Absolutely amazing, after all these years, here we sit, going through this again. Countless times, over and over again, over-aged vehicles represent statement profit that is a fantasy. You look out the window and see the vehicles, and you look on the statement and see the net. One is misrepresented; guess which one.
The single biggest loss entity in our entire industry is the false number listed under “net profit” on a dealer’s financial statement. At year-end, every year, we start over and say, “We’re not going to do this again.” What is absolutely mind-blowing to me is that you pay more attention to the expiration date on a sardine can than you do the expiration date on a trade or purchase car.
Let’s split this into two separate entities. Let’s take trade-ins on one column, and purchase units on another column. Do a true water analysis on each. Over and over again you are going to find the vast amount of water in your purchased inventory. Why is that? We buy under assumption, that’s why! We are buying under the assumption due to visual only, that this car has been reconditioned. When in fact, what it is in the eyes of the seller is passable to presentation for sale.
“The single biggest loss entity in our entire industry is the false number listed under “net profit” on a dealer’s financial statement. At year-end, every year, we start over and say, "We’re not going to do this again."”
Now what that means in wholesale terminology is, just get it good enough to get rid of it. Repeatedly over and over again, the purchased cars and the amount of water in them we haven’t stopped today, offsetting any profitability by the time we write down at year-end, would be a gift.
The majority of our net profit comes from our trade-ins. One thing you have to remember is, (this is a mainstay quote of mine that you need to print and put it on your desk, and phone), “appraise a vehicle for the future, not the present.” That is a mentality the managers of today have got to get back into.
A pricing guide is inevitable, because you think you have to have one to exist. When in reality the main thing we need to look at is a two hundred mile market report from our store to get a general guideline of what these vehicles are bringing in. When you see that number, it is mandatory that you deduct your average recon cost from that number to establish a buying figure.
Personally, and being called the guru of international pre-owned managers, if it were me, I’d much rather have a hundred and ten thousand mile trade-in with service records that I personally reconed, than a forty thousand mile purchase car that I don’t know one thing about, that the chances of me making a profit on are probably going to be slim.
Remember, “every used car has a story, but if you can’t tell it, you can’t sell it.” Purchase cars don’t have stories. They are mysterious refugees that have escaped from somebody else’s used car concentration camp and ended up in your inventory. You don’t have to buy or take in illegal aliens if you don’t want to. Remember it’s a fifteen or twenty thousand-dollar investment with an expiration date.
Author: Tim Deese
TIM DEESE is the CEO/ founder of Progressive Basics, Inc. He is a former franchised car dealer who has designed and implemented used car training and marketing for 15 manufacturers in 28 countries. He has spoken at many NADA conventions.