Why Used Cars and Service Are Always Fighting

The age-old battle over used car recon 0:00

Steve Shaw: Welcome back, Dave Rogers. What's happening? How you doing? Look at you, looking sharp today.

Dave Rogers: Yeah, I'm out here with the big shots in California, so I figured I'd at least dress the part. Lovely weather, though. I can see why people come out here and don't leave. I really can. Until you realize the taxes and the liberalism and all that other crap that'll chase you away.

Steve Shaw: I'll tell you what. A buddy of mine owns a Ford store out there, and when we talk on the phone, he cracks me up. He complains about everything: all the taxes, all the regulation and so on. And I'm like, listen, I'm not a car dealer, and I don't know anything about that. But, bro, you've got to just sell out and go get on your boat. He's got a big old boat. Sell out and go chill out in Mexico.

Dave Rogers: Right. Go surfing or something. In the San Diego area you could ski in the morning and surf in the afternoon. It's an hour's distance. It's beautiful out here.

Steve Shaw: That's what we say: snowboard in the morning and surf in the afternoon, or vice versa. That was the best thing about living in SoCal, down in the Carlsbad area, surfing in Encinitas. My God, what a beautiful place. So if you get out there on your board today, make sure you get some pictures.

Dave Rogers: I will. I'm taking a red-eye out tonight, so I'm not sure I'll have much time for anything. We've got GM meetings tomorrow, so I'll try to get some shut-eye on the plane, do the GM meetings, head home and then fly down to Florida on Thursday. Whatever idiot planned my travel didn't plan it very well, but hey, I can't blame myself.

Steve Shaw: I always say I've got to get a better assistant. It's always my assistant's fault when something's fucked up. But what's on your mind today in the car business?

Dave Rogers: I was thinking we could continue a little bit of the conversation we had the other day, but switch it a little. We were talking about your new car challenges, the dilemma you ran into buying a new car, your lack of loyalty there, with the dealership obviously making price the number one issue for you.

But I was thinking about used cars. We have this age-old battle between the used car manager and the service manager, and the parts manager, I would say, over pricing. And it's gotten worse. Right now the used car departments are under extreme pressure to buy cars. The market is ridiculous. They're buying cars at auction for two or three thousand dollars over what I would say is market value, and that doesn't leave a lot of room for service and parts to put recon in the car. In some of my stores, it's getting to be a battle.

We do have tech issues in some cases, where they can't get the cars through the shop, so that just puts salt in the wound if you can't get people to stay late. But with the reconditioning dilemma, I'd just bring up this point to all the service managers out there: I think you've got to wheel and deal sometimes.

Your used car manager can take that trade-in, send it to auction and probably make three G's. That's not what we want. We want to retail the car. We want it sold in our backyard. We want it to service with us, certified or with some kind of wraparound warranty that gets the customer loyal to the dealership. That's the ultimate goal.

And yet we have people out there who are willing to die on every hill: "I'm not discounting this part. I'm not discounting this labor." Or used car managers who just want to be jerks about it. But I think it's getting to be a bigger issue, where I see retail used car sales going down and wholesale going up, and they're making money. So I almost can't blame the used car manager, but that's not good for business.

Used car managers on an island 4:01

Steve Shaw: Well, it's funny. My mind's going in quite a few different directions. When I consigned my RV, I sold my bus last September, the used car manager at Camping World told me his job is to find inventory. He gets paid on the amount of inventory they have. So it wasn't about whether he could buy my truck or whether I could trade my truck in and he'd wholesale it. It was, "Hey, we need units to sell." His whole job as the used car manager was to find good product and put it on their lot for sale. We had a long, drawn-out conversation about how his role was to find inventory for Camping World so they could sell it at that particular location.

And our used car managers, I get it, it's different, but they're often tasked with: "I've got to make a profit in my used car department." In my experience, the used car department has always been sort of off to the side. They're not fully ingrained, especially the used car manager. His job is to get the cars in and out, and he's not necessarily as worried about the holistic dealership. He's out here on his own, on an island. Those guys are super smart at what they do, and their abilities are amazing, but I find they're not always aligned with the goal of the whole dealership.

Every deal stands on its own 5:36

Dave Rogers: Well, the departments are designed to fight with each other, if you ask me. You have a used car manager putting a trade on a new car deal. He's trying to steal the trade, to get it as cheap as possible. That's not always conducive to the new car deal. So now the new car department is dependent on the used car department. That's why a lot of places have GSMs, somebody who's a tiebreaker. It has to be.

