Is The Bubble About to Burst?

Welcome to the Selling and the Motor Trade Podcast, an association with Symco Training. This is the weekly podcast where we share best practice tips and ideas on how to sell more cars, improve your service department and generally put more profit into your dealership or dealer group. I'm your host, Simon Bowkett. As some of you probably already know me as Skipping, I will start by saying thank you for taking the time to listen to this podcast. Hi, welcome to another episode of Selling and the Motor Trade. Today it's all about used cars. We all know what's happened with used cars in the Motor Trade over the last couple of years. The supply issues out there. And I'm joined again with Ian Parker and I'm really excited to talk to Ian about what are some of his ideas to help us navigate the minefield which is used cars going forward. Ian, welcome back. Yeah, thanks. Simon, thanks for having me back. I'm happy to talk about this because it's a real passion of mine. Well, I get to use cars as a concern, I think, at the moment. And I want to get your views of what's happening. We know that used car prices went up and up and up for what was it? Two years in a row? And I've never seen anything like this in the Motor Trade in my life. Have you ever seen anything like that? No, it's just crazy when you think that people are buying cars for $15, $20, $30,000 and bringing them in trading and getting $33, $35,000 for them. And yeah, it's just crazy. But that bubble is about to burst. The consumer won't be as badly affected. But the deal is that I've got 30, 40, 50, 60 or 100 years cars and old money have got to make some decisions. How do we get through them? Well, that's what I want to get your views on this. Back in 2008, the world went to shit. I remember there was a Land Rover business, one of our clients, that they had Land Rover discoveries and Range Rover sports. They were five grand a month, they were peeling in the book prices. Is that going to happen again? What are your views there? Are they going to come off or are they going to tank again or will they come down gradually use car prices? Look, I think they certainly won't tank. I can't see them going from 30 grand to 15 grand overnight. I can't see that. But I think that the first hit will be a little bit sharp. So they might go from 30 grand to 22 or 3 grand or whatever the case may be. The problem is that we know as a dealer that if it's 30 grand and gone back to 22 grand, chances are that's probably below cost. Right? Anime on some may not be. So you've got to be prepared for it. Now, the smart doodles that we work with over the last few years during COVID, we spoke to them about provisioning because they were making really good money out of use cars, like three, four, five, six thousand, whatever the case may be. And we spoke to them about putting some money aside for every use car yourself for this day. And we heard about Jim Rohn and the Ants story. We know that you've got to prepare for winter because winter comes every year. So Jim Rohn and the Ants story, I haven't heard that. You need to tell me about that. Okay. Yeah. So Jim Rohn talks about the ants, the ants, and I'm happy to share that with your clients. I've actually got to, not the article. But Jim Rohn talks about that we have summer, we have autumn, we have spring, but the ants are always putting stuff away for winter. And I talk to our dealers about you've got to put stuff away for winter. Because in summer, when things are great and we think, well, the world's never going to end and everything's fantastic, that's the time you've got to take some of that money and put it away for winter. Because when winter comes, you've got to still survive and pay the bills. Yeah. Right. So, you know, what we talk about, so the ones that didn't provision for that, so then all of a sudden they say, okay, well, I've got problems, I've got all these used cars that are wrong. If they don't deal with them, what happens is, as you know, salespeople start walking around them because there's no money in them. If we reduce them, there's no money in them. So what I, one of the things we spoke about, I ran a video on this was that, let's say, for example, that the car rose you, and I'll use $20,000 as an example. Let's say that's what it owes you. Okay. Yeah. That car, if you ring around the wholesalers, the wholesalers tell you that car is worth $15,000. Okay. So then what happens is the use car means you might go, okay, well, I'm five grand wrong, but no, you're not. Because if you wholesal that car to a wholesaler, the chances are that wholesaler would put $1,000 or $1,500 profit on it and then sell it to someone. Okay. So then all of a sudden, that means that car is worth $16,500. Okay. Because you've got to put the wholesalers margin on it, so that he would make out of it. Now you've got to ask yourself, if I bought a car for a wholesaler for $16,500, am I going to put it through my workshop for reconditioning? And you know you are. You put every car through and let's say you spend an average of $500 a car through the workshop. Okay. So all of a sudden you can say, okay, that car now owes me $7,000. All right. That's on today's market. So my normal margin that I put on that car would be $21,990 because I've marked it up $5,000, but I want to clear it because it's old stock and I've got to turn it over. So if I put it out at $19,990, that