Donald “Don” Luke, president of Bill Luke Chrysler-Jeep-Dodge-Ram, is a second-generation car dealer. His father, William “Bill” Luke was always fascinated by machines and in 1927, at the age of 18, jumped at the opportunity to get in on the ground floor of a young, growing industry.
He founded Bill Luke Chrysler-Plymouth and continued as head of the automobile dealership until his passing in 1988. During his years as a dealer, Bill found time to pursue interests in farming, cattle ranching, and was a breeder of thoroughbred horses. At one time he owned a stable of 70 racehorses and won the Arizona Breeders Award many times.
The youngest of five children, Don, like his father, displayed an early interest in machines. He began working in the family business at the age of 13 as an assistant to the used car mechanic, which he did for a couple of years. He also worked as a lot man, detailer and parts runner, working every single department in the dealership, progressing up the ladder to General Manager and then to President and CEO of the Bill Luke Dealerships.
Don has three sons Ryan, Chris and Eric, all of whom work in the dealership.
Over the years Bill Luke Chrysler-Jeep-Dodge-Ram has grown into one of the top volume dealerships in the U.S.A. with $210.7 million total revenue in 2015, regularly selling 300 new and 600 pre-owned vehicles per month, approximately 200 of which are certified pre-owned (CPO).
The dealership consistently leads the Fiat Chrysler Automobiles dealer body in CPO and used car sales, selling 4,468 used vehicles in 2014; 6,056 in 2015 and is on target for an incredible 7,000+ used car sales in 2016.
Don recently talked with Dealer magazine about what has led him to become one of the top CPO dealers in the country, along with his ambitious plans for the future.
Tell me about your decision three and a half years ago to step up your CPO efforts with Chrysler.
I was concerned about service contract penetration and worried that we might be hurting our penetration as we increased CPOV sales—because, truthfully, that’s where you’re making your money. Unfortunately, you don’t always make money selling the car.
Our dealership averages nearly 60 percent service contract penetration on all used vehicle sales and I estimate that the penetration runs 5 to 10 percent more for CPO units.
We certify every Chrysler vehicle that we can – Period. To us, it’s a marketing tool; some people do it to try and get more money for the car. When they look at a Chrysler product, if we’re competitively priced and they also get a certified car — with warranty, etc. — then they come to Bill Luke.
The mindset is that customers already believe the vehicle is more valuable because it’s a CPO vehicle. You’re offering them a 90-day, almost bumper-to-bumper warranty; you’re giving them a 100,000-mile powertrain wrap. That has value. That takes a little bit of the sting out of buying a used car.
It’s important to emphasize a CPO vehicle’s inherent value right up-front with customers. We start that conversation early in the process—“this is a great car, it happens to be a CPO car, and has these benefits.”
When you take them into F&I and offer an extended warranty with even more coverage, they see the value. That’s why our warranty penetration is so high on CPOV.
What are some pointers that might help other dealers improve their CPO business?
Don’t get too proud of your CPO units. You definitely have to be willing to play the game in today’s market. Recently, we sold many of our fairly fresh units at a loss because the market was changing, as it tends to do at certain times of year.
When you realize the market’s shifting you have to be willing to retail or wholesale out of those cars. Get rid of them, even if they’re all losers. You can go to the auction and buy fresh units you won’t lose on.
Stay committed to your turn objectives. You have to be totally committed all the time. If you pause, and you decide I won’t take those losses, and I’ll hold my prices up, you’re not going to have a 30-day turn. You’re going to go to a 60-day turn, or a 90-day turn. Instead of losing $1,000 a car, you’ll end up losing $1,500 to $1,800, and you’ve really got a bloodbath. To be in this, you have to constantly concentrate on that 30-day turn, regardless of the pain level.
Invest in your sourcing strategy. We literally take every opportunity we can to buy cars. We just added a third online buyer. My used car manager also buys online and at times he’s looking at two auctions at the same time. We’ve got to buy a lot of cars to keep up with 600+ units a month retail. The key, of course, is buying the right cars at the right prices.
What is your biggest challenge?
Federal regulations, which have grown extensively and added expense to management, plus added procedures and steps you have to take as a dealer, none of which benefit the consumer.
What tools do you use to help overcome this challenge?
We recently converted to an electronic pencil system. The interest rate and the payment are computed based on averages of the last 90 days of financed customers. By having a machine do that there is no possible variance so a customer cannot claim we have discriminated against any class.
It’s just a fail-safe but it adds expense and confusion. If the customer has excellent credit they could be quoted a 10 percent rate as the system presents the average of all our business. The customer is then not impressed and we have to explain that this is based on average for the past 90 days. So you see how it does not help the consumer, but protects us. That is our latest adventure.
What are some best practices that have helped support your success?
