory in the year anyway. So there may not be a lot of difference depending on how people look at that tax law right this second. Not clear. It's not 100% clear. But the tax implication is the biggest. And you just really know your state laws and talk to people about it.

Yeah, yeah. There's some legal issues and Some fine print you need to know if you're gonna get into leasing. You know, it's not just, you know, you think you can repo the car quicker. You think you can have a $1 buyout. You think you can have.

You can't have a $1 buyout.

Yeah, highly legal.

How illegal?

Yeah. You think that people are going to maintain the car? You know, I had a whole lot of issues with it when I looked, but. But anyways, do do your research and those are some of our inputs. It's.

Don't ever jump any. Don't ever jump into anything blind. Do your homework. Pay people to do that homework. Pay a lawyer, you know, 1,000 bucks before you go and waste $40,000. Okay, well, of course.

Or sit down with, I mean, there's so many lease here, pay here programs that will. They know the state. Sit down with, you know, I don't know, North American or some of these guys that they'll give you all the education real fast. All right, Luke, let's wrap it up. What is reinsurance? We've heard that word thrown around. We know. We've done a really popular episode on it. Reinsurance.

So reinsurance, just a real quick overview is essentially you own a warranty company, okay, and it's reinsured. You're the reinsurance company, so that way you can give away a warranty. That's the only way you can get a warranty. Or you can sell back end products like, you know, Gap. I don't necessarily recommend you selling Gap if you're not. Don't know a lot about it. Extended service contract, then his service contracts, all these things, and you actually own the company. And so it's a way to defer some tax burden, build a nest egg and really just control what is warrantied by what you sell. So it's a very good product. You need to do some research on it and you need to be into reinsurance.

You're able to take it as an expense on the dealership side, shift that money over to your right pocket, which is your insurance company, which is non taxable at the time because of where it's held. But then you still control the right pocket and you can decide you can loan it to yourself, step in and help with repairs or. Yeah, ultimately, once you build it up, it's got some borrowing value there. So definitely smart in circumstances. If you're doing 20 to 30, buy here, pay heres. Or even if you're doing retail. Right. Are there certain products that work well for retail dealers?

Well, just Think if you were able to. Instead of selling what's a big warranty company.

Yeah.

Just instead of selling their product, you're selling your own product. Now, I'm sure you understand that those warranty companies make money, right?

Yeah.

Why not? Off for yourself. Yeah, why not? You make the money and then you don't have to worry about them denying a claim.

And it's the same thing with either a debt forgiveness or a collateral protection insurance.

Yep.

That you instead of your customer forwarding that money to Geico or Progressive, they're giving it to you. And you have your own full coverage type cloud protection type insurance.

And just remember this, if you're, if you're a good dealer and you are, you know, buying the right cars and you're inspecting those cars properly and you're getting them ready to sell like you should, there's never a way that you're going to lose selling them an extended service contract. And if you've got your. And if you've got your own shop also, this is a win win Moneymaker all day long.

Yep. Awesome. Luke. That was fun. Great first episode of Ask Jeff and Luke. Ask Luke and Jeff. I don't know how we're going to brand this. It doesn't make that later. Jeff. Asking Luke.

Not talking too much, Jeff.

No. That was perfect. Excellent. Hope everyone enjoyed it. Hope you guys learned. Keep the questions coming. We're going to do this again and we really appreciate you guys subscrib sharing this with your dealer buddies. The podcast is still growing exponentially. It's awesome and episodes will keep coming.

Thanks guys.

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