Mid-terms are upon us. Usually, the party in power loses seats and there is a shift in “power” in Congress. It’s another wrestling match that ebbs and flows all over the top of us and our customers. In the tug of war to move our country in one direction or another, taxpayer pocketbooks get slammed and trillions of dollars are being spent on ideologies, war, Foreign Aid, bureaucracy, airplanes and special treatment for Politicians. We get to foot the bill.
This constant, non-constant of DC has really made a mess of the economy and gives our industry plenty of work to do. In what was the mundane world of buy low, sell high and collect the accounts, we now have interference from all sides. In the last 3 plus years we have experienced headwinds that were not truly necessary and, for now, politically inflicted. So here we are jumping through hoops, working much harder and spending days to do the things we once did in a few hours. All that and if you make policy or market changes in your business will you have to shift again because there will be new bosses in DC? Probably.
OK now I have ranted a minute let’s move on to 4th quarter. Have you made an assessment (real data) of where you are in your business? Sales up or down? Collections strong or suffering? Inventory getting to the lot or not? Have you looked at your tax situation?
Now is the time to access everything, not to make wholesale changes but make adjustments. Who knows what comes from the next 2 years. What I do know from traveling around and being in dealerships is that the dealers that basically stuck to their business model and adjusted to the prices and kept buying have been doing very well the last 2 plus years. The dealers that refused to buy as the prices spiked or could not afford to buy during this period, are either out of business or hemorrhaging cash to keep the business operating and a team on the payroll. In every case where I had the opportunity to hear the reasoning behind a dealer’s decisions which way to go, there was logic they felt comfortable with.
It is like a football coach in a game. Making the call to go for it on 4th down. Coach is next week’s hero if the play goes right and a first down is achieved, or better, a score. The coach is a mutt if the play fails and he didn’t punt. Armchair quarterbacks are everywhere. Since I am in the game as well, as a fractional COO of the oldest BHPH Operation in Chicago, I saw what not buying and collecting hard did to a huge portfolio and sales. In January, when everyone was saying we cannot get cars we bought almost 200. We bought another 150 in February. Yep, we paid too much for them, had higher than we wanted recon and extended terms to get sales moving but it worked. In Chicago we have no covenants, no bank to satisfy. That made it easier to buy what we could get and stay “close” to the inventory that worked in the past. Now sales are up from 50-60 a month to 90-100 a month because we have vehicles to sell, a better attitude from the team and due to some other changes we made in Collections, a better attitude with the existing customer base.
“Attitude within the customer base?!?!”
Yes, the biggest issue this dealership had was the finance company and the CFO deciding that delinquency was the most important metric and drove the collectors to ride customers hard. Using interrupts, the vehicles were shut off being delinquent only one day and would not be turned back on without 80% of the past due plus fees. Sales suffered badly because repeat and referral business dried up. Customers were working to get away from the finance company and certainly not referring the dealership business.
On the positive side, after I got involved, most of the team remained in place. A few of the rules were relaxed and the team was taught about dependencies across departments. Collections cannot be killing the company’s reputation without hurting sales. Same with whatever you have as “service”. Service can hurt both sales and hurt collections. Therefore, cross department meetings are a big help. I do not like “he said/she said” (if you can even say that anymore). If a finger gets pointed at one department by another the conversation stops until all the parties are together so there is productive discussion and not excuses blaming one side or another.
It is time to take a serious look at where you are YOY for the last 5 years. Are you up or down? Have you gotten the portfolio way out of balance with huge weekly payment averages and a breakeven point that is longer than the vehicle might last? Are collections getting bad? You should compare where you are with where you were 3 years ago. How can you get the metrics back in line?
If I was a betting person (besides underwriting) I would bet that inventory is going to become more available over the next couple of months and that availability will help drive down prices. Are we going back to 2018, doubtful, but competition and supply/demand will push things back some. The big finance companies that have been getting drunk on all the “free” money that was floating around are having big hangovers. There will be inventory those companies need to get off the books soon. BHPH should see some benefit from a pullback of lenders and the eventual bath they will have to take to liquidate collateral they hold.
Try to ignore the political heave ho that will always go on. Look at what you do best and keep doing that. Work to go back to the business model you used 3 years ago. COVID made us all a little wacky and we did things we would have never done before to keep business moving. If you jerk the wheel suddenly and dramatically in a traffic situation, you usually end up in a wreck or losing control…. make smaller adjustments and stay more on your course. The politics are going to keep changing, let’s keep steady in finding better ways to market and sell, improve what YOU do and let the chaos of the world swirl without you in it.
