Summary

The article features a conversation between Kraig Quisenberry, Vice President of Major Accounts at ACV, and Nate Myers from Performance Automotive Group. They discuss growth strategies for retail dealerships and the challenges they face with inventory. One of their successful strategies was buying cars from the consumer marketplace, which resulted in over a thousand consumer vehicles being sold and additional wholesale profit. They plan to continue and expand their consumer car acquisition strategy in 2023 and emphasize the need to closely monitor market conditions and transactional prices to ensure profitability.

Interview

Kraig Quisenberry: We're going to talk about growth strategies for retail dealerships and retail volume. And that's been a challenge in terms of what's about to happen and what is happening with inventory. I’m Kraig Quisenberry, vice President of Major Accounts at ACV, and we decided to invite dealers to speak about how to grow your business, what are your strategies, what's happening, and most importantly, what are you going to do in 2023? 

So, I invited Nate Myers from Performance Automotive Group. Used vehicle director, fabulous group. We'll talk more about just how fabulous toward the end of this. 

Nate, welcome.

Nate Myers: Hey, thanks for having me. Appreciate the opportunity to help everybody out.

KQ: Of course. This is great. It's always good to get dealer input, dealer advice as a vendor, as an auction company, and as a technology company with inventory management solutions. We get to learn from our dealers, from our dealer community. And I'd like to ask you just to start off, you had a great 2022, right?

NM: Correct. 

KQ: Tell us…how great?

NM: It was fantastic. It was our second-best year behind 2021.

KQ: Very nice. So, could you tell us, and I know some of this, I'm not gonna ask to give away all the secret sauce, but enough to help. Do you know how much growth you had year-over-year?

NM: Year-over-year growth in volume? We were up about 8%. Yep. And then our gross profit was actually a little bit down. That has to come with the market conditions that happened in the last three months.

KQ: And vehicle costs, obviously were going up exponentially month-over-month, correct? That's certainly going to bite into it. What has been, and we're gonna talk 2023 in a minute, but what have been some of the strategies that you've employed through 2022? Because 2022 was a crazy year, folks. I mean, you all lived through it. What are some of the strategies you employed?

NM: The biggest strategy we invested in and went really after was buying cars in the consumer marketplace. Everybody talks about it, but it's really coming up with a plan and actually committing to making it successful. Last year supplemented just in our Cincinnati platform alone, an extra almost thousand consumer vehicles that went to our stores and became retail transactions. Wow.

KQ: Thousand. 947 consumer acquisition cars.

NM: That were retailed. We acquired over a thousand. Sometimes cars don't make it through service, they pass. But what a lot of people don't realize, if you have a good process, even if you buy a car that's not consumer, that isn't something that you're going to offer the opportunity to your consumer sometimes. If you're doing it right, you're gonna pick up some wholesale profit on those cars for your time invested in the process.

KQ: Yeah, that makes sense. And service, I would imagine service saw benefit too?

NM: Service and parts definitely benefited. And also, what I think everybody also doesn't take into account, f you sold 947 additional cars that were consumer cars that are truly found business because you can look up the data, how many transactions did you get after those cars? 

Did you get a trade 40% of the time? And of those 40%, did you keep 80% of them and those turn into additional retail transactions? The fruit just keeps on bearing with that process.

KQ: What did you find in PVR…profit per vehicle? Did you see a difference in those consumer acquisitions versus let's say trade-ins or auction purchases?

NM: For us, they kind of fall right between the trade-ins and the auction purchases. I mean, you go to the auction, I think you buy a car knowing that you're just going to turn it and hopefully make some service income, F&I income, and then send it down the road. 

The consumer cars we buy from the consumer end up actually from a PVR standpoint, are usually over a thousand dollars on the front. Our auction cars are zero or negative sometimes. And then obviously, if you have a healthy finance department varied by stores, most people are anywhere from 15 to $2,500 per copy in the finance department. 

Now you're, you're gonna make more money on these cars than buying from the auction. But also, you can still buy those auction cars because you want that volume and you want that service and parts income. This is a way to truly grow the business, maybe buy a few less cars at the auction because you have these cars to rely on, but you're going to make a lot more money on them.

KQ: Interesting. So, you're making incrementally, you're making more money on service, you got service and parts revenue, and you have happier salespeople for sure. Have to keep them happy. What other benefits in doing what you did? It’s got to affect the consumer life cycle or consumer capture because now you're buying cars, but you're buying fresher cars. How do you think that's going to impact building on your business from this point forward?