means I'm going to break even. But I've got the chance of getting another trade off that car that I can make through a full ground out of. And what I would do, I recommend you put an extended warranty on it. Like over here, we've got things like Harrier. That means they come back to your workshop and get it serviced. Okay. So you can pick up four years of servicing, fixed price servicing, right? You also might pick up the finance on that car. Let's say you might pick up a thousand or $1,500 commission out of the finance. So you could turn around that car that was going to be a net loss or a break even and you get a trade out and you can make a profit out of and you can also pick up out the finance. But the other thing is, while you adding those figures on and putting it out like that, if one of your salespeople go and grab the sheet and try to work out a do-lod or the new car to get you because you're not there, the figure that you've got it at 9990, I think well, we've got to sell it for that because that's basically what it knows and there's nothing in it. We're going to lose money. Even though you'll turn it around that you can wear that loss. That makes sense? Yeah, it does. And the thing that I say to our people is that the flea and the jar, if that's the lid of the jar, the flea only jumps to the top of the lid. If you lift the lid a bit higher, the flea will jump a bit higher. Yeah. Yeah. So with that, at the moment where you've got your used cards, you've got to own up to a Merlin. My saying I have is the first profit is your best profit, your first loss is your best loss. Yep. Yep. So don't fall in love with them. And if you don't have something in place, then all that'll happen is people keep walking around them in another 90 days, they're still going to be there. So let's talk about the vehicle park out there. So new car sales have dropped off because they couldn't get semiconductors, wearing looms, blah, blah, blah. We know that. So consequently, there's less used cars in the market. Okay. So retailers to retail use cars, we're going to have to sell used cars. Are we going to sell older cars, which we are at the moment, our recondition goes through the roof. How is that going to play out in the next couple of years there? Because our less used cars go around has to be. Yeah. So the thing with that is that we say to our clients, and one of the things we came up with was that, and I know that everything's done on an app today when your value used cars all done on that, I understand all that, right? But we actually get a design of a little valuation form with a perforated bit on the bottom, which was like a check, right? And when we were valuing the car, and we'd value the car, and we just, what we teach our people, you value the car, you're right at all up there. And Simon will say, no, no, no, look, I think that Mary, my neighbour, is going to buy that car for $20,000. We might have offered you a 16 grand or something, right? And so most, the average doodles, okay, well, you're going to sell it to Mary. The salesperson's happy because he just sold the new car and everything moves on. My belief is you've got to, you will pay your used car manager or your used car buyer, or a whole sale at three or $500 to go out and buy cars for your options, okay? Yeah. So why don't we incentivise our salespeople to trade used cars and to buy used cars at the door? So what they, because if that new car salesperson was incentivised to trade cars, he wouldn't let Ian walk off to sell that car to his neighbour, Mary. He would fight a bit harder. And if you gave him the tools to do that, he would be able to do it. So what we've come up with is a valuation form and you fill it all out and you say, Simon, this valuation is valid for two weeks or 500 miles or kilometres, whatever occurs first. And on the bottom, you fill out the check and you might make 16 grand on it. You give it all the time, you get into sign the valuation form so that providing the car comes back in that condition. You will honour that check of 16 grand. You rip it off. You give Simon the check. Then we give you a script for the next 14 days to not bring in Simon every day. But when you ring Simon, what you say to Simon to see where he's up to about trying to get that car. We know that when Simon goes, Simon, when he's sitting in the dealership, he makes out that he's the boss, Captain Coach and Soul Director. We know when he gets home with that check and his wife says, what's that? We know who becomes the Captain Coach of the boss. Right? Okay. Okay. So, the check gets put on the fridge and the wife looks at it every day and thinks, I've got 16 grand sitting here on the fridge and I've got a piece of metal in the yard. Okay. Okay. So, it's a, and then with you ringing to find out, so we don't talk about ringing to say, Simon, I'm ready to buy that car. The script is along the lines. Hey, Simon. It's Ian here if I got you at a good time. I just thought I'd give you a quick call. Has Mary gone ahead and bought your Aussies to do, Max? I don't know. She's still trying to get to find it. Yeah. That's all perfectly fine, Simon. How about I give you a ring of a couple of days? Would that work best for you to see where things are up to? Yeah. Listen, I, I guess I get in the supply of cars going to the auctions now in the UK market. It's just not an option. Anything goes through auctions are sold through