I used to see it all the time as a GM. They'd either bump the trade or steal the trade, whatever it is. And I used to say every deal stands on its own. If you need to bump the trade, then we bump the trade in the deal, but we leave the ACV where it needs to be, so that used car manager can sell the car and make some profit, or at least have a shot at it. But I know a lot of places where they play this game and bump the ACV and don't give the guy a chance.

So your new car department depends on your used car department giving them a fair value for the trade, which could make or break a deal. Then he takes that trade and obviously tries to make money on it. And if the general manager bumped it, now he or she is buying the eight ball. Now they bring it back to service, and what are they going to do? They're going to take it out on the service manager: "I need this cheap. Have Stevie Wonder look at this one. I don't want anything wrong." That's the kind of stuff you see.

It's very hard to be holistic when you're paid on your department. A lot of our used car managers are paid off new and used cars, front and back gross, because they have skin in the game. We've had a couple of used car managers who were actually given a piece of internal service gross, so they had a little piece of that pie. It's a very challenging position.

And you said it's the forgotten department. The thing is, it's not anymore. NADA and some of these others will tell you that the new absorption number is service, parts, body shop and used cars covering the nut. Then we want to know what our new car break-even is after that. So the used car department has to make money too, to help cover that big expense.

Steve Shaw: Right. And I'm not saying they're not tasked with making a profit. I just think sometimes those guys, because of their pay plan, and I'm not knocking anybody for working their pay plan. That's how it was designed. You give me a pay plan, I'm going to go crush it. But whoever wrote that pay plan aligned it with that person's goals, and overall it's not aligned.

Give service a flat recon budget 8:21

Steve Shaw: The thing I get carried away with, when anybody ever listens to my opinion, which is few and far between anymore, and since it's our podcast I can give it: there should be a dollar value that every car gets. Two thousand dollars, fourteen hundred, whatever number you want to put on it. As the service department, I have free rein to spend a thousand bucks, if that's what you want it to be. Just know there's going to be a thousand bucks on every car. If it's a little more or a little less, the bill's a thousand bucks.

I think we talked about this months ago. It gets trued up at the end of the month, or every quarter, whatever. But it would eliminate all of this nonsense out there if we had a budget for every used car that comes into our store. That's where my head is.

Dave Rogers: When you're appraising the car, the tools, whether it's vAuto or ACV Max or whatever it is, have a spot for you to plug in your average recon or your packs, to see what the market value is going to be. But yeah, I agree. I think there should be a flat amount, whatever it is, a thousand bucks.

Post-COVID packs that never went away 9:41

Dave Rogers: Here's the thing that came up the other day talking to one of my managers, and I think everybody in the department has to look at this. Post-COVID, when everyone was making money despite themselves, the general managers threw a bunch of extra packs on cars. They put on used car packs, all these extra packs, because the grosses were through the roof and they were trying to control commissions. And they went back to the service manager and said, "Hey, put this, this and this on there. Raise your price for this, for state inspection," all these crazy numbers.

I was talking to one of the managers the other day about the used car certified inspection. Just the inspection. For some reason it doesn't include the oil change anymore. It pays 1.9 hours, and they're charging three hundred dollars. And I'm like, wait a second. It's basically a multi-point inspection, which we give away for free all day long. I'm not saying we should do it for free. The used car inspection is a little more involved than a multi-point. We want things a little more detailed.

But it always used to include an oil change. It was an hour on a regular used car, an hour and a half on a certified, because the technicians have to fill out extra paperwork. There are a hundred and fifty points, as opposed to forty-one on the multi-point. But it always included an oil change. And the service manager I'm talking to goes, "Well, no, that's separate." I'm like, well, it shouldn't be separate.

I asked, "How much is the inspection, the oil change, the state emissions and the state safety that have to be done on every car? How much is that before you even get started?" Five hundred bucks. I said, well, that's a problem. No wonder the guy's squealing. It's a nickel before you even move past "What's wrong with my car?" And in your example, I've got to make it a fifteen-hundred-dollar minimum RO now, because a thousand bucks gets burned up with tires and brakes. It doesn't take that much.

The other thing I started laughing about was that they were talking about cosmetic stuff, like wheels. Listen, if your used car manager hasn't looked at those wheels, the bumpers and the dents, and doesn't know there's a star in the windshield, it's not necessarily your job to give a quote. You might want to point it out. But they should know that before they even run the car back to service, if you think about it.

Steve Shaw: True. Well, listen, we all have a dollar amount. I don't know what that particular amount is regionally or nationally. I'll say two thousand bucks. Maybe it's fifteen hundred. What's your average recon right now? Why can't I just look at that and say my average recon is fifteen hundred bucks? We can figure that number out easily enough. Then say, instead of fifteen hundred, I'm going to make it a thousand bucks: "Service department, you've got a thousand bucks to play with."