First is reconditioning so that the care is sharp, clean and mechanically sound. Second is pricing. We use VAuto’s Manheim Market Report (MMR), which allows us to see what price vehicles are selling for at auction and average market retail price, as well as how many of these vehicles are in market so we can price accordingly. For example, if only two are in the market we can pretty much price however we want. Pricing is key and we use VAuto’s data to reprice our cars a minimum of weekly – sometimes daily.
The level of vehicle detail available from MMR allows us to make better decisions when appraising a vehicle, which is critical in today’s rapidly changing, used vehicle market.
Another key point is to constantly watch the market. In the past we purchased some 2014 mini vans that seemed like a good purchase. Then the rental car companies launched a ton of 2015s that were not that much more than the 2014s. We had to reprice what we thought was a good buy and lost over $1,000 a piece just to make them go away so we could market new fresh 2015s.
It can be an expensive game play as our margins are small but we rely on volume and price aggressively. When the market shifts we can do poorly. We maintain an average run of inventory of 31 days for the 550-580 used vehicles on our lot in any given month.
This gives me a distinct advantage even with the smaller margins – a 12 times turn versus someone holding out for bigger gross who turns every 60 days. Our 30 days turn provides much more profit potential.
And lastly there is the Internet presentation of the vehicle. When we started mass marketing and working to increase our Internet present I turned two unused bays into a high-end photo booth.
We painted the floor with a high gloss grey to contrast with and better highlight the wheels and tires. We also spent quite a bit on a diffused lighting shield and on the correct technology and cameras. Diffused lighting produces a softer effect and shows the vehicles in the best possible light. So our vehicle pictures really pop and look great on the screen.
Our dealership is all over the Internet in every format you can think of, AutoTrader, etc., — on about 6-8 sites. It’s interesting as we used to have sites that sell leads, pirate our inventory and put it on their site and try and sell that lead to us. Now we have our name and banner on every vehicle so the customer knows it’s ours.
Almost 90 percent of customers who walk through the door come in on a specific car. We have created a destination, as we are the cheapest.
How do you successfully acquire inventory?
We have three buyers looking at four to six different auctions at any given time, Detroit, Dallas, Phoenix and Denver — you name it. In this way we really get a pulse on the market and pricing of vehicles. We might be on a Chrysler auction trying to buy pickup trucks and also have one of our buyers in Denver. We see Detroit wants a lot of money for trucks, but trucks are running through Denver at a good price. So the buyer in Denver gets the trucks.
We also have two people dedicated to buying cars online. Our used-car director will often have two screens up at the same time, buying cars online.
It’s really a conscious effort to go out and literally buy cars. But you’ve got to seek out vehicles that will work for you in your market and are priced right. And that’s a real key thing. You can always buy cars. But they have to be priced right or you’re dead.
Sourcing has been the biggest struggle on the CPO side this year and the price. If you pay too much, you’re just buying loss, which is why we have devoted so much of our resources to buying the right cars.
The market is in flux so in the next 30 days you will need to make an adjustment or, like a lot of people, get caught with inventory that is over-priced. I believe the market will drop soon as it has been high for too long, so we need to be prepared.
Any particular thing you do that makes your dealership successful?
We have vendors that come in and comment how busy we are on a weekday – we are busier on a weekday than some dealers are on a Saturday. We are doing a lot of business and activity begets activity.
We also do well working with community groups. Last Saturday we had a sale and sold 66 cars that day alone. We probably had 150-160 people in the dealership looking at cars in just one day – that is what makes us successful.
We worked with a local credit union and created a special sale with members only pricing. The credit union sent out a private invitation to their members, put banners up in every one of their six offices and staff wore t-shirts promoting the event.
We have done this for three years and create a new theme each year. The credit union customers now anticipate the sale and some even wait for the event to purchase their vehicle. The credit union does the financing, so we lose some part of the profit in the sale, but it gives us 50-60+ sales — a low margin but a big benefit. We also get really nice trades from these middle-income customers.
How do you work harmoniously with your family?
My father was a clever businessman and never placed himself as my direct manager. I therefore got to learn the talents of every manager I worked with and gained a huge amount of knowledge. As a result I bring much more value to the dealership. I have three kids aged 30, 32 and 34 and I work the same way with them. My oldest is the GM of Tempe of Fiat and he works alongside my youngest son. Together they outsell everyone with 270 used vehicles per month out of a 5-acre facility. If they had ten acres they could sell more, but unfortunately they are landlocked. My middle son works here and helps with the service management side and does a fantastic job. None of my sons are directly managed by me.
This does not mean that I do not know what’s going on. It means that they gain the talent from those managers, whereas if they worked under me, they would only gain my knowledge. I believe this is the only way to raise a son in the car business.
What are your biggest marketing challenges?
Our biggest marketing challenge is the cost of marketing. Internet folks are inventing a new widget every other day to help sell vehicles.