the cinches of the world, the cars use of the world and use car buyers. I've got to go and do what we used to do years ago, go and strip the auto traders, get those private people selling the car and actually being experts of buying cars. And also the other thing that I just love, such a simple idea, if we need salespeople to prospect on new car customers, okay, why don't we just say, listen, from the database, every car you can buy on the database that we want, okay, which is from the two to four years old, the criteria, the D-Max that you know that you sell on heartbeat. Hey, Mr. New Car Salesperson. I'm going to sell, pay you X amount on every car you can buy from there because funny off, you know what, they'll end up, if we buy that used car from the database, cheers, I don't want to buy a new car anyway. I think we have to get really, really good at that. The supply used cars, it's still going to be hard work for the next couple of years. It has to be because the number of new cars sold was reduced. 100% and the way to do it, as you said, is, you know, go on to cars, I look for people selling their cars privately, you know, cars are for sale on the side of the road, they're those late model cars, go and have a look at them, ring their owner up, find out, what are you replacing that with, find out about that car, can you buy that car? You know, it's all about, we did a mini series on how to buy and trade used cars profitably, right, and to do that is the reverse of selling a new car. If you build trust, report with the client and you make it easy for them to sell the car to you, and do all those things right, the chances are you'll buy the car. Yeah, you have to do that. The other thing that I learnt from a great sales trainer, I got called Andy, many, many years ago, Andy Williams, and he just turned around and I was in the room where he turned around and said to the salesperson, hey, has anyone here bought a car privately themselves? This lad said, yeah, I have. So I'm very, can I ask you a few questions? Yeah, he said, when you wouldn't have looked at the car privately, did you go by yourself or did you go with anyone else? So I took my dad with me. Why did you take your dad? Oh, because he knows cars and he's mechanically, he's better than iron. Okay. So did you drive the car? He said, yeah, I did. Did you point out some of the things that were wrong on the car? Okay, to maybe chisel the price down a bit. He said, yeah, good. Did you pay the full price or did you chisel down a price? No, no, no. What chisel down? How long were you there? I was like, where's Andy going with all of this? How long were they? He said, I don't know. He probably half an hour. Okay. And you got the price down? Yeah, yeah. Okay. He done all this. He said, great. Why don't you do that on a customer's trading? And they come in. He said, well, it's not my fucking money, isn't it? Okay. And he's TP. What's that? I couldn't believe he actually said it out in front of the dealer principal, but there's some truth there. Actually, if it's your own money, wouldn't you look at it so much more carefully? But sometimes when it's the dealer's money, the DP's money, it's like, well, it's just, let's just go and quickly value it. But actually spending the time with it. That's when Andy was making that. But if they're incentivized to buy those cars, because it's about watching the familiar salesperson that sells new cars, he gets paid for every new car that's sold. So whether he trades a car and, if he's doing instead of always to trade the car in, he won't trade the car. Even if I get the trade at school, if I don't, I don't care. Because I'm not selling those, I don't still use cars. I don't get paid to trade it. So what do I care? But if you can incentivize them, and another thing in another dealership we spoke about, we'd say, and I'll use some numbers. Let's say that your salespeople still sell 10 cars a month, right? 10 year cars a month. And I said, I'm going back over how many cars they traded on average over the last six months. Now, I said, if they average traded was five cars a month, if that's what their average was, then you might say to Simon, from zero to five, I'm going to pay you a $20 car bonus, which equals $100, right? But you trade the six car, and that six car is going to be worth 200. You trade the seventh car, and it'll be worth 250, or whatever the case may be, right? So then all of a sudden, he's fighting to get that because he trades eight cars a month. That might be worth another $1,000 in commission to him. And what we put together for our salespeople was an A4 document that they white label to their dealership. And it's called the pitfalls of selling your car privately. And they give it to the customer. And when Mr. Casper says, I know we're going to sell our car private, we go, yeah, that's fine, Simon. I fully appreciate that because that's your decision. But if you thought about these reasons, about why the dangers of selling your car privately, let me just show them to you. And all of a sudden, the customer looks at that and goes, I don't want someone coming around and I place it any other day, other night. I don't want people knowing where I live if there's a car of their take delivery of it. I don't need them coming around to see my wife because I travel five days a week. And you know what, we've got to get so much use better at that side because it's so