NM: I think long term everybody's realizing when you go buy these cars, you're able to truly inspect the car. But a lot of times these cars are nicer too. You find the car that ends up at the auction sometimes somebody passed on it, right? Maybe it was just the wrong color, wrong options. But when you go after this in the consumer marketplace, you can kind of come up with your own business plan and know that on a Highlander, the white black sells quicker with captain's chairs than standing in the auction hoping to try and find one. 

If you have a buying team and a buying center, give them a buy list and tell them what car to target. Sometimes they'll pay up to get the car. Our backup option is getting a store bid.
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Like today, at our car buying, service bought a 2022 4Runner for a Toyota store off of buy bit. It was more money than what our buy team was comfortable putting on for the buying center to buy. But when you reach out to the store, sometimes we have somebody looking for that. Because as a Toyota dealer, Honda dealer, there are still a lot of stores that don't have inventory. 

It's nice being able to handpick the cars a lot of times that help. And also buying, if anybody's ever bought a Lexus, for example, we have two Lexus stores. If you try and buy a Lexus at the auction, it is a brutal task. First of all, they're rough. Second of all, they still bring in too much money. But why wouldn't you go out in the community and find somebody who's a consumer?
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Depending on your market and how many stores you have, sometimes they bought the car from you so you have all the service history. You know everything about the car. Or you also get people that maybe they're new to the area, they're trying to sell Lexus, but why are they unloading that car? 

Sometimes they have a company car, but you know they're gonna remember you. I mean the word-of-mouth part of that business travels. We track the referral rate. We went from having no referrals to one or two referrals. We probably buy 10 to 12 cars a month just off referrals now. Wow. And we've had repeat business.

KQ: Those are incredible numbers. When you look at the consumer journey, the life cycle of the whole thing… if you look at the average miles of the car you buy direct from consumer, are you finding those miles are lower or about the same as what you normally get?

NM: If you compare it to the auction cars, it’s the same. If you laid over the same make and model, they're gonna be less, but we'll buy anything. We'll buy a car with 180,000 miles on it. Realistically, if you were going to go buy a three-year-old Ford Explorer, you're going to buy one that most of the time that's going to have less than the average miles in the market. And, sometimes that's challenging.

Because our buy team, when they're looking at it, do we pay up for this car or do we not? Well, we all know that if you have a three-year-old car with 20,000 miles on it, that car's a lot more desirable than a three-year-old car with 45,000 miles on it. So, you know a lot of times those cars, because you don't have the lease returns running through the auctions that you had a couple of years ago, if you're a dealership and you trade for a two or three-year-old car that has under 40,000 miles, why wouldn't you keep it? A lot of the stuff that you see running through the lanes have higher miles.

There's also still the adjustment. The biggest thing I see, the cars that I see that we get hung up on are obviously purchase units, but the consumer hasn't accepted the fact that there are a lot less cars with low miles. 

The two and three-year-old lease cars aren't coming in. So the stuff that is in the market a lot of time has more miles on it. That's what's available because there were fewer new cars sold in the last two years. So that's another benefit or bleed-through that you see on cars. I always analyze and try to find out why did a car sit? 

A lot of times it's miles or the wrong color combo. If you have a buying center or an acquisition team that's buying consumer cars, you can really focus on the right cars that are gonna be more profitable.

KQ: Good point. That's brilliant. Have you seen a benefit wholesale-wise? Did you actually buy some cars and add to your gross profit or actually net profit in 2022 through this strategy?

NM: Your goal in this business model is to buy everything that comes to you so people know you're serious. Last month the wholesale cars that were deemed something that none of our stores would take, we brought in over $21,000 on those cars in the wholesale market. And we've actually never lost money in a month. 

We've had some months where we make a $1-2000. But it is to your point, it's found income and it's really a net profit. Depending on how you set that business up, worst case scenario, you'd only be paying your sales managers and the business model we have. Because it's a separate entity, nobody's getting paid. It's true profit straight to the bottom line. 

KQ: Straight waterfall to your net profit. That's just a benefit, right? Because this is something you're doing to grow your retail to insulate, your dependency basically on a market that right now you don't really have control of others. None of us do really. What do you see this year being different than last year for you and your organization and this strategy?

NM: We're gonna increase. You have to commit to this in the long term. You have to look at data to stick with it. Everybody gets that gut feeling, and says, “Hey, this isn't working.” I was talking to somebody earlier in our Cincinnati market. If you talk to them, they think they're having a terrible month. 

