The car business can be a pain for three distinct reasons.
The first comes from the cars that you sell. Botched repairs. Unhappy customers. Surprises that just seem to spring up and bite you in the ass. I can deal with that.
The second comes from people in the industry. Employees and contractors with productivity issues. The unending myriad of regulations and paperwork. Continuing ed classes with little relevance to reality. I can deal with that too.
What I can’t deal with is…
people who belittle the work that I do.
Those who are hopelessly inexperienced with the retail car business think of this world as some literal gold mine where you can easily buy a nice car. Take a few pictures. Post it online, and sell it for a healthy four figure profit.
If it were that easy, this business would be better than sex. Everyone would want to do it — again and again and again. Except for maybe a few old folks, confused nuns, and hermits.
I recently wrote an article for Yahoo titled, “How To Become A New Car Dealer In Seven Difficult Steps.” Those steps seem to be pretty simple on the barest of surfaces. If you pay enough money, you can join the proverbial club of car dealers.
That’s the easy part of work in any profession, spending money. The hard part comes with paying for an even more expensive education after the basic entrance fee.
I was fortunate, in the sense that I first started off working in the auction staff at five different auto auctions in the southeast. I talked to the bigger players, learned a few things, and watched for a long time before ever buying my first car.
That first car was a 1986 Honda Civic base model which I bought way back in 1999. We’re talking vinyl seats, 4-speed manual, 1.0 Liter engine, and wafer thin a/c. It took me six months and well over a hundred auctions before I was confident enough to buy my first vehicle for all of $525 at a public auction.
I adjusted the idle. Took pics. Put it on Ebay, and sold it for about $1700 to a Polish PhD student from my old alma mater, Emory University. A month later I bought a 1988 Toyota Celica All-Trac for $1600 that had all of 100k. That one I spent $700 in repairs and eventually sold it for $3300.
Two for two right? Yes, but there was a lot learned between the time I first got into this business, to the time I sold that second car.
For starters, I knew the sellers of those vehicles and the quality of the inventory they typically brought to the sales. In fact I worked their lanes at the auctions as a member of the auction staff and they knew that if I got burnt, it may cost them as well.
With those experiences, I also took part in all the major tricks needed to stimulate and simulate demand on the auction block. Running the bid up, double bumps, squeezing the seller for more money after the bidding stops. I could bite them if they bit me.
I also knew the major players and, back then, you could easily play the kings rule of giving a favor and taking a favor. Back in the late 90’s very few people gave a flip about the $1500 trade-in that required substantial mechanical work. So I chose my battles in the fields where I would meet the least resistance.
Those daily experiences at the auctions, and my work with all those dealers and fellow auctioneers, gave me the confidence I needed to begin buying and selling cars. But it took six long months just to buy and sell two cars. Even after the first two successes, it took several more years for me to finally invest in the fixed expense and opportunity that came with a used car dealer license.
I made money, and lost my ass. Let me expand on that for you dear reader.
I… lost… my… ass…
I also learned a lot along the way. Sometimes I would seemingly lose my ass and then, I would learn something new which gave me a slight temporary reprieve from the abyss of a devastating loss. A recall from a manufacturer. A tool that would add value to what I sold, such as Carfax or a well-designed web site, that allowed me to pay more for a quality vehicle.
Or even something less technologically advanced and more relationship driven; such as a detailer who worked with a large dealer network and offered me the same recon rates because I helped him buy a good van at the actual cost.
Every problem required an added expense, a new quest for knowledge, and an opportunity to further my career.
So what about becoming a car dealer now? Get some experience first. The cost of this business has increased dramatically since 2008 along with the sophistication and ‘noise’ of advertising cars. That Toyota and Honda I mentioned earlier? They cost more now than they did back then, and they can be financed for more money as well.
The profit of a cash deal is now usually less because you have to usually pay more at the auction. Most dealerships now have to compete against Main Street and Wall Street thanks to the rise of sub-prime lending.
The ‘tote the note’ return may pay out more, because the financing terms are longer. Yesterday’s two year is now a five year note, and you will need a lot of ‘right’ to make that work.
The right mechanics. The right detailers. The right buyer. The right advertising strategies. The right financing partners. Even with all that, you still need to buy it at the right price which means you need to be at the right auction where you will likely spend a lot of time trying to find that right car. Make sure to handicap your risks accordingly.
This business was never easy. Now, for the small businessman and novice dealer, it is far, far worse.
In the good old days of 1999 thru 2008, many car dealers were able to, “Hit em’ where they ain’t.” The Chrysler minivan that was traded in and reconditioned by a VW dealer that had no business trying to sell that type of vehicle? I could buy that for cheap. Or a Toyota dealer that tried to retail a Lincoln. You could buy those ‘right car / wrong dealer’ vehicles for even less money if you helped that seller in the past.
Other times the deal would come in the form of a repossessed inoperable vehicle that was not given the chip key needed to make it run. Or, an older used car that had an amazing dealer maintenance history that nobody knew about. Sometimes you could even find a repo that had only been on the road for a couple months and had been diligently maintained for several years until that brief period of time.
I still find these nuggets of opportunity. But where I could buy five or six of these in one large auction, now I am only getting two to three a week. If I’m lucky. Even then I sometimes get an unpleasant surprise and end up losing money.
I am reiterating this salient fact of losing money because if you try to get into the car business today without some unique skill that you can couple with that used car dealer license, you will not be buying those cars for long. The mistakes now cost far more than it did back then. Parts, labor and expertise all cost more. Even for the big guys.
As for those big guys, they usually specialized in some unique facet of the business before dedicating their full time energy to the retail car side. Mechanics, finance specialists, exporters, reconditioning experts, body men, every step to long term success came with having a true tangible advantage that made that first step an easier one.
So you still want to be a car dealer? Meh. Fine. Start small, educate yourself, and avoid the chronic diseases that come with having too much confidence. Nothing is easy in life.
If it was, we all would be doing it.
Editor’s Note: This write-up builds on a recent Yahoo! Autos article you can find here. Hope you enjoy both of them.