If you go a little over or a little under, great. We'll true it up. Maybe every ticket comes out to that thousand dollars, and then there's the credit, or whatever. I'm getting a little ahead of myself. But every ticket's a thousand bucks. Some are a little more, some a little less, and we true up at the end of the month. The used car manager's most likely going to come out ahead on that. One month you're ahead, one month you're behind. Maybe it goes to your policy, maybe it goes to service policy.

But think about what we just saved by having a standard number. Think about all the nonsense between advisors and managers, chasing this guy down: "Can I do this one thing or not?" It would make everybody's world so simple if we did that.

Dave Rogers: Yeah. I don't know what percentage of the cars it is anymore. When I was talking to this particular service manager, there were five or six tickets on her desk with three-thousand-dollar estimates she had to discuss with the used car manager. That lends itself to one-on-one negotiating, and you've got to cooperate. Everyone's got to be a little polite to each other and maintain professionalism, because these things can get heated.

As a service manager and in fixed ops, I want the money. I want all of it. I don't want them wholesaling the car. But I do understand the conversations, and I used to have them all the time with my managers. I think the thing to mention is: let's make sure the base point is correct. Let's make sure our packs are reasonable now. Let's make sure our recon is reasonable. That inspection shouldn't be a nickel to do everything. That's a little excessive.

We found one store the other day where, I guess post-COVID, they had permission from the GM to put nitrogen in the tires of all the cars, and they were charging $175 per car. It's a sixty-dollar job. And then we find out half the techs might not even have been doing it, because the machine wasn't working all the time. That's not the money I want in fixed ops. I really don't.

I want every dollar I'm entitled to, every dollar that's legitimate, legal, moral and ethical. But I certainly don't want to take out my used car manager's lungs, and I'm certainly not looking to take advantage of any customers. But we get lazy, and we don't even go back and look. Four or five years ago were different times, and GMs had different philosophies on gross profit. I think everyone needs to step back, especially if you're new in a store, and ask, "What the hell's going on here? What's my pack? What are we charging?" They were putting on detail packs, gas packs, delivery packs. They were packing the shit out of these used cars.

Fee'd to death on a Chrysler 300 15:29

Steve Shaw: Well, I'll tell you this. After I talked to you yesterday, I decided I'm just going to find myself a driver to get back and forth to the Keys. I've always driven a Chrysler 300. When I'm out on the road, I'll generally rent a 300, because it's a big car and it's comfy. So I went to find one I can buzz around in, and I found one not too far from me. The price on the internet was twenty-six thousand dollars. A 2023 with 30,000 miles on it, $26,999 or whatever.

So of course I sent off an email: "Hey, what's your out-the-door price? I live right down the street. I'll come buy it." Thirty-three thousand dollars was the price that came back to me. And they had a $1,999 reconditioning fee on top of the price listed on the internet. Where do we get off fee'ing somebody to death?

The price is twenty-six thousand. I'm thinking they're going to call me up and say, "Well, Steve, your out-the-door price today is $24,999, plus tax, title and license." How does it get to $33,000? You just jacked it up six or seven thousand dollars when I'm thinking it should go down a thousand. And again, I'm in the car business, so I get it. But what are all these fees doing?

And now in Florida, I'd never heard of this before: a battery fee. It's a dollar fifty. You've got to fucking put a dollar fifty on a ticket? Why don't you just eat that somewhere? Because when I see a dollar fifty on the buyer's order, all I'm thinking is you're just trying to whack me for a buck.

Dave Rogers: What is that? They maintain the battery in the vehicle while it's on the lot? Is that what it's for?

Steve Shaw: It might be a disposal fee or something. Honestly, I have no clue what it is. I could go ask.

Dave Rogers: Now, you're in the state with unlimited doc fees too, right? Don't they charge fifteen hundred, two thousand bucks for doc fees on a car?

Steve Shaw: I think you can. And then a lot of stores will say "no doc fee." Really? Listen, that's like if I called you up, Dave, and, well, I tell you a lot of stuff anyway, but if I told you all the nonsense I go through every single day of my life, I'd make myself look like an idiot with all the goofy shit I do, and you'd never hire me again.

All the stuff it takes to run my company, or your company, all those things we do below the surface: the duck is paddling below the surface while it glides across. Every time you put a dollar fee on that buyer's order, it says to me, "You're a fucking idiot, and we're just trying to screw you over." It blows my mind that we have to put it on there. And it's not just the dollar fifty. It's four hundred fifty dollars for this and three ninety-nine for that. And then this guy has a reconditioning fee on the buyer's order. I'm not going to buy the car. I'm not even going to take your phone call to bitch you out.

