Wake up, Buy Here, Pay Here people. It's a beautiful day. Go grab yourself another cup of joe and say hello to Jim and Michelle Rhodes on the Buy Here, Pay Here morning show. Take it away, you two. Hey, hey, good morning. Happy Friday. Waiting for us to pop on the screen. Yeah, there we are. A little bit of an internet delay. Just a second. A little bit of a tongue delay for me. It's casual Friday. Jim, this morning when he was getting dressed, he's like... I think I'm going to wear flannel. And I said, great. You know, he usually dresses so professionally. And I'm like, you know, you watch a lot of podcasts and people can be in athletic wear or whatever. Well, there's a couple things. I mean, we're seeing our first snow on the mountaintops. So that's a thing. We had our first pumpkin spice latte yesterday. And then, you know, today we're talking recon. So it just kind of, I don't know. It's just a casual day. You know, you don't wear your nicest stuff in the shop. Yeah. Yeah. And it's Friday. Yeah. Looking forward to Jim's son is coming this weekend to come spend a little bit of time here and hang out with us. And it's just beautiful because the fall colors are starting to pop. What do we have for announcements? I know that the discount for buyer, payer, dealer forum has passed, but I know that you can still get tickets to that. So if that's something that you need to want to do. go to niada.org. I better not say. When you get that wrong, you end up on some sort of a doll website. You do. It's like about dolls. Okay, so it's right here. It's niada.com backslash bhphdealerforum. There you go. okay get yourself registered and get out there for that so all good stuff yep um uh anything from any other thing you want to announce anything any insights and something that we're going to be talking about later that you guys had a good v-aid meeting last night so much stuff yeah yeah we had a couple good meetings this week and I have um Two more have won each of the next two weeks to wrap up. There's still time, by the way, for those dealers that are in the five hundred to two thousand account range or the dealers that are brand new. There's time to get in those meetings for October. So yeah. And then also for the conversation around pay plans. Mm hmm. We have a guest coming for that. And so only people that are members of V eight will have access to that. So there is still time to get in and get access. It's going to be a really great conversation around collectors. You're not, you're not covering any of the departments. No, we're going to focus just on collectors. Cause it's, you know, we're trying to keep it a little brief, you know, keep it to hour, hour and a half. And, and so, yeah, we're just sticking that one line for that one. Sounds great. And have some more in probably November. All right. So we had a really great conversation because we usually talk about what we're going to be talking about. Sometimes we're figuring out what we're going to be talking about the morning of. But we had a great conversation this morning about what we're going to be talking about. And Jim took me through some of the tools that he's built for this. And my job here apparently is to play as much of devil's advocate as I can and Um, but I still will have like, okay. Yeah. I'm, I'm, if I, if I stray from, No, there will be no straying. There will be no straying. No, we don't stray. On a Friday, no. No straying. Okay. So we're talking about recon and faster recon. Jim put a poll out early this morning. I mean, I woke up this morning and saw that he had put it out there like three o'clock our time. I was like, someone wasn't sleeping. Yeah. That was up. That happened to me on occasion. Yeah. So he posted a poll and do you want to show? I'm not going to try to show it. I'm just going to give an update on it. It looks like I probably need to refresh, but it looks like you have twenty three respondents so far in the poll. And. Recon. Okay, so let me just read it for those who haven't seen it yet. It's a dealer-only poll. It's on BHPH Success Group. So if you'd like to participate in that poll, please find it in Success. And it says for those where capital is not a limitation. In other words, money's not your barrier. Money's not a problem. Right. Then which of these most prevents you from increasing sales by fifty percent? So if I want to sell more and I have a chance. So fifty percent is a huge increase. And so outside of capital. OK, so because I think it's a different it's a different conversation when you say by tenth. Right. You know, then when you say by fifty percent, if you're really going to charge up what and increase what you're selling, where is your bottleneck in that? That's what I. So the questions were the first one was nothing is limiting growth. And there were a few people that have. There was one. Just one. OK. And then. The other limitation would be acquiring that much inventory. So it's a buying side. And did anyone vote for that? Yeah, we got a couple of votes on that. And then recon came in at twenty seven percent of the votes. So the recon getting that much inventory repaired and reconditioned for sale. So that's part of where this topic came up. We hear it. across social media. We hear it in our V eight groups. It's like, uh, we heard it in two different groups this week where they're saying recon is our bottleneck. If I could recon more cars, I could sell more cars. So that's, that's the thing. A little over a quarter so far that have responded have said it's recon. Okay. The, the, the largest, um, one coming back in so far, which kind of surprised me, but, but, but, but, but, but, but, but, but, but, but, but, but, but, but, but, but, but, but, but, but, but, but, but, but, but, but, but, but, but, but, but, but, but, but, but, but, but, but, but, but, but, but, but, but, but, but, but, but, but, but, but, but, but, but, but, but, but, but, but, but, but, Sales traffic. We don't get enough leads or qualified applicants for that. There's a lot to unpack with that because there's traffic. What's a qualified lead for you? That can go into how much you're asking for deals. down what's their opportunity to write in what's their down oh yeah what's lots um so the other options oh one person added um space limitations like you know I don't have it in the lot okay that makes sense yeah um but I okay so on the space one I'm gonna squirrel really fast okay Um, we've witnessed whoever, whoever it is that put space on that. We have had dealers that have a lot big enough for under twenty cars turn it two to three times in a month. So it's that the idea that you