Dale Pollak - Gross Deception: A Tale of Shifting Markets, Shrinking Margins, and the New Truth of Used Car Profitability

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First Edition

CONTENTS

ACKNOWLEDGMENTS

W hile writing a book is, in many ways, a solitary affair, I am blessed to have had a lot of help.

Theres my wife, Nancy, my three sons, and the rest of my family. You gave me the space I needed over the past two years to reflect, ruminate, and work my way through the troubling trends that have emerged in the used vehicle business.

Without your grace, love, and understanding, I might still be on the fishing dock, and this book would never have arrived.

The same is true with my colleagues at Cox Automotive and vAutospecifically Alex Taylor, CEO of Cox Enterprises; Sandy Schwartz, president of Cox Automotive; Keith Jezek, president of Cox Automotives Retail Solutions Group; Randy Kobat, senior vice president of vAuto; and my assistant, Susan Taft.

Without their blessing, patience, and trust, this book would still be rattling around in my brain rather than laid out in the following pages.

I owe a deep thanks to two other vAuto colleaguesChris Stutsman, senior director of product innovation, and Lance Helgeson, director of industry analysis.

Chris helped me turn some of my concerns and suspicions about the used car business into the cold, hard facts that define the new truth of used car profitability. His important work went even further. It led to a new inventory management methodology and metric that is proving to be a game-changer for dealers.

Meanwhile, Lance has turned my revelations, riffs, and ruffles into cogent, compelling copy. This is our fifth book together, and none would have been possible without Lance lending his thoughtful insights, perspective, and writing skills to each effort.

I must also share my sincere gratitude, respect, and thanks to the dealers who joined me on the book journey. You didnt have to take the time, share your perspectives, and entrust me with your stories.

But you did, and I thank you.

And finally, theres each of you. You didnt have to pick up or even open this book.

But you did, and I thank you.

PREFACE

GROSS DECEPTION AND THE NEW TRUTH OF USED VEHICLE PROFITABILITY

G ross is generally good in the used car business.

If theyre making good gross, dealers believe theyre making good money.

Thats why, historically, dealers have tended to focus on front-end gross and, in more recent years, total gross as yardsticks to measure their used vehicle performance.

But this long-standing emphasis on gross profit has led to a kind of deception.

While dealers have been focusing on gross profit and volume as the primary drivers of their money-making efforts in used cars, they havent been making as much money.

Many dealers are aware that front-end grosses certainly arent what they used to be. Some have even come to accept low- or even no-gross deals as a new kind of normal given the pressures of a market where theres greater efficiency and pricing transparency for used vehicle buyers.

But Ive come to understand that while dealers may believe theyre at least making some money when they earn gross profit, thats not always the case.

In fact, I believe weve arrived at a time when making gross profit is no longer a guarantee that your used vehicle department will produce a positive net profit when you wrap up a month and account for all the expenses associated with selling your used cars.

Ive spent the past two years studying this situation, trying to find and understand what dealers may be missing or overlooking as they retail ever-higher numbers of used vehicles and see ever-smaller net profitability for all their hard work.

The problem, Ive found, rests with the long-standing belief in the power of gross profit itself, and the ways dealers generally manage and measure the gross profit potential of every used vehicle.

My work has revealed that associating a vehicles days in inventory with its profit potential, in todays margin-compressed market, is a gross deception.

Ive found that believing you can make up for ever-smaller front-end gross profits by selling more used vehicles to produce total gross profit is a gross deception.

Ive determined that simply speeding up your sales velocity to maximize gross profit is yet another gross deceptionone that, surprisingly, can make a dealers net profit disappear more quickly than it might otherwise.

Ive realized that its my calling, duty, and mission to help dealers get out of the gross deception rut.

Ive learned a lot in the past two yearsspecific insights about the used car business that suggest that much of what we believe to be true about used car profitability isnt true any longer.

This book presents the elements of what I am calling the New Truth of Used Vehicle Profitability, which I believe can help dealers regain, if not restore, some of the net profits in used vehicles that have fallen fast in recent years.

The book showcases how dealers are accepting the new truth and adopting a different way of managing their used vehicle businessa management method that centers every used vehicle decision on each vehicles inherent net profit or return on investment (ROI) potential, rather than the gross profit dealers might believe a vehicle can make.

The new truth represents a new world order where gross profit and total gross still matter, but they take a back seat to the higher priority of ensuring your used vehicle department earns the net profit and ROI it deserves every time you choose to acquire and retail a car.

Its time for dealers to leave the gross deceptions behind and get on with making the used vehicle business fun and profitable again.