Bad Medicine-Who’s Really Getting Better?

First I want to thank Jim Ziegler and Manny Luna and others for their due dilegence in the Autogate affair that is currently unravelling and have made it possible for me to get some attention on a topic close to my heart.

I want to take advantage and seize the moment concerning all the controversy surrounding Cars, com among others with hints of more to come.

Why? Because I hope that finally YOU the dealer who is following this mantra will come out of the ether and realize that the medicine that the giant classified Ad and Services Companies have been prescribing Dealers is showing its nasty side effects and is WRONG.

Let’s take a look at some numbers to see just how much these churn and burn marketing strategies can affect Dealers. One side effect of this strategy is that you are always chasing inventory to sell more to make less money – who does that benefit?  

Another side effect is management and salespeople are working harder to make the same or less money and if you have worked at a dealership in the past few years these guys have more responsibilities than ever before. This leaves the possibility of losing conversions and inventory purchasing errors. Plus, you are probably spending more money to drive that traffic to churn those cars and - who do you think benefits from that.

Another side effect is that you start taxing you facilities ability to do the MPI (Multipoint Inspections) reconditioning e.t. and unless you spend more to fill the gap you chance having other problems with Inventory presentation. WHO DO YOU THINK THIS AFFECTS?

Sure there are dealers that sell for one take or leave it price and do well but how long do you think it would be when this becomes the rule and not the exception. There will be more consolidation and small and medium size dealers will be put out of business by the churn and burn stores that need to gobble up more and more market area to survive. And who do you think this will benefit? –

I am not a conspiracy theorist by you can’t help but see the correlation here especially with what has been surfacing over the past couple of weeks.

According to FirstLook, total sales in April climbed 0.7 percent vs. year ago to 3,819,127 units. vs. 3,792,604, transaction prices across all three channels were down 6.46 percent to $8,928 from $9,545 in 2012 excluding aftermarket product.

So let’s do the math.

$9,545.00- $8,928.00 = $617.00. Let’s say on the average you sell 50 pre-owned units per month. Let’s say you could have sold just 25 of those 50 units and grossed $309.00 more per unit.

$309.00

X 25 units

$7,725.00

Let’s say that you could have made another $800.00 dollars per unit on the back end.

$800.00

X 25

$20,000.00 Let’s add it up

 

You just made at $27,725.00 more in gross that in a year adds up to $332,700.00 plus what you have just saved on all the added costs of churning and burning units and the costs of potential Presentation of inventory and inventory purchasing errors, losing conversions in the rush to churn e.t. in the rush to churn.

 

Let’s say that you sell an additional 10 cars a month with the churn and burn method. Using $1200.00 as an average gross and gross $800.00 on the back end you would have grossed $20,000.00 Dollars or $240,000.00.

 

$332,700.00

$240,000.00

($92,000.00)

 

You grossed ($92,000.00) less plus all the additional overhead it took to Market, Buy, Prep and sell them. -Who is does this benefit?

If you need to go outside your market area to gain market share and have the population density within you geographic market area for growth YOU need to look inside not outside and fix the problems  within- Who will benefit from this?

If you set your goal of growing within your market area the benefits are greater and put those additional resources you are using to draw in people from outside your market area you will be better for it. People who purchase from outside your market are price buyers only because you have no value to offer them.

So think about it and do what you think is the right path for you to take. For most of you-you will realize the only ones that are getting feed are the Dragons.

One of the rules of value creation is: if your actions don’t create value, then your actions decrease value. If your sales or marketing presentation does not increase the perceived value of your products or services, it decreases the value your customers or prospects perceive they get from you.

Author Bill Cogrove
DealerNet Services