have to have all the cars on your lot at one given time in order to sell that many is it isn't true for everybody. So space, you know, I know when you see a small lot that people feel like that's a barrier, but it doesn't have to be. It doesn't have to be as long as you can replace the cars, right? If you can buy, if you sell to and you can quickly, your pipeline is such that you can replace those two spots, then yeah, turning that lot over two to three times is doable. I've done it myself in my own dealership. I've witnessed, we've worked with dealers for many years where they consistently did it like almost didn't go a month without at least two times turning. And I've seen, you know, for the one that got the most votes, and we can talk about this. We have many times, but we can talk about this more on a future date about leads traffic. And so leads are always an issue. And, you know, just getting good leads in the door or actually just getting them to show up. that's the other thing well and getting our sales people if we don't use a bdc getting our sales people to follow up like it's something we heard in our meetings this week again as dealers are saying I have trouble getting my sales people like I could stand over them with a baseball bat I mean really when I'm kind of took that approach that I could stand over and I cannot get them to call the customers certainly can't get them to call somebody who's more than three days you know seven days so the funny thing about that before we get on to our like a real real topic is I um I met a gal at an entrepreneurial function in the Salt Lake area, and she invited me to her business because we got into a conversation about how she can change up her marketing some. And she invited me into her business, and it's a hot yoga spa. And the business model, I'm just like, this is amazing. But her biggest problem is getting her team to respond to the leads. So it's not just us. It's like this is something that a lot of businesses struggle with, is getting the team to respond to leads. And that's not our conversation for today. We have something we can come back and talk about that. Because that's something else that's come up. Yeah, but it's about recon. And so, so let's dig in. So probably a little bit of history. We've kind of touched on in past podcasts, we've touched on bits and pieces of this. We've talked about elements of this. So let me kind of back up and give broader background. I was in the retail and sporting goods store business before I ever got in the car business. Okay. So, being aware of inventory turns and measuring, you know, how fast stuff turns is something I came from before I ever got in the car business in ninety five. Then in ninety seven, I stepped into buy here, pay here. And with buy here, pay here, I managed for a couple of years before becoming a consultant, travel all over the country. So I can in my experience, though, I can point to at least three times where I was either the owner or the manager with with control. Let the manager with the checkbook. Yeah. So it's like full control over what's happening. So there are at least three occasions where I have utilized the techniques or strategy that I'm going to lay out for folks today. And I can just tell you people, you're going to hear people. And this always kind of runs through my head about because we hear it when we talk to dealers, when we hear it in the meetings. V-Ape meetings, dealers talking to one another, you hear kind of the mindset about, you know, this is a limitation. And sometimes it's the difference between a real limitation and a perceived limitation. So I want to kind of bust through a lot of that. There's a lot of kind of myth busting that I want to kind of deal with here today because people have this perception sometimes that we we have limitations or we have decided there are some limitations so we choose not to pursue this channel anymore because you know we gave up on it for whatever reason or whatever or maybe we just never been introduced to the concept that I'm going to share here today but you know when I think about our ability to recondition cars more quickly There are some elements. So for today, what I'm going to ask our listeners to think about is just outside reconditioning, okay? So if we were to farm out labor outside, and so you can hear the dealers now, right? You can hear it? Oh, yeah. We kind of went through and discussed all of the, like, But I think it's kind of a piece to bring up is that not all dealers have a shop in-house. True. Absolutely. And so we put dealers into business. all the time and um and that's one of the questions you're going to do in-house or not in-house you know farm it out external and it is absolutely possible to get great work done with not having it inside your business and that's part of your business model we're going to map out some of the reasons here today so I want to try to give our listeners um some very specific steps that they can take. And keep in mind, I did this. There's one example where I stepped into a general manager role with a group that had four locations and volume was really low. Cars were dusty and just kind of sitting and what have you. And we had some other problems with outsourced mechanic shops because none of the buy here, pay here stores had their own shop. So in that whole process that I went through, it was a great learning experience for me, but it was really a matter of, you know, kind of shaking people from their attitudes and kind of mindset about what can be done, what's possible. Right. So that was a good example there. And then later, there's a lot of can't do that. Can't do that. Won't work. Can't do that. Won't work. And, and sometimes that comes from experience of, but you know, maybe it was approached in a, in a different way than what we're proposing. Right. or that you've seen other people and their stories have been bad or, you know, and it's like, you can't do that. I'm just, it's like, this really is a solid answer to this. I want to increase my sales by double and recon is the bottleneck. Yeah. Or whatever it's double, if it's twenty five percent, fifty percent, whatever the increase is. I'm just saying. Yeah. One of the keys. to being able to recondition cars faster is going to be around. And I'm going to go through the actual step by step things that I would recommend and kind of tips of things to do. But I would say you first have to recognize that you're making an investment that I think when we show you the math, you'll see that the investment that you're making exceeds the investment that you typically