I went back and looked in last January, the Cincinnati MA market bought through the consumer business. They only bought 40 cars that month. Well, they're gonna buy 60 this month, and then combined with the whole platform tying in our other market, they're gonna buy a hundred. They bought 61 last year, but because they've had months of bigger volume months.

The interesting thing is that it's kinda like the car market. You have the busy season, the last 10 days are busier. But if you were going to make a decision based on them buying a hundred cars in July, and they're only buying 60. Now, a lot of places would have a knee-jerk reaction and, and probably say, “Maybe this isn't working like it was.” But you got to go back and look at the data and say, “Well hold on. It is right.” They've increased 50% year over year. Any of us would take a 50 and that's only going to add more

KQ: Cars. I take that in a heartbeat.

NM: That's going to put more cars in our stores. Everybody has their own business model, but if putting these cars in the stores, it's just more inventory that you're going to offer the consumer. I think another thing that's gonna change, I mean we don't, we try to keep a close eye on it, but I think everybody that was probably, there were some places probably wholesaling cars that they might have kept because some of the money was too good to be tempted. 

As our group kind of moves into this year, I think we're going to put a little more emphasis to make sure they're not wholesaling. Also, the stuff that they should probably go ahead and just try and keep for a retail transaction.

KQ: Here's a question here. And this one, this one just kind of occurred to me. Maybe a curve ball, maybe not. You got this new, not new strategy. You've been trying to do this and build this over time. When you started this, how many cars did you buy in the first year?

NM: The first year we started the business in 2021, we bought 417 cars roughly. But I went back and looked in 2019 before we committed to this model through our stores in Cincinnati. Because that's where I had the best reporting data where they bought 219.

KQ: Wow, big change. I was curious about that because here's what I really want to ask or want to know more. Your stores know that you have this buying center buying cars, your stores know that you're reaching out, you're giving consumers an offer, and they have the option to come in and sell to you. 

Do you think, or maybe you have, maybe you guys have measured this…Do you think those dealerships, those same salespeople, same managers, work a little harder and make a few more deals knowing that they're competing within their organization to control the marketplace? Are you seeing that?

NM: Yeah, so it's kind of like the confession of used car managers trying, but obviously to me, it's like a save-a-deal meeting. So we've had scenarios where our own stores are bidding against easy car sales because the customer has a number from it. And you know, obviously, sometimes we use it as a benefit. Sometimes if the customer's in the market for a car, we can recommend it, and send it to them. 

The great thing about what we have set up is if the stores don't like the easy car sale number and that business model, they can just wholesale it straight to us and I'll either, we'll sell it to another store or we'll sell it in an open auction. We've definitely saved some deals from it. I mean I think it's one of those things when you have a save-a-deal meeting, right?

Sometimes we walk people too low on a number. Well, it's always interesting. I had one yesterday at one of our stores, I got a text from the team and the select store told the customers that we're not a part of Performance because they had, they were on a trade. Well, come to find out they needed the trade to put the deal together, but this guy was trying to take it out of the deal and he didn't like our number. 

Now, obviously, you have to realize these numbers. You don't want this to happen all the time because these numbers are gonna be more beneficial than it would be when you're controlling a deal or working a deal. But you also have to see the full picture of it. At least you're still getting the car, right? Because if you didn't get that used car and you need that used car, you would go to the auction to supplement that inventory.

KQ: Wow. That's amazing. So as you're looking at this as one strategy, you probably have other strategies that you're employing to grow used cars to profitability. Anything else you'd share in that space?

NM: I think right now, I mean to increase profitability this year, everybody needs to have a really, I would almost look at a separate term policy for your purchase cars, your customer acquisition cars, and your trade cars, right? Because a lot of, and we were a part of that, right? Our Cincinnati market sold almost 14,000 used cars last year. So when you have that much inventory, you really gotta have a planner. You're gonna get a bit like, we saw what happened in the fall. 

So my goal this year is for the cars that we lost three or four grand on it, 60 days never to let them get that far and kind of implement a 30-day policy on those cars or, and really take a hard look at the pricing on it. Rather it's someone in my role who takes over the pricing, the general manager at the store, takes over the pricing. But if, if you can cut those cars out, turn that car and buy cars, I think it's going be very important to buy cars in the current sell market. 

So what you buy today is probably good for three or four weeks, right? But we all know that there can be, in this economic environment, there could be a big change in six weeks. 

