Determining the profitability of your dealership’s used vehicle inventory is critical to maintaining success. Are you still using ‘number of days on the lot’ to measure this value? Well, our guest today wants you to consider another option; one based on technology and data. Joining Jim today, is Dale Pollak, of vAuto, Dale is here to discuss vAuto’s plan to release its Provision ProfitTime upgrade at the upcoming NADA convention this January.
Jim Fitzpatrick: Welcome to the show Dale.
Dale Pollak: Thanks Jim, it’s always great to be with you.
Jim Fitzpatrick: Great. Talk to us a little bit about the current state of the used car market today.
Dale Pollak: Well I think we’ll end 2018 with a thoroughly robust used car sales year. Our economists at Cox Automotive expect next year’s used vehicle sales volume to be roughly equivalent to this year’s, so that’s good news. We can expect another robust year. There is, however, some extraordinary pressure on margins, which makes it a little bit difficult to make money on these used cars, but at least we’re selling ’em, so buckle up, stay tuned. But I think it’s wise for dealers to really bear down and focus on efficiency and profitability.
Jim Fitzpatrick: Well and that’s one thing that we wanted to talk to you today. vAuto just announced a new offering called ProfitTime. Tell us about the genesis of it and how it can help dealers.
Dale Pollak: Right. Well, ProfitTime is not just a new technology but rather a new philosophical approach to used car management. And Jim, I think it’s fair to say that vAuto has had something to do with changing the used car business over the past 14 years. But I never thought that I would stand here today and say that I believe that we will change the way that our industry manages used vehicles again.
Dale Pollak: Because what we have discovered is an absolute, fundamental flaw in the thinking and the behavior and the practice of managing used vehicles that has gone unnoticed for the past 100 plus years of our industry’s history and it accounts for much of the subpar performance that we’re experiencing today. So, it feels a little bit like we found a hole in the universe and a hole that we can all move through to get to a better place.
Jim Fitzpatrick: Sure. So how does ProfitTime fit into the velocity philosophy that so many dealers have adopted over the years?
Dale Pollak: Well it’s interesting because when we developed a ProfitTime philosophy of management and the ProfitTime technical solution, a lot of people said, “You’re not really gonna do that are you? You’re not really gonna go out and say this are you?” And the answer is, “Yeah, yeah, I certainly am gonna do it, and why? Because things change. We all have to be prepared to change as the environment changes.”
Dale Pollak: Now the question is, is it a reputation, does it refute velocity? And it absolutely does not. But nor is it a reputation, it’s also not an evolution. Because an evolution describes something very gradual and incremental and this is anything but gradual and incremental. This is big and this has the ability to change the performance of the used vehicle operation dramatically and do so very quickly. So it’s not a reputation, it’s not an evolution, and candidly, we’ve struggled internally to describe what it is and the best description we can put on it is that it’s just simply beyond velocity or to transcend this from velocity.
Jim Fitzpatrick: Sure. You’ve beta tested ProfitTime with several dealers. What’s the reaction been?
Dale Pollak: Well the first reaction of dealers is what? What are you telling me to do now? Are you really telling me that the way we’ve been doing it is wrong and we have to do it differently? Well, we’re not telling you that the way you are doing it is wrong. What we’re telling you is that there’s a different way of doing it now that is better. So once we get over that hurdle and it is a hurdle. The outcomes of the used vehicle departments are significantly improved in both volume and gross profit which is what we knew would happen.
Jim Fitzpatrick: That’s phenomenal. I guess it’s safe to say that many dealers have sent up the white flag with regard to front-end gross profit on new vehicles and trying to hold onto every dollar that they can, every penny that they can in fact, on used vehicles. Is that a safe statement today?
Dale Pollak: Well I would say yes and to a certain extent, no. So the white flag has gone up for the most part on making a profit on new cars. And with respect to used cars, the margin compression is really tracing many of the footsteps that dealers have experienced on new cars. Meaning that over the years, our return on investment on a used car has diminished. NADA informed us that every year since 2009, the average used car investment on a dealer’s lot has gone up. And every year since 2009, that the average unit cost per used car has gone up, the front end profit has gone down.
Dale Pollak: So stop and think about that Jim, that’s a classic return on investment, a classic ROI analysis and every year since 2009, we’ve invested more in a used vehicle, and we’ve harvested less gross profit.