make in a typical buyer payer structure. So again, we'll go through this math, but I think we have to really get comfortable with this idea of opportunity cost. So does it cost me more to send cars to an outside shop? Probably will. Should we pull up what an opportunity cost is? Because, you know, unless you're really familiar with that, with the phrase of that, yeah, I think it might allude to some people. Yeah, a quick Google search says that the definition of opportunity cost is the loss of potential gain from other alternatives when one alternative is chosen so you choose one and in doing that you're going to forego the opportunity that existed on the other so you have to calculate that into your decision right you want to conclude that in the math when you're kind of exploring the choices so now this premise is that we're going to start using outside shops to recondition our cars why because Again, we're putting aside the other, we've got some assumptions here. So we're assuming we got the capital. We're assuming we got the manpower. We're assuming we don't have trouble buying that many cars. We can buy them. Manpower where? Sales? Wherever. Could be in the shop. I don't have enough people to be able to turn more cars. I can't sell more because I don't have enough sales people. Well, you just said that you have enough, that you have the manpower. Okay. So you're talking more about like the team to be able to close sales. So it's just, we're looking at vehicle. To narrow our focus today, I'm saying I'm putting aside, we're making those assumptions and saying we've got enough money. We've got either access to line of credit or funds to buy more cars. And we've got the people to be able to sell fifty percent more, whatever the thing would be. And if we're saying recon is our only bottleneck, then I'm going to suggest to you there's a way for you to move beyond that bottleneck. And I promise you it could work in any market. Yeah. And we've taught this principle many times. Yeah. It's because I've used it. I mean, I went into a business that was not producing at a decent sales clip and we fixed it. So there are steps to this, though. I mean, there are rules that Jim has set. fleshed out whether or not they they work and um so do we want uh let me start showing I'll show the first one so the first one step tip number one I'm still suggesting that you would keep the assessment and the diagnostics in-house. Why? That's huge because dealers know that do this kind of thing. Being able to get a good diagnosis the first time, like having a tech or somebody on your team who can get in there and get the diagnosis right the first time, avoids that scenario that I call, and I picked it up from others, but this idea of throwing parts at stuff. Yeah. Right. We just saw that with a family member. is they're going to give you a shopping list. And it's just like, I go get my oil changed and it's like, you need to have this done and you need to have this done. So if you're just sending it out there and having a third party, unless it's a very trusted third party, go through and do the diagnostic you're going to get a lot of superfluous stuff that's thrown in there that we need to do and it will cost more so when you've got somebody who's good at diagnosis they're going to try to get the diagnosis right the first time there's another element to this when you do this then I think what we have to be prepared to do is help the um sorry I'm fixing something before we get to that next step um the the thing we have to fix is this idea that we're going to get the diagnosis right as much as we can. And when we farm out the work, we're going to be hiring them to do a job. We're ordering, we're requesting a job done. Okay. So here's this, here's this, you know, Ford focus, whatever. I don't know if they still make Ford focus, whatever, but pick a car and say, here's this car and we're hiring you to replace the water pump. Okay. And so the shop is over there saying, well, if the water pump doesn't fix it, you know, I don't want to be responsible, which is cool. I can accept that responsibility when I get clear with them and I should work with them. I'm hiring you to do that job. I accept the responsibility. That doesn't solve the problem. That's on me. I want to just like side note to everybody that's listening to these tips. We're going to go through the numbers in just a minute and what it means to your business and your volume. Right. And what it's really going to cost you. And what you're missing now. And what you're missing now. So these are the rules around that we advise people to keep. So it's kind of process. I'm trying to help people visualize. How would I do that? Like if I said, yes, I wanted to increase my volume fifty percent, I recognize I'm missing some opportunity. then how would I get there? And so what I'm telling you is, we'll go through more of these points here, but what I can tell you is that the thing that happens with this is that you get to a place, I got my wrong thing open. I can't seem to do it on this device. So I'm sorry, bear with me. Do you want me to add that to the stage? The second, no, just the second bullet. We can move on to the second bullet. okay there's a one a yeah so okay one a all right this is a big one yeah this is a big one because we know and it's like I'm the devil's advocate their rate is going to be a lot more expensive than my rate yeah if I'm doing it in house if it's my if it's my dealership and I have my own service department then you know I can charge my sales department I can charge at retail, whatever. And we've seen that. It's almost immaterial here. It's like it doesn't, that's not the significant part of what we're talking about here. So you're going to say, yeah, but Jim, if I do that, I'm going to give up this profit that I would share in my own service department. But you just told me I'd sell in a month and you can't recondition anymore for whatever the reason is. It's kind of like back to the thing about, it doesn't matter why the car hasn't sold. It's got to go away. It doesn't matter. You can talk to yourself. Oh, but it's still a nice car. So drive it. It doesn't matter. It's been passed over again and again. It's got to go away. So in this case, same thing. It's like what we're doing is not working. And so we're going to pay their rate. So if I show up to Joe's garage and I say, Hey, you know, I've got some stuff I want to bring your, your way, how you guys on your schedule, would you be able to fit a couple in this week? And part of this pay their rate, at least for a while is when you're shopping for