easy at the moment. Say, I'm selling the car privately. No worries, next, no worries, next. But that's the stock that we need at the moment. We absolutely need that stock. Listen, I want to get your views on a 90 day policy, a 60 day policy, 45 day policy. Again, something that as a dealer would, we haven't had to worry about for a while. Okay, because you couldn't get stock anyway, no one's really had to worry about 90 day policy. But because the markets start to soften, okay, and what are your views on that overage policies? Okay, so my thing is from day one, you look at that car and you want to make the decision, is it retail or wholesome? Okay, so if you decide it's retail, then you're going to work our car through the system and you're going to work it as a retail car. All right, so it might need three weeks to go through reconditioning before it comes on the yard. So you can't run a 60 day or a 90 day policy on that car because it's already had a month before it's even hit the yard. So that's not fair to that car. So you're going to work out, what does my 30, 60, 90 day policy start? So my thing is it should start when that car hits the yard. Now for dealerships that have got multiple sites, so they might have multiple sites in different locations and they rotate their stock around. I was talking to one dealer group and I said to him about, do you rotate your stock around? He said, no, no, no, he said the dealership that so-and-so doesn't want to hand them over to them because their frightening might be societal. I said, but is it your stock or their stock? Well, it's my stock. I said, well, they don't have a say in that. You've got a say to them that that car hits the yard and I said, well, your DM is you can measure when the 90 day is over 60 days, whatever the case may be. You've got to say to them that car is still there in 60 days, it goes from point A to point B. And then point B get the opportunity to sell it. And I said, because if the sales people know they've only got 60 days or whatever to sell their car, they'll work their backside out and sell their car in that time. If it's a plumb car, they know there's a good quit in it. So my thing is that if it gets to 90 days, then I would look at, I'm not a fan of wholesaling it out and clearing it out. It was good a day when it's good a day 90, but you've got to readjust the price. You might have to use that formula I spoke about before, if the market's dropped a bit or whatever. But you've got to look at that. And the other thing is that I talk about is it is frustrating. I know sometimes the dealership should have this problem at the moment, but pre-COVID some dealerships had cashflow problems for different times of the month. And they talk about, we've got a wholesale subcast. And the first thing they do is go on wholesale, the last 10 trades that come in, because they were all on the money, rather than go, look at some of the old stock, and they say, oh, we can't wholesale those, we're going to boom 30 green. But you're about to wholesale those ones here, you can make 100 out of them. Yeah, exactly. I do want a great run dealership for me. It's always the newscars department. You get the newscars department running right. Everything else comes off that side of it. That really is the key to it. And let's be honest, we don't have all of the manufacturers all over you all the time. Use car operations with, listen, can we talk about the agency sales model? This is coming there. And you know what, the use car operation is what's going to separate the good from the great in the agency model. Yeah, 100% because the customers still going to come up with cars that they're driving, and they're going to want to, their old car, they're going to want to have someone buy it. So you better off to be that person that buys it. And as you know, Simon, the best profit in a used car is not when you sell it, it's when you buy it or trade it. Yeah, that's what it always begins to say. I too, it's a focus on use cars. I think this is what as an industry, we need to get back into doing, getting our heads around it right now, because listen, I do remember the pain and I wait and what happened there. And I don't think it's going to happen this time because of what we said, it was a different thing driving the O8 recession over here, what's driving it here. And it's supply and demand, which is the issue at the moment, but we need to get good at buying use cars, you know, you get out there looking at buying them the best way. And listen, how do people get hold of your use car program? Do they go and look at theaudioacademy.com.au? There is some information on there about that, but the best thing is just send me an email, e-n-a-d-m-park-a.com.au. Just mention that you heard me talking about the use car program, and I can send them out the full information pack on it, what's all involved in it, and everything like that. Perfect, really do appreciate it. This is great to have you back on the podcast again. Thanks again for your time. No, Simon, I appreciate it. That just leaves me to say that all details of this episode and other episodes on the selling in the Motor Trade can be found on our website simcotraining.co.uk. Go there to get a copy of our book, Words That Sell Cars. Go there to sign up to a free trial of our sales fitness online sales training program. Easiest way to get hold of me is Simon Bowkett, through LinkedIn.