The race to the bottom online 18:40

Dave Rogers: Well, that's where the FTC's recent regulations about advertising come in. They've issued a lot of guidance in the last six months, because of what's been happening for years. Listen, the dealers aren't innocent. I'm not going to say anybody's innocent. But I've been saying this for years: we got this software, vAuto, which was developed by a guy who doesn't give two shits about car dealerships. He claims he does. All he cared about was selling software to Cox Automotive, making a bazillion dollars and writing books. Just like Scott Painter from TrueCar. It's like socialism in action. They don't care about it. They're the only ones allowed to make money. That's the way they do it. So it's a race to the bottom.

With vAuto, when you're appraising cars, it's looking at what the market is on these cars. You want to be at 85% of the market. So if a car is $10,000, you want to be at $8,500. That's going to be my cost on the car. How do you get there? I've got to add recon, I've got to add this and that, so I might have to offer you five grand for this car so I can be at 85% of the market and have a little room to play.

But the problem is that the market price has been so diluted by people like the ones you're mentioning. They list that used car for twenty grand, and then they put these hidden fees on it, so that when you get to the dealership it's really a $27,000 car. Because you have to have the doc fee, you have to have the reconditioning fee, it included $2,500 in trade equity, it included fifteen rebates that don't exist, all this other shit. And the third-party sites have allowed this for years: AutoTrader, Cars.com, CarGurus. They've actually rewarded people with these lower prices, prices you can't buy the car for.

So it's been a race to the bottom, and now I'm trying to get this car to fit in the slot, and it's almost impossible. That's why these guys are coming up with all these extra fees. They're like, "Listen, I can't put this car online for $26,000, because it's going to be on the fifteenth page of the listings if you sort by price. Nobody's going to see it. So I list it at $20,000, and then I put all these other bullshit fees on it." Now the FTC's cracking down on it, which they should. A lot of dealers have been doing it with new cars too. And the issue is that it puts everybody under the same blanket, where you're being nickel-and-dimed by fees, like getting a dollar fifty fee for a battery.

I'm out here in California, and I looked at the disclaimer on the website. There are sixty dollars in resort fees per day that are going to be on my bill when I check out. Sixty dollars.

Steve Shaw: Well, wait until you get your rental car receipt.

Dave Rogers: I didn't rent a car. I know, it's crazy. Sixty dollars in fees.

Steve Shaw: Your rental car's going to have another ten thousand dollars' worth of fees on it because they can. They call it the traveler fee or whatever, and you just pay it, because they need the tax money.

Dave Rogers: There was a two percent traveler fee, and another half-percent fee with the same name, traveler fee. I'm looking at these things, and the FTC's clamping down on car dealerships, and yet the state and all these others do this.

But listen, it's a legitimate point you bring up, because as we tie it back into service and parts, this is where it matters: we need the customers, and we need to treat people right and serve them. We need those used cars sold in our backyard. Certified customers are a lot more likely to buy a new car from your dealership the next time around, too. That's where the certified program becomes really handy and really good for customer loyalty. Chances are, if I buy a CPO from you, the next car I buy might be a used or new car from your dealership. So everyone has to keep in mind that $2,500 RO your used car manager is bitching about. If you've got to give him a couple-hundred-dollar break, it's well worth having him sell that car in your backyard. You get a customer, they get a customer, and it keeps the wheel going.

Tie service and used cars at the hip 23:08

Steve Shaw: I agree a hundred percent. The service manager and the used car manager should be tied at the hip. And I like the idea of paying the used car director on part of the internal gross, or whatever. I did a research study seven or eight years ago where I studied CarMax, Carvana and those reconditioning outlets, and how they did business. Back then, I'm going to say their labor rate was literally 50% to 75% of what we would charge. So they're getting those cars out there at a lower price than a dealership can.

Again, I'm not telling the car dealer not to make a profit, but there's got to be a give and take. If we're going to compete with the big-box retailers, there has to be some balance. I'm just thinking out loud, but I would probably set a rate that isn't my full retail rate, and I would have a definite budget for every used car. And I'd probably give my used car manager a get-out-of-jail-free card or two every month, where he gets it for cost, if that's what he needs. Maybe it's based on how many cars he sells: five out of a hundred, or ten percent of his cars he can have for cost, whatever he needs to pull it out of his ass.

If we don't have that kind of relationship, then there's always going to be that clash between the departments.