mechanics, when you're starting this process of like, you're introducing yourself to a new mechanic, um, Um, this is pay their rate at the beginning. Uh, and, and, and the reason, uh, the reason for that is, is because they're going to start to see, um, some of these other tips talk about it a little bit, but they're going to start to see, okay, this is, um, this is another revenue stream for our shop. I mean, and, and so just pay their rate at the beginning so that it's, it's also a way for you to build trust. with the mechanic and also pique their interest. Well, and alternatively, I could go in there and I could sit down and say, hey, we're a big operation doing twenty five a month. We're trying to get to forty. And so if you guys could help me on the labor rate, you know, I know you guys, your publicized rate is one fifty. But if you would do one hundred twenty for me. But they don't know what your volume is yet. Yeah. You can tell them. You can make some promises, but they don't know their volume. And then this kind of flows into paying their rate. You know, once people see what the volume is, you know, that you're going to have that, they're going to, this is the tip number two, avoid promising all the work to one mechanic shop. So I've had mechanics do that. So I went through this in Texas. But I can get a really great deal. If I give them all my business, instead of the one fifty, they're going to go down to one twenty. It's up to the shop to decide. But if I go to the shop and the shop says, and I've had this happen, they'll say, I remember one in Texas said, I'll give you a better rate if I can get all your work. And if I was talking to that person and I could turn around and look at the lot, I could probably see ten or twelve of our cars in their lot that weren't in the shop. And so they're just basically storing the cars already. So the point is this. I'll never promise all the work to anybody, but what I can tell this person, I said, if you're quick on the work and you, you, you get too ready and the work is good, you, you get it right the first time and the, and the work is good. You're going to get most of the work because it's now it's a hustle thing. Like you can earn most of the work, but in this scenario that I'm really thinking, I want you to imagine going out to five new shops next week and you're going to say, well, there aren't any, well, you may have to drive a little farther. And it's probably going to be worth it to you because when you drive thirty minutes more to find a shop, then you're going to find that once you can choose multiple ones and you're going to feed them two cars at a time. Okay. That's it. That's why you can't promise. And this is, this is, I promise you, this is the key to getting this stuff to turn. Two cars at a time. Max. Max. That's. And so this is why. So what happens? That's an important thing too. It's like two cars at a time. Right. Yeah. And so now this is where you start to get things moving because why you've got five different shops, rate may vary, how quickly they work may vary. I may have one shade tree guy who really only works in his own shop on his weekend and he only gets me one car a month, but that's a car that I wasn't being able to get through my own shop anyway. Right. So, but I'm, again, I'm using five shops and the ones who get it, like they'll start to understand right away. Oh, wow. We finished those two and two days and we got two more just bam. Right. And so, yeah, that's where, when you say, um, uh, that you're paying their full price for a while. Once they understand what it is that's happening, that that's when they're going to, they're either going to say, I want all the work or you can say, you know what? How about this? We'll give you two at a time. And, and you can do as many as you can. That's the same thing I'm going to say to everybody who asked me, I just say, I'm never going to give anybody all the work. I've said it plenty of times to the shop because they, they do try to get all the labor and all that slows me down. But part of this, of them getting what it is that you're doing is you need to need, we strongly suggest that you're very quick on the money that when you go to pick up those cars, you are paying them. Well, whatever the arrangement is, like if they expect cash on the button, then yeah, I'm going to take a check. And so just fax me the invoices. We don't use fax anymore. Get me the invoices and we'll bring a check for those and we'll pick those two up. So we'll ask them a lot of times because sometimes they have bodies on their side that are sitting around. So they've got two ready. Do you have the people to be able to drive them to us and we'll have two more ready for you when you get here? Or do you need us to come get them? So we'll bring you two more. And so just kind of back and forth, whatever makes sense, because it's my best interest to get two more in on the lift over there as soon as possible. Yeah, true. One of the beautiful things about your team going out to pick them up and taking two cars is that they get to drive the cars. So what happens? Let's say, for example, all my shops now are within thirty minutes. Now, let's say I pick five more shops. I have to drive farther out to the edge of the county or even the next county to get some. So now maybe I'm driving a full hour. But what that means is I'm getting the two cars that I bought that we've assessed and we know that they just need some kind of alignment work or whatever. Then we're going to have an hour to drive. We got two drivers going out with two cars. We got an hour out and then an hour back with the cars that are just coming out of the shop. Yeah, and this is a whole other thing that we really, really encourage dealerships to drive their cars till they're nice and warm. And that your team, it's like all of the cars are being driven at some point where they can get nice and warm. And it also helps the team learn the cars a little bit better. Yeah. And that reminds me on the thing about getting worms, like back to the assessment part is sometimes it's difficult with these when you've got a car that maybe you bought it, had some body damage and it's really not drivable. Like it needs a front wheel repaired or whatever, and you can't drive it. Well, that's kind of challenging and dealers are taking some risk there because sometimes you don't know until you get a wheel on it. and go drive it where the transmission is performing as expected. You can run some tests or whatever, but until you actually get out and put it on the road. So this is the tricky thing about them, you know, getting