Our major marketing cost is the Internet and our marketing budget is 85 percent digital. In the ‘80s and ‘90s it was all TV. Go back to the ‘70s and it was Yellow Pages, newspaper and some TV. I have been doing TV for 45 years. However, now we only use TV to support a big sales event with three days of morning news where our ad repeats every 30 minutes. We only buy three stations instead of six, with a heavy concentration on news and around Memorial Day, Labor Day and our after Christmas sale. I keep my ads more of a low key presentation, I am not a screamer and yeller, but aim to come across as a relaxed good guy and mirror that on our Internet presence as well.
Our other biggest challenge is correctly pricing an item and good presentation of the product.
Tell me about the best business practices that have helped you expand.
A good source of money and a good relationship with the bank is key. We are at a $50 million borrowing rate, which is a lot of money. It takes money to make money. When I started in this business in the ‘70s, the kiss of death was to borrow money. At that time you owned all your used cars. These days, I sometimes wonder if I own any. I own 10-20 percent of inventory currently.
And you have to be profitable, that is what the bank looks at. You also have to have enough space so you have the inventory to sell. I am fortunate to have a huge facility with 17 acres. But we are quickly running out of space and are in the process of acquiring more.
To get to stage we are at now actually started eight years ago. At that time we built a BDC.
There are two different personalities that you tend to hire in a dealership. The first is a salesperson that is interested in selling the car today and works to find the right vehicle. And then the BDC person is warm and fuzzy, non-confrontational, and happy to talk for 30-40 minutes, they are not salespeople. We also compensate differently and they are paid based on appointments that show up and for people sold. Our sales BDC is staffed with 15 people.
We also added a service BDC with six people. It has produced the same results as adding a BDC for sales – more business over a period of time. It frees up service advisors to work with customers and adds a higher level of communication. It can also be used as an income generator by calling and reminding of maintenance due and as a follow-up tool to bring the customer back in. Our labor dollars in the service department have gone up and our hours per RO increased as the employees have more time to spend with customers. The net result is we are making more money.
Eight years ago we were selling 80 used per month. In two years we grew that to 150, then added another person in used cars to work with buying and pricing and we went to 250 cars, then 350 then to 400 then 450. This current management team wants to beat last month by selling more this month. We set objectives and often hit them and now regularly hit over 600 per month.
I was amazed when we hit 500 per month and thought that we had reached our pinnacle. Then I decided to try stocking more cars, as at 500 sales we had to stock around 420 cars to have enough on the ground ready for retail with another 200 in the system getting ready — we were detailing a lot of cars around here.
We jumped that number to 480 and sold almost 600. So, there is a direct correlation between inventory numbers and retail sales. Every time we raise stocking level we sell more, with exactly the same system in place.
Reconditioning is also important. We recondition our vehicles really well so they look sharp and are mechanically sound, and offer the cheapest price. We are out there and sell more and the truth is that we would like to do 700, but we are running out of space.
You go through evolutions. I have been at this a long time. As business evolves so do people. They have to and when they do not, you need to make changes.
People are a large part of our success. Another large contributor is that all three of my kids worked in our BDC and helped develop the automation software we use. They also helped with our Internet presence and sales, as they grew up in the Internet age. At school in the fifth grade they were taught about the pieces in a computer, what’s inside and how it works.
I hear you have some pretty ambitious future plans.
I am 71 years old and am buying 16 acres in a new auto complex for a used car superstore. It will also have a reconditioning center that will just recondition our vehicles for sale to cut down what our service department currently does, and can do it faster.
I am asked if it is the right thing to do and if it is worth all that money as it will be a $20-25 million project. Why did I need that at 71 years of age? It’s the challenge and the thought “can we do it?” I got our management here really excited so I am doing it. When people ask me if I really need to do this I tell them to get excited and go with the flow!
We plan to have the reconditioning center on half of the property designed to recondition 1,400 cars per month – 70 per day – and have seven acres dedicated to that. The real key to the reconditioning center is to turn the car quicker. We are currently running a six-day turn in reconditioning and hope to get that down to three. This could bring my turn rate down to 27 days.
All cars purchased from auction will be shipped there direct and after reconditioning we will take the vehicles to the other two locations in Tempe and Phoenix, so we also have two-way hauling. The other seven acres is going to be a used car superstore showroom with a potential of over 500 cars per month.
It will be interesting to see if this works. It should take around 2.5 years to truly realize its potential and we expect to open up at 200 cars per month. Keep in mind twice as many used are sold per month as new vehicles. How many hundreds of new car dealers are there competing for half the business?
One important thing to mention is that it has taken us years to grow, to crawl then get upright and then take off. Everyone wants to do it but they want that magic bullet and the phrase that just makes it all work for their dealership. There is no magic bullet. It takes hard work. You have to go through the growing pains and slowly build. I don’t do this alone. I have a great team. It’s not just me; I’m just the guy who borrows money. It takes really good people and a lot of them to make this happen and it has taken us eight years to build this business up to what it is today.
Next goal, 1,000 retail new and used cars in a single month.
Author: Digital Dealer
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