Having a well-managed used-vehicle operation is more important today than ever.
Yet, few franchised new-vehicle dealers make a concerted effort to brand their used-car operations in a way that will make them a draw. After seeing various operations across the nation, the best example of branding I came across is McCarthy Wholesale, right in my hometown of San Luis Obispo, CA.
Mike McCarthy does not own a new-vehicle franchise. But those who do could learn from him.
He has two vehicle-sales operations down the street from each other. The first is merchandized as an “under $10,000” lot and holds about 45 ready-for-sale units.
The second is for vehicles from $10,000 all the way up to about $80,000. The lot holds about 80 vehicles. Plus there's a special showroom. It's at this second location that McCarthy's brilliance shines.
He acquired the property about five years ago. It had an old building on it and he liked the style of it. He thought it would make a great showroom based on nostalgia, especially of the 1950s.
He likes the neon and stainless steel and the signage of that era and he has been collecting vintage business signs for years, particularly gas, oil, automotive and porcelain dealership signs.
This building seemed like a good place to indulge his hobby and create a unique environment that would be a draw in its own right. McCarthy has carried out that theme wonderfully, from candy-stripe awnings on the outside to a showroom containing an old soda fountain where you can work a deal or just have a soda.
He has an old barber pole outside his office and two vintage barber chairs inside. The showroom is festooned with neon, old candy machines, vintage signs, early tune-up machines, jukeboxes and showcases full of old toys.
He even has an indoor theater where you're likely to be captivated by a Bogart movie on any given day.
The place sparkles with mirrors, metal and light and the theme is carried right through to his license plate inserts and price stickers. Kids love McCarthy's. So do their parents. It's a fun place to do business.
And how does McCarthy do business here? Just like a new-vehicle dealer. There is no fancy footwork on the part of his sales force. There is minimal negotiating.
His vehicles are in stand-up condition, from the windshields to the tires. He offers warranties and financing at competitive rates.
“I only want to sell vehicles I feel good about because, in a small town like this, I could run into the buyer on Sunday and I don't ever want to feel bad about something I sold,” he says.
His consumer satisfaction ratings are constantly high, and he has an independent contractor doing after-sale calls, just as though he were a new vehicle dealer.
He purchases roughly 10% of his inventory off the street, spurred by “we buy cars” sign and print, TV and website advertising.
But about 25% of his inventory on any given day is consignment. He treats these vehicles as he would any other. “I've got to feel good about the quality and marketability or I don't take them,” he says.
He promises the customer a specific figure, below which the store won't go. It's probably better than they'd get on trade but still leaves room for McCarthy to mark it up, sell a warranty and financing, and make a profit.
“We go through the same process every time, whether someone wants to sell us a vehicle or consign it,” he says. “We treat it like a trade-in, ask all the questions, look at history, run a Carfax. Consignment is time-consuming, for sure. You have to educate the owner, talk about market conditions.
“But the whole idea behind consignment is solving a problem every dealer has, whether franchised or independent. That is: getting enough good used units. It's not uncommon for us to end up buying the car instead of consigning it. Either way, it's a win. I don't know why more franchise dealers aren't aggressive about consignment. We're glad they're not.”
The program has grown through repeat and referral.
“I have one customer who has consigned four vehicles with me in the last five years,” says McCarthy. “The typical consignment customer has another vehicle, is 35 to 50 years old, fairly well off and just doesn't want to hassle with (prospective car buyers) coming to his house.”
McCarthy typically asks for $195 up front to cover detailing and the like. If, at inspection, other needs are discovered, he insists they are covered immediately because, “I want the vehicle to be right when we sell it; no comebacks.”
His front-end gross average on consignment vehicles is about $2,100, back end about $500, including warranty and financing (usually his own warranty company).
Many of the vehicles he consigns are SUVs and others that have been hurt by the fluctuations in gas prices or other market dynamics.
“I can still offer them in moderate numbers to my clients but not be saddled with the cost,” says McCarthy. “We got offered a lot of SUVs when employee pricing hit in the summer of 2005 and when gasoline prices skyrocketed. By taking them on consignment, we were not taking the risk of owning them outright in order to get a retail sale.”
McCarthy works hard at moving inventory in 30 to 45 days, though he admits to holding between 10%-15% for up to 90 days on occasion.
“We'd rather gain a customer and keep a sales person happy, even if it's a break-even deal, which it rarely is,” he says. “Other than the consignment units, we own everything, and would rather turn our money quicker through a retail transaction.”
His pay plan is progressive and his sales people commonly make $5,000 to $6,000 a month. There's usually one up around $10,000 a month.
That allows him to attract and keep talented people. McCarthy is careful not to flood the floor, so everyone has a fair chance to make a good living.
Bob Kamm, a 30-year automotive veteran, is president of Kamm Consulting, specializing in leadership skills. He is at www.bobkamm.com.
9 Things Franchise Car Dealers Can Learn from Used-Vehicle Pros
Here are used-vehicle operation lessons new-car dealers can take from McCarthy Wholesale and others:
- Brand your business. Settle on something you love, like a hobby, or on an icon (Polar Chevrolet in St. Paul has a giant Polar Bear named Pauly; Phil Smart Mercedes-Benz in Seattle has two animated talking Benz vehicles named Mike and Charlie.). Or define a distinguishing set of values and present them in everything you do.
- Dedicate part of your main showroom to used vehicles. Better still, have a used-vehicle showroom.
- Innovate with your media and marketing outreach. Then track it.
- Offer stand-up inventory you'll never have to apologize for.
- Work hard to get to a 30- to 45-day inventory turn rate. It's not easy but it is possible, especially with today's tracking software that helps you stock vehicles that are in the most demand in your market.
- Put more juice behind a campaign to both buy and consign used vehicles.
- Have your own used-vehicle warranty company but have other alternatives as well. (For some vehicle makes, some companies give better coverage than you may wish to risk.)
- Have a progressive compensation plan for your sales force so you attract seasoned pros. Don't flood the sales floor with personnel.
- Finally, a no-brainer: Treat customers as if you'll run into them on a regular basis after the sale.