a full assessment. Like I really want a full assessment. This is why I want to keep my shop and my people. When I've got somebody who's good at diagnosis, I want them to do that diagnosis. We farm out the job to be done, and dealers will get comfortable. There's parts people are going to be saying, well, what about parts? I'm going to pay more for parts. Maybe. Yeah. But when you see the math that we're going to show you, even if you're paying more for parts, you're going to be well ahead to get these cars done. Because what we're talking about is business that you're not getting now. Yeah. Right? So, I mean, the tip four is right along. It says be quick with the next car. So it's like you drive and drive and replace. And then this next one is... is one that I've heard okay is stopped that there's no hungry shops it's like everyone is in a deficit for texts because they all have too much work and not enough texts and it's like it's not true is that true as long as we keep telling ourselves that that's the case then we're Just like you're trying to grow your business, there are new shops that are opening up. I mean, there's a lot of opportunity where they just got a new tech. And so now they can open up for a few more vehicles during the month. And so everyone is in this expansion in their businesses at some point or another. They're going to be in an expansion mode. And so it's just finding those that you're catching them at the expansion mode. And I can remember in, in each of the places that where I'm talking about, you know, my own dealership in Oklahoma, managing in Texas, managing in Tennessee, in each of those scenarios, we ultimately identified one or two shops who were hungry enough and, and got it. Like they were playing a long game and they could see the benefit of doing business with us where we, we accepted responsibility for what was ours. We paid quickly and we, um, We helped out. We were good to work with in every way that could be a customer for them. If those people are smart enough and they're out there, it's like the example I gave to you. If I sit in a V-Ape meeting and I've got eight dealers on the screen, there are probably at least two or three of those that are hungry. And they're turning, like they're moving stuff, they're making things happen, they're adding people to their team, what have you, and so they're hungry. And I'm saying if you go out and find eight shops in your market, there are going to be two or three of those that are hungry and they're going to end up getting most of the business. Yeah. And, you know, you think about in our industry, if you asked, did a survey, how many of you would like to sell more? Mm-hmm. it's a very large amount that would like to sell more. And I'm, I'm most entrepreneurs. It's like they, they want to be able to grow and that includes your mechanic shops. So it's like they're wanting more. And so you're going to reward a quick turnaround, accurate work done and, and just continue. Cause they can do two a month or they can do three. Ten a month or whatever. So we can show the. Oh, wait, there was one more. Warren Buffett. We went through this morning. The man's a genius when it comes to business. I just really, really love. He's just little words of wisdom. And he's be like Buffett. And we're not talking about the Buffett that passed away, just Jimmy Buffett. No, this is, and I'm not even sure Buffett is the one who originally, this might go back to Rockefeller or somebody, but somebody like that is quoted with this idea of reaching over dollars to pick up dimes or pennies or whatever. Mm-hmm. So this is where I think this kind of falls here, because right now we think we're so worried about paying an extra twenty five or fifty dollars an hour labor. And so that's in the scheme of what you're going to see in the math is that's. So let's look at the math, because, you know, that's one of the things that we we we hear and all of that and opinions. But if you can't measure, you can't look at it in numbers because numbers don't lie. Right. And so this is, we had a little bit of fun this morning going through this. And so those of you who are just listening to an audio podcast, please go to YouTube while you're there, like and subscribe. And so you can take a look at this. And so the way Jim typically creates these spreadsheets is the yellow parts are inputs. Inputs. So we're going, you know, your current monthly volume is thirty. We're going to say we're going to increase it by ten. So actually you were talking about doubling. So let's take that to fifteen. Oh, you mean a fifty percent increase, not double. Just our fifty percent increase. Yeah. So fifteen. And let's say your average recon is two grand. Yeah. Your average the average labor rate. We actually you know, you're that's like if you've got it in house, maybe it's ninety five and what it works out that it almost doesn't matter. But it's we did check asked this morning the Oracle, i.e. Google. what is the average mechanic rate? And it ranged from eighty five to one hundred and twenty five in the local market and like nationally kind of thing. Yes. So and so this is high, but, you know, but it was it was up to one hundred and twenty five based on what I kind of hear dealers talk about, you know. So average time hours, ten labor cost per unit sold is usually just timing that by ten. So let me try to help people understand the math and refresh your memory, too. So in the left hand column, what I've got is the current monthly volume of thirty sales a month. And if our average recon is two thousand and we're trying to figure out, OK, how much of that is labor? So we said, OK, if we were at ninety five dollar labor rate and each car averages ten hours, I don't know the number. It doesn't really matter is what you'll see is whatever that number is, is what it is. But if I have ten hours of labor per unit, that means nine hundred fifty of that two thousand is labor and the rest is other parts, whatever other, you know, shop supplies, whatever you're going to hit with the thing. And so now that's that's basically just saying that's that's our calculation. OK. And then our current cash and deal. I picked a number because we don't know. We're not really looking at the finance side of this, the down payment or that stuff. I'm just saying, let's say our current cash and deal is six thousand dollars. Mm hmm. Then let's say our current average gross profit is sixty five hundred. OK. OK. Then at this thirty sales a month, our total gross profit comes out to one hundred ninety five thousand. That's a gross profit. Now, let's say the current car