Dave Rogers: I agree with you a hundred percent. There needs to be some intervention. That's where the general manager becomes the referee. You need to get involved with these things. We can't allow the service manager and the used car manager to be Rock 'Em Sock 'Em Robots all day long, where you've got to push their heads back down when one gets knocked up. We shouldn't be in those kinds of environments. There should be some parameters. Everyone should get together and talk about these things.

Because, as you say all the time, we are just creatures of our pay plan. If I'm a used car manager who gets rewarded for wholesaling cars, and there's nobody stopping me and no intervention, and my GM's asleep at the switch, man, I'm not even putting the car through the shop to get the five-hundred-dollar check. I'm just going to send it right to auction.

So we need to make sure we're sharp. I think post-COVID everyone just got lazy. People have just gotten dumb. I always say, "Don't do dumb," and they're doing dumb. You can go back and revisit it. The used car manager's steaming that the service department is charging a hundred seventy-five dollars for nitrogen, and nobody ever says anything. I don't look at internal ROs for my stores. I'm not detailed like that. If I stumble on one while I'm nosing around in the system, I see it, but I don't know what we're doing. The GMs have autonomy to do this stuff, and we had a GM there who let them do it.

And you mentioned the mulligan a second ago. Listen, I think there needs to be some way for a used car manager to get out if it's not his fault. If he gets caught in quicksand, you've got to help him out every once in a while.

The CarMax and Carvana thing, though: their accounting is different. They put that money to an expense line. I used to see it all the time when I had the Nissan store. I'm in the Nissan closed-bid sale, and CarMax had a Nissan dealer, and they were buying every car in the lane for two or three thousand dollars over what MMR was at the time. We could never understand it. How are you making money on this? They reconditioned them and shipped them all over the country. But it wasn't considered reconditioning. Their structure was: the car's a car, and then they put the reconditioning below the line. It still hits the bottom line that way, but it's different accounting. I don't know if that's still the way they do it.

I know some used car stores do the same thing: fifty bucks an hour, cost plus twenty on parts, stuff like that. I'm okay with it. If that's the model the dealer wants, then that's the model. Go work somewhere else if you don't like it.

Steve Shaw: Exactly. I think it has to be structured holistically. But also, the dealer's got his money tied up in this car. How many days can it sit on your lot? We want it frontline-ready in twenty-four, forty-eight hours. If I can't find the used car manager, or we're sitting here haggling for hours and days before we order parts, the car just sits and sits. Now my technicians aren't productive, my service advisor isn't productive, and my managers are battling it out, when I could simply say, "You get X, Y and Z dollars to spend."

As soon as that car goes through finance, the parts are ordered. There are so many processes you can set up if we have a budget. And if we have an issue with one or two, we can solve those, instead of dealing with all of them every single month. It seems like we step over dollars to pick up pennies. That's what I think.

Dave Rogers: I agree a hundred percent. We always do that. That's the car business, man. That's what we do.

Inspect what you expect 29:11

Steve Shaw: And then we try to pass it on to the consumer. Being a consumer, I've just got to tell you: if I were a car dealer today, I would go call my store, I would go shop my store. I'd do something to see what kind of nonsense is actually happening in my store, because I'd bet that if they knew what was going on, they'd be outraged.

Dave Rogers: Absolutely. We talk about it all the time in the staff meeting: stop calling the managers on their cell phones. Call through the desk and see what that experience is like. Do that every once in a while. It could be painful. It really could. It's like listening to recorded calls. That hurts sometimes. It's not fun to listen to those calls. That's why I love the AI part, where it summarizes the call for you and lets you know you had a bad phone call, instead of you having to listen to the whole thing.

Roll that into the GM tip of the day, the owner tip of the day: you should inspect what you expect. You need to get a little more granular on used cars, used car reconditioning and what's going on in those departments. Make sure you have a process in place. I know, "Oh God, a process." Have a process in place.

Maybe there should be a pricing structure. If your average recon is eighteen hundred bucks and your average cosmetic is five hundred, give the shop thirteen hundred dollars, including their inspection, and let them have it, to speed everything up so the techs aren't bringing the cars in and out of the shop. Those later-model, low-mileage cars are going to fit into that window.

And then I think you've got to spot-check. You've got to make sure nobody's abusing the system. You don't need your used car manager abusing the system, and you don't need your service manager abusing it, because people will abuse it if it's left unmonitored. So put a process in place, and like any good process, there are checks and balances, and you make sure you're the one doing the checking. That's all I can say if you're a GM.

Steve Shaw: That's it, brother. Right on. If we were any more focused, this would be a training program.

Dave Rogers: Imagine that. Well, let me go. I've got to learn a little more about Reynolds and Reynolds today. All right, I'll talk to you later, brother.

Steve Shaw: All right, have fun.