Dale Pollak: So that was really the beginning of the thought process that led us to the revelation that we discovered with ProfitTime, that we must be doing something wrong, and we had a hunch about what it was. And quite frankly, I wasn’t frightened about what if I was wrong. What I really was worried about is what if we were right? What if we’re right? And as it turns out, when we looked deeper, in fact, we were right. We discovered a flaw in a basic fundamental assumption used by every dealer, managing used vehicles and it’s holding us back from realizing our true profit potential.
Jim Fitzpatrick: Do you feel that this can turn the tide and we can actually start making some stronger gross profits on used cars with this program in place?
Dale Pollak: Unquestionably we can make better profits, but there is a small distinction to be made. We have to start thinking about a used vehicle department’s purpose in the dealership, is to drive total dealership profit. Not just to optimize used car department profit, because if we just optimize used car department profit, what we’re doing is we’re sub-optimizing other opportunity across the dealership, such as FNI income and internal fixed parts and labor growths.
Dale Pollak: So Velocity and ProfitTime is a way of thinking about evaluating performance of the used vehicle department based on a total profit, total dealership gross profit picture rather than simply a departmental optimization strategy. And unfortunately, traditional dealership management through the years, has always taught dealers that every department should stand on its own, and I’m sure that was correct in a different era. But things have changed. Margin compression is here, it’s not gonna go away and if you try, and optimize your front end growths in the used car department, as many dealers are doing, it’s going to cause you to sub-optimize total dealership profitability because you’ll be denying yourself volume, which will deny you of necessary FNI income as I said, fixed labor and parts income.
Jim Fitzpatrick: Sure. Last we spoke at NADA this year back in March, you made the statement that today, dealers running their used car departments are kind of like individuals out there buying huge blocks of ice and putting them outside but right now, it’s 140 degrees every day. A, do you still believe that and B, I would imagine this program answers that concern.
Dale Pollak: Yes, I absolutely believe that. The analogy that I’ve used is a used car, it’s always been like a block of ice, meaning that over time it dissipates. But today, that’s like a block of ice sitting on a hot plate and if I said that to you a year ago, I will tell you that it is every bit as much true today and probably more.
Dale Pollak: But one of the fundamental discoveries that we made with ProfitTime is that the number of days that you hold a vehicle does not equate to the amount of profit that the vehicle holds. So what we’re doing with Profit Time, is we’re removing from used vehicle management, the concept of calendar time, and we’re replacing with Profit Time. And what ProfitTime is Jim, is a metric that we developed over the past year and a half using millions and millions of transactions. We developed an algorithm that can essentially predicatively, not as a lagging indicator, but as a leading indicator, we can predict on any vehicle in any market in any moment at any price, what the profit potential the vehicle is and it’s likely time to sell.
Dale Pollak: And when you know that information in advance, it’s a game changer. You will make much, much better decisions.
Jim Fitzpatrick: That sounds very, very exciting. I know for the used car managers and GMs and dealers that are listening to you say that right now, they’re gonna be looking forward to getting with you at NADA to learn more about this program, that’s for sure. And I know you’ll be at NADA this year, correct?
Dale Pollak: We certainly will and you know, I just want to say in conclusion Jim, I’m making a pretty bold statement to say that we’re gonna change the way that the business manages used vehicles. And I’m so confident of it, that I’m willing to put my reputation on the line behind that statement. So I would encourage anybody who hasn’t taken the time to learn about it, to do so. We have a website now called profittime.com and if you go to ProfitTime, you can see some information, some presentations regarding the new philosophy and the new technology and you can register for a demo.
Dale Pollak: And we’ll be doing demos for dealers beginning mid-December this month, and we’ll also certainly be at NADA Convention in San Francisco and doing demos there as well.
Jim Fitzpatrick: Founder of vAuto, Executive Vice President of Cox Automotive, Mr. Dale Pollak. I want to thank you very much for your time today. It’s been very enlightening. I know as I mentioned earlier, the dealers that are watching us have this discussion, are going to be checking out the website below to learn more. Anything that will help dealers make more money and run a more efficient used car department will get a lot of traction. So thanks again for joining us on today’s show.
Dale Pollak: Thank you Jim.