payment average is running six hundred. That means those thirty sales next month are going to translate into eighteen thousand dollars a car payment. I just love this industry. I mean, it's just like because it's that that's that's those are big numbers, too. So that's one of the reasons why it's like you you you only have to sell thirty. Yeah. And this is what you will be bringing in to to the business. So it's not just next month. It's like it's for the next few years. Yes. And so. Yeah. So every month and you're adding that's compounding every month. Right. Let's say. So now we're increasing this to fifteen. Yeah. And so let me go to the bottom of the screen there. It says the total months to break out at that math are cash and deal divided by the average payment. It's just real simple math here is ten months that we would be collecting payments from the customer to break out of our cash and deal. Well, obviously, our cash and deal is going to go up whenever we increase. spend more on recon we have more dollars tied up so so over here on the right column then for those not seeing the screen your volume is I did a fifteen so a half again yeah fifty percent sales increase and I'm saying you're so if I again let me pause for a minute this has got those assumptions this assumes you got the capital to do this. It assumes you got the people and the processes to do it, right? It assumes you got the market and leads. You got the sales opportunity and market and leads. And you got the ability to purchase and replace this much inventory. So if you flipped a switch and went from selling thirty a month to forty-five a month, this assumes you have the ability to do all those things. So all we're really talking about is Again, can't emphasize enough. This is really focused on those dealers who say, I could sell more if I could recondition more. So why don't we get prepared to spend more to recondition more? Because the return on investment is outstanding. So let's look at this math. So right now, we did... we we change the only inputs on the right side now are just volume what volume increase that we're looking for and again I'm at and let's say instead of an hour I'm now paying an hour to this outside shop and let's say because we do recognize that it will be hourly rate wage will be more Right. You'll pay more. It will be more. Yeah. And that should not scare you is what we're trying to say. I just kind of created enough separation in this so you could better feel and see the difference in the numbers. Explain to me why your current average recon expense was two thousand. Now it's twenty five. It's because I still have ten hours of labor in the car. What this assumes is I'm still doing the same ten hours. Like it doesn't matter if it's on my lift or somebody else's. There's still a ten hour job. OK. OK. So now if it's a ten hour job and the labor rate is higher than now, fifteen hundred. goes into labor. And if I keep, if I assume that my parts element of that, which was a ten fifty on the left side, if I keep my parts requirements the same, then I'm at that same thousand and fifty. So now my cash in deal has moved up by five hundred fifty dollars per unit. That extra labor is really all that's happening. And I can just hear dealers going like, that's a lot of money. Yeah. That's a lot of money. Cause I mean, I'm already in this much. And so my risk is now just increasing by X. Yeah. So yeah, it sure is. Um, and let's look at the cost of not doing that extra fifteen. Okay. So that's what we work through here. So now our additional cash expenditure, this is monthly. I'm five hundred fifty dollars per unit more than I would have been know at my lower rate and I've got fifteen more units which means my additional cash exposure or expenditure monthly associated with this putting those ten cars external or fifteen cars rather externally is that about a little over eight grand a month that I'm coming up with dealers I can hear dealers again crap That's a lot of money. It is. Okay. It is. Well, let's talk about the return on these fifteen sales you just created. Exactly. So, let's not leave that part unspoken. So, now our average gross is lower. I'm assuming, again, that I keep the same price for the customer. Not the customer's fault that I use an outside shop. So, the price is the price. And don't make it their problem. Yeah. Don't pass that along. That's it. That's how we get, yeah. I call that making the second mistake. If we put a little too much money in the car, that's our mistake. But then if we price it high because of that, that's a second mistake. That's a second mistake. So, but anyway, our gross is going to be less, right? If we, our price stays the same, our gross is going to be less because we got more labor tied up in the car. So now our total gross on those fifteen units is eighty-nine grand that we were not getting. That's eighty-nine grand of gross profit that we were not getting before. We let walk away monthly. Right. And so again, you told me this is my only bottleneck. Yeah, I mean, how much can you... Yeah. I mean, that's a big chunk of money. Yeah. So let's go on down to the bottom then. Our total gross is eighty nine that we're leaving on the table. We're not we're not getting that gross profit. Our current payment is the same. Our resulting monthly inflow from those fifteen sales is nine thousand dollars a month. But what this says is now instead of having ten months to breaking out. Uh-huh. And now each contract is eleven months. I'm at ten point nine months. So you got one extra month. Right. Of risk. Before you before you break out. And. Really? I mean, to me, when I look at that and I look at all of the numbers and I've gone through and it's like, that's a lot of money, that's a lot of money. It's like, oh, it's just another month of payments. We know that we see on average so many months worth of payments. And so that's money that you would not have made had you stayed with the same business model. And it's not increasing your shops. um outflow at all it's not you're not having to do anything extra it's costing you a little bit more but you've got a good sales team that are able to to get get those units moved and so that's that's The other thing I think we don't have time to really dig into deep today, but most dealers would be able to absorb their overhead inside that thirty units. They already are, right? They're doing all the sales they can do. That's kind of our premise here is they're doing all the sales they can do. So all their overhead is being absorbed by those thirty sales. So odds are, when you increase that volume to