KQ: We could be next week. We don't.

NM: You bought a car today, do you really want to test the waters on a six-week market? What does that market look like? You know, you buy a car today on January 27th and yes, we're going to the spring, but do you really want that car in March? You might be okay for the next six to eight weeks, but do you want to buy a car on March 15th and have it on May 1st? I think it's a no. 

Last year, the answer was no too. So that should make us more profitable. And honestly, it might make us some more cars too, because as we turn those cars, our sell rate's gonna be able to sustain it and if we're stocking the right inventory, we would just go right back and replace that car.

KQ: Great point. This talk is all about used cars and, having been in the industry a long time, that's net profit. Between our service departments, between our used car departments, that's a bulk of our profitability oftentimes in a dealership.

Are you seeing the approach that you're taking as a benefit to new car sales, when you have them this year…and hopefully you're going to have more? You're seeing a benefit to used cars. But there's one thing I haven't asked, and I'm surprised nobody's not shouting it out. How's your F&I profit on these cars? I'm assuming they are probably generally newer, and generally lower miles, and the last time I checked, my cost on financial products and services and more importantly, the customers willing to buy them, are usually the customers that will lean in more and they'll pay more. Are you seeing a difference there?

NM: Yeah. These cars are cars that you're, most of the time, you're not buying a lot of cars that are cash cars. You're buying cars that have finance penetration, product penetration. And two, I think you touched on it earlier, your service and parts gross, your gross part of that ticket a lot of times is a $1,000-1,100. You're putting a lot more money into your service and parts department also that we all know that you retain more of. That's just gonna help that.

KQ: That's excellent. So a lot of you who have joined who've kind of hung out here and of course I introduced Nate, he's an amazing used car operator, Performance is an amazing company. Not only they're amazing and not only to do a good job and I think I'm a good unbiased judge of performance, no pun intended. Hate to use the word twice, but I can also tell you all, and if I can grab that little thing here. This my friend is a one of a kind. There's actually a few more than one, but it's the first time ever. This is an award for the top Tier Two automotive buyer in ACV. And I'm proud to say that Performance Automotive Group won this award for 2022.

NM: Well that was a nice surprise.

KQ: Didn't see that coming, did you?

NM: This thing's great.

KQ: Isn't that great?

NM: I don't know what it's going to be like when I go through the airport. I have a feeling my bags are going to get checked. 

KQ: Careful where you store that. You might have to pay a little over pound luggage charge, moving that through TSA or wherever if you check the bag.

NM: It's going to add something. Yeah, go back to the hotel and–

KQ: –Do some curls. Congratulations my friend. Well done. Again Performance Automotive Group, ACV’s Tier Two top award winner for 2022. And don't forget, we're in 2023 and you guys got a good head start. So again, thank you for that. Thank you for your time.

NM: And I'll just add one thing, too. If you're a dealer used car manager, track your transactional price to market right now because there's still a lot of cars out there in the market that people are holding onto. Especially if you have independence in your set that when you price a car that you think should sell at 99%, a lot of times you're really having to be, at least in our markets, 97% to move those cars because the algorithm in Via or MAX Digital. 

Whatever you're using can be thrown off by some of these dealers that are sitting on cars. What I do is tell our used car managers to go look at a set, pull up the pictures and, since we're in the Midwest, right?...If you see green leaves on trees and green grass, they're just sitting on the loss that we liquidated those cars. It stung.

When you're looking at that, go back and track and you know that transactional price to market and you're going to see that you're having to be, at least for us, most of our stores are transacting 2-3% lower than they were a year ago or even two years ago. 

Take that knowledge and educate your appraisers and your managers that are bringing in trades also. A lot of people are mechanical and they don't use what I call the used car manager side of the business, and they're gonna build an appraisal one way. But, hold on a second. I just had this conversation with a used car manager. Your store's transacting at 94, 95% because of the set right now of what it really takes to move a car. 

Why, if you could build an exit strategy on a car at 95% and the consumer's willingness to take that, do it because it's going to help you make more gross. Versus maybe you would've built it at 97% and you might have offered more money than you needed to on the car, but you still think you're doing a good job, but you don't make the full gross you built out because your cars are transacting 2-3% lower. That’s all.

KQ: Very smart ideas, very smart organization. Award-winning organization. Again, thank you. We can't thank you enough for your partnership and for the efforts that you and your team put in. 

NM: Thank you.