The new car smell...
wears off after a few months.
The new car debt
stays with you for 4+ years.
Buy smart.
If you’re optimizing for:
Convenience —> Carvana
Convenience (w/ test-drive) —> Carmax
Selection —> CarGurus (then most likely traditional dealer)
Price —> Depends. Use my free playbook.
After-sale support —> Traditional dealer
Billion-dollar idea:
Car dealership that focuses on women.
Real estate is for buying, not for selling.
Cars are for selling, not for buying.
Mantras I live by.
One of the WILDEST experiences of my career:
When Fair, the car subscription start-up, raised $385M from Softbank in 2018.
Here's why: We were a Fair Dealer Partner.
This meant that customers could walk into our dealerships and subscribe to a car via Fair's platform.
But there was one problem.
Fair's risk model was BROKEN.
Everyone had a feeling.
Nevertheless, the party went on...
Until Fair imploded. At the time, EVERYONE was getting approved for a car.
It didn't make ANY sense.
As @baldridgecpa says:
Many times, it pays to do business with unprofitable companies.
Most people who own a car view it as a means of transportation.
For some, it's just a way to get around town.
For others, it's a status symbol.
Unpopular opinion:
Innovation is amazing.
BUT
Car subscriptions just ain’t it.
- Money-hemorrhaging machines.
- Broken economics.
- Lacking PMF.
Next…
I hated the car business before tech...
Yes, it was less competitive.
But it was also heavily rigged.
Here's one example: Veteran dealers had perpetual rights to the best placements in the newspaper.
As a new dealer,
You couldn't get premium positioning no matter what you did or how much you were willing to pay.
And then, one day,
Google AdWords disrupted them :-)
Why used car auctions say they stopped in-person sales:
COVID restrictions
Why used car auctions really stopped in-person sales:
Less employees = $$$
Dealership finance managers have one incentive:
Up-sell the customer on as many products as possible.
Why?
Because ancillary products have the juiciest margins in a dealership.
The most profitable deals are always the easiest.
The least profitable deals are always the hardest.
How I advanced my career:
- Listened more than I spoke.
- Worked hard and smart.
- Over-delivered.
- Took ownership.
And, last but not least:
- Was okay with being under-compensated for periods of time in-between promotions.
Autonomous vehicles are great.
But American’s won’t give up the freedom, independence and individuality of auto ownership so quickly.
Most lucrative job in the used car industry:
Paintless Dent Removal.
These guys make beaucoup money and set their own hours.
It's an art.
What you don’t see in the headlines:
Every car dealer I know is burnt out.
Every.
Single.
One.
Truth about the people in the car business:
Kindest: Auctioneers.
Longest-tenured: Auctioneers.
Losing their jobs at the fasest pace: Auctioneers.
Life isn’t fair.
Adapt or die.
Automotive finance companies scrutinize the lending practices of Used car dealers much more than their New car counterparts.
Truth is:
New car dealers are not any better.
In many cases, they’re much worse.
Online car buying has been around since 2006.
Ever heard of eBay motors?
Digital used car auctions:
Before COVID: < 50% After COVID: > 90%
Auction houses love it:
More profitable.
Smart dealers like it:
More efficient.
Dumb dealers despise it.
How I went from employee to dealership partner:
- Asked lots of questions. Always curious.
- Consistently over-delivered in my role. Did more than I was expected to do.
- Was OK with being underpaid for long stretches of time. Byproduct of the bullet-point above this one.
Most negotiations are over before they’ve even begun.
Why?
Because negotiations are all about leverage.
The key to getting leverage?
BATNA. Best Alternative To a Negotiated Agreement.
Why car dealer auctions won’t go away:
Used car dealers love physical auctions.
But it's not because they want to "kick tires".
Rather, it's the only time they get to network with other dealers.
Truth about car dealership owners:
I’ve been in the car business for over a decade.
I’ve seen a lot over the years.
But there’s one thing I can tell you unequivocally.
And that is,
That most car dealers have no fucking clue what is happening within their dealerships.
Especially the big ones.
First car I ever bought:
Cadillac SRX.
Only 1 problem:
I didn't realize it was being sold as As-Is... with structural damage... and was previously in a flood.
Definitely taught me a good lesson that day.
Evolution of a Car Dealer
Day 1:
Wow, I get to drive any car I want!
Day 1000:
Nuts and bolts. Give me the Chevy Cruze.
Most important employee at a car dealership:
Lot attendant.
Bottom of the dealership totem pole,
Yet nothing moves without them.
They are our version of the “essential worker”.
Do car dealers care about their reputation?
I know many who don’t care.
I also know many more who do.
It all stems from leadership.
For example: 1/3 of all our employee comp plans are based on customer happiness.
One of the best decisions we ever made.
Used or new?
New cars are overrated.
Used cars are underrated.
The point at which a car takes its 1st significant hit in value due to accrued mileage:
When the manufacturer’s warranty expires.
2nd significant hit?
When it hits 100-110k miles.
After that?
You’re better off holding onto the car forever.
Indian customers:
I know 40-50 dealer principals.
The one thing we all agree on: Indian customers are the toughest negotiators.
Sometimes even unreasonable.
Worst car dealership advice I ever received:
You will never be able to delegate vehicle acquisition.
Yes, it’s hard.
But just like anything, it can be done.
Looking to buy a profitable SMB for 2-3X NTM EBITDA?
Find a local used-car dealer.
These guys are burnt out and have no succession planning.
The best way to know if a dealership sells quality cars:
Inspect their supply chain.
For example:
- Where do they purchase their cars?
- How do they recondition them?
And on and on.
Women make more money than men in the used car dealership business.
The reason?
- They close more sales
- There are fewer of them
- Every dealer wants them
Based on my anecdotal experience.
I’m not a car guy
Might be a shocker, but:
I’m not a “car guy”. I never was.
It’s all just nuts and bolts to me.
But I always loved people.
And that’s why I stayed in this industry.
Why do car dealers need to exist?
Because everyday-consumers don’t want to:
- Arrange financing on their own
- Source a reputable warranty and insurance policy
- Bear the potential risk of extremely costly repairs
- Recondition a car to perfection
And much more.
Predicting the future of car dealerships:
As automotive e-commerce continues rising,
Dealers will begin opening up inventory-less storefronts at strip-malls within 5 years.
Think Tesla stores, but for used-car dealers.
Most car buyers optimize for 1 of 3 things:
- Price
- Credit (financing)
- Value
As a dealer, you should pick 1 and focus on it relentlessly.
Clean bathrooms
If you want to know if a business is well-run,
Take a look at the cleanliness of the bathroom.
That will give you your answer.
Works every time.
There’s an ass for every seat
The saying “there’s an ass for every seat” is 100% true.
Every car will sell, eventually.
The 2 heavily-debated philosophies for operating a used-car dealership:
- High volume / Low margin
- High margin / Low volume
Pick one and optimize for it relentlessly.
- Disclaimer: This COVID market is definitely an exception
In all my years as a dealer principal:
The one thing that separates the good operators.
From the extraordinary.
Is the ability to obsessively pay attention to the small details.
When you’re running a low margin business.
Every basis-point counts.
Traditional vs Modern car dealers:
How traditional dealers sell cars:
- Sales Rep
- Finance Manager
- Sales Manager
- Deal
How modern dealers sell cars:
- Sales Rep (or iPad)
- Deal