fifteen more sales, you move to forty five, your cost increase of overhead We're not looking at that today, but it's like that's going to be nominal compared to what your dollars per unit on the first thirty. Yeah. Right. So we know that's also a consideration. But let me make it more extreme here and let's just kind of make it easier numbers. Let me put a hundred dollar labor rate on is where we are now internally. But if I start increasing this, let's say the external labor rate goes to two hundred dollars. What does that do? It's another month and a half of payments. So that's extreme, though. That's a two hundred dollar labor rate externally. Yeah. And you're not that's I don't think that there are very many unless it's for a. BMW or one of the imports that have just a lot different schooling for them to be able to work on. So let me kind of explain what people are seeing there. When I say one point seven months to recover the additional cash expenditure, here's the math. When we increased that labor rate to two hundred, now our additional cash expenditure went to fifteen grand. We had to come up with an extra fifteen grand, sort of. I mean, we were paying what we normally pay for the fifteen, but then we have this extra cost of additional expenditure of fifteen grand. But when we sell those fifteen units, that creates nine thousand dollars of incoming car payments next month. And now it takes one point. It's like one point seven ratio. I'm going to recover that money. It takes me less than two months to basically recover that additional expenditure. And so two months more of risk versus not and not having the sale at all. Like this is why I'm saying if recon is really our bottleneck, it can be solved. We may be going farther than we want. We may be paying more than we want. So let's say, let's say I even do this. Let's say I just, wow, I'm going to be, I got to have, I got to find out if I can do fifteen. I got to find out if this Jim Rhodes is crazy. Like, can you really do this? So I'm going to go pay two hundred dollars labor rate and I'm going to turn an extra fifteen cars next month. OK, so now. I'm going to do that for a couple of months. And then about the time I get my second round of statements from this dealer or from this shop that is charging me two hundred dollars, I'm going to show up over there one morning with a box of donuts and my last couple of months of statements. And I'm going to sit and say, hey, looks like we spent X with you in September and this much in October. And can we talk about a labor rate? And by the way, you know, you guys fixed two. We brought you two. You know, we turn them through pretty quick. It looks like you're getting most of the business. You asked for all of it. You're getting most of it. You're outrunning the other four shops that I added. So let's talk. Can you help me at all on the labor rate? It's a question. It's not a statement. I'm not in there, you know. But I'm in there knowing that I've got my state. Hey, it looks like we spent eighteen grand with you in September and twenty two grand with you in October. Can we talk about this rate? And and inevitably That rate's going to improve. They're not going to want to mess your business. Right. And so, you know, you can, and I can tell them casually over a box of donuts, you know, you guys are two hundred, but I've got another shop that's doing, you know, almost as much as you guys and they're charging one fifty. So, you know, I can just be honest, be transparent. Here's my situation. But I've now created an environment. The reason I want to pay their rate at the beginning is I don't want the conversation to start from an adversarial standpoint. I know dealers being car dealers would want to go in there and beat up somebody. Yeah, we're going to try to beat them down in price. And they haven't even worked with you. I'm in a much better position. I'm much more leveraged. And when you bring donuts? Right, of course. Yeah. Or a thing of coffee or something like that. Yeah, absolutely. I'm going to show up with a box of ten donuts. because I ate two on the way over, right? So- We're talking about Jim here. Yeah. Yes, Shmel, I just wanted to say good morning. Yeah, hey, good morning, Shmel. So yeah, this is part of what we'd recommend. You got to get comfortable with this idea of using outside shops. Are you going to pay more? Yes. Are you going to- Now enjoy the markup and profit from those sales and next month's cash flow that you were missing altogether. There's a lot of numbers to kind of move around, but this kind of gives you an idea because even if you took your in-house at seventy five dollars an hour with all of this, you know, whatever it is that they're charging extra and you're taking it down. you know, we said is the average costs are eighty-five to about a hundred and twenty-five an hour. So you took it down to a hundred and twenty-five dollars an hour, a hundred and twenty-five dollars an hour. It still is, it's, It's not that much. I mean, it's a month or two tops. Is it more than we want to pay? Absolutely. But the cost of missing those fifteen sales, because again, this whole premise is you're telling me that recon is your only bottleneck. And if that's true... Then one, either it's not true because it is true, then this solves it. And am I going to pay more? Yes. And so, again, I may have to drive farther to to to get these shops lined up. But, you know, when you find two or three, if I add five and I end up with even one or two hungry shops out of the five. then, you know, again, some of them may only be turning one, three or four months and that's okay. That's cards I wasn't getting to myself. Right. And so now I got them and I've got them available and my sales are up and my salespeople are fired up because we got, you know, extra inventory and it's turning. And, and so this is just the other thing I would say is like, there's a, there's a lot of elements that we can kind of put aside. If we don't have problems in the sales process, we've got leads and we got opportunity and we can close them, then, then, We don't have that problem there. So this just addresses recon and it allows you to spend more, turn more, sell more, replace more. Now your statements with that hungry shop is going up, up, up because they're doing more and more. They're turning out more stuff. And it really, you know, when you find the right shops and, You know, it really just gets easy. Well, and we know there, we've actually seen dealerships that were doing, oh, this was a factor that we talked about this morning, but we didn't bring into this, is if you're not able to increase your output in your dealership shop, look at whether or not you're doing customer repairs too, because customer repairs can really screw up how the flow of getting recon through. And we've coached some dealerships through, let's outsource all of the customer repairs and then just keep your recon. If you have the ability to be able to keep that flow and what's holding you back, that um those extra ten cars is because you're doing a lot of customer repairs get the customer repairs to those shops and and and start working um keep and keep that recon in house because it's a lot easier to keep a team of techs happy when they are not interrupted every five minutes to take a quick look at a new car Yeah, that's absolutely true. And I think the other piece that we kind of glazed over here was this idea that this, the big assumption that we have here is that your own shop is running at capacity. And there's another kind of fallacy or myth that we need to break up this idea that, you know, I need to have sixty cars to sell thirty a month. It's just not true. And I'll tell you why. Let me give you the best example I have is that the dealership that I that I managed in Tennessee had we relocated it and had a couple of lifts and had really one tech and then kind of a lube tech in there. But our tech was really He was involved in buying and he was certainly involved in the assessment and was really good. He could assess the stuff and get it right the first time most times. That's worth a lot. Now, imagine you got two lifts. You go to the auction and you buy eight cars. You bring it back in here and you do a quick assessment of all of them. And you cherry pick for your own shop because you have a limited amount of time in your shop, a limited amount of space. And you say, I'm going to keep these three because these three I can turn around. This is just a simple, you know, alternator replacement, whatever those look like are the simple ones. And I'm going to turn those myself. And so we'll, we'll, and those, so I'm going to keep those. And, and guess what? If I go four days and I'm not getting to it and so-and-so calls and says, you know, I'm ready for two more. Fine. Run it up there. And Jim, one of the things that he's talked about where, uh, you know, you, if you have multiple shops that are doing work and there's one that's hungry, uh, if, if, if a car is sitting in, in their holding space, waiting for time on a lift at a different shop, pull the car and take it to the shop. That's going to get right to it. And you know, that that's going to be a real motivator for, for the shop that just had a car pulled. It's like, these need to be a priority. And we need to get them through. It's like, yeah. The way I try to say this, and this is the attitude that I would bring to every one of these shops that I would go talk to is, I'm not going to tell you how to run your business. I'm not going to come over here and demand that you turn the cars faster. I'm just going to tell you, like the way I always say it, I'm not going to tell you how to run your business. I'm just going to tell you how to earn mine. Okay. So it means here's what, here's what it will take to earn my business. So, so you guys aren't getting to this one. I've got somebody ready for it. So I'm gonna grab it, pull it over. And they, they might kind of, you know, we get a little bit unhappy that you're there to get the keys, but it's your car and it's your decision. And so you go pull the car and you move it somewhere else. And pretty soon they figure out, Oh, I can't just let these sit around. They're really turning cars. And so that is important that, um, you know, we get a movement. So I think the best example I have is this one in Tennessee where, That inventory on any given day was probably sixteen to twenty cars. We probably had a capacity on the lot of around twenty cars, but we're selling some and we're pretty consistently turning over. But that an inventory of sixteen to twenty cars and we were very consistently delivering thirty five to forty a month. Did everyone hear that? Because there's this notion that if I'm going to sell thirty cars in a month, I need thirty cars on my lot at the same time. Well, and the freshness element, like if you start building a social media following and they can see the freshness, they can say, oh, here's a photo. It looked like they delivered another one. Oh man, it looks like they delivered three today. Oh man. So I wanted to go look at that little Toyota pickup and now it's gone. So you start to create that urgency scenario where people say, oh, this stuff moves. You know, it's not dirty. It doesn't have, you know, six-month-old key tags on it. Like, it's fresh. It's turning. You know, the stickers are good. Like, I can tell this stuff is fresh. And I can say, oh, they're just putting stickers on a new one coming in right now. And look, that customer's taking delivery over there on one. You know, it's like the stuff is moving. And so I think if we... If we kind of stay on an island and tell ourselves that's not possible, then we limit ourselves in our ability to start to produce this kind of turnover on the inventory. And so this is the part that I think we just want to drive home and just like, look, if you got to pay more to get the stuff turned around, then you got to pay more because the cost of not doing that business is painful. When you got the capital available sitting there, you got the manpower to be able to produce forty five instead of thirty. In our example, then that's costly. It's it's costing you money. to not produce that business, you know? So, so it's missed opportunity. And when we have the capacity, and that's the thing I talk about with dealers a lot, if you have the capacity to do forty five, let's get you to forty five. Yeah. Yeah. We have like, this has been a long conversation. Yeah. But a good one. And hopefully, you know, there's a lot of information there. So again, if you're listening to the audio podcast, please go to YouTube and like and subscribe while you're there. And you can see all of the different charts and all of that. Jim loves Excel spreadsheets. He's really good at putting those together. too I'm a nerd from day one from way back it's an excel spreadsheet nerd everybody thank you so much for joining us uh it's friday enjoy your weekend I hope that you get outside and enjoy some of the new fall colors a little bit and uh we will be back next wednesday with another white hat wednesday topic and yeah yeah anything else no we'll see you all right have a great day everybody thanks again for joining
