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Dashboard Dialogues – The Wholesale Auto Market, 2022 Blue Book Value Drops and Cologne Talk

by | Oct 3, 2022 | Appraising, Dashboard Dialogues, Inventory Management, Remarketing, Used Car, Vehicle Pricing, Wholesale

In this Episode our host Jake Silveira discusses with dealer consultant Garrett Smith about the wholesale market, September Blue Book value drops, optimistic outlooks and what is the best cologne, Polo or Old Spice?

Transcript

00:00:15:05 – 00:00:29:00

Jake Silveira

All right. Well, we are back for another episode of Dashboard Dialogs. Today, I’m joined with Garrett Smith, track star consulting extraordinaire. All around, great guy. Garrett, how are you doing today?

00:00:30:02 – 00:00:32:02

Garrett Smith

I’m doing great. Thanks for the introduction.

00:00:32:09 – 00:00:43:27

Jake Silveira

Good, good. Absolutely. So we’d like to start as I’m sure we’d like to start by asking everybody, what’s the first car that you had? What what was that? That piece of metal that you were driving around when you were 16?

00:00:45:21 – 00:01:11:14

Garrett Smith

Yeah. So my first car, most people’s first car was a chick magnet. Mine was actually a chick car. I drove a 1987 Toyota Celica with the headlights that flip up bright red. It was, I call it a chick car because it was so saturated with women’s perfume. It took two bottles of polo to get the smell. That was my first ride.

00:01:12:03 – 00:01:12:21

Garrett Smith

So. Yeah.

00:01:13:00 – 00:01:17:18

Jake Silveira

All right, all right. Good, good. Did you have the pink fuzzy dice in the mirror to go with the perfume, too?

00:01:18:21 – 00:01:31:10

Garrett Smith

No, no, I tried to. I tried to make it as masculine as possible. But once everybody got in the car, they knew that. They knew that some beautiful woman owned it. Before I.

00:01:31:10 – 00:01:33:20

Jake Silveira

Or at least she smelled really good, right?

00:01:35:01 – 00:01:35:11

Garrett Smith

Yeah.

00:01:35:28 – 00:02:06:05

Jake Silveira

All right. All right. So our main topic today and what we’re going to talk about really is we’re going to talk about wholesale market and kind of what’s going on in the industry right now. September 2nd. So as I’m sure yourself as well as all the dealers on on dealers link are aware. September was a little bit of a wake wake up call for some guys and the guys that had a little bit of insight, they weren’t so shocked because they knew what was coming.

00:02:06:23 – 00:02:14:22

Jake Silveira

But let’s talk about that a little bit. What is what is your perception of the steep decline on J.D. Power and and what’s going on in the market with that?

00:02:16:10 – 00:02:42:29

Garrett Smith

Yeah, it’s been obviously it’s been a while, a couple of years. And even while the last couple of months, we’ve seen a lot of a lot of decline starting in the middle of the year, May-June, June, we started seeing this trend and, you know, going back and reviewing some of those you know, those drops with dealers, some of them have been pretty significant, you know, to the tune of you know, five, six, seven, eight, $10,000 in the last few months.

00:02:42:29 – 00:03:05:21

Garrett Smith

And so, you know, I’ve kind of worked with dealers to just give them a little insight, to say, look, we can’t really acquire cars right now based on kind of a day trader status. We really need to look at this more of like a41 case situation and and really start to project out 90 days or 120 days. We’re acquiring inventory and really kind of plan for what essentially could be another drop.

00:03:05:21 – 00:03:30:28

Garrett Smith

And the reason I tell them to forecast a little bit further when they’re doing that now is because we’ve seen these massive drops, but then we’ll see the market kind of level out and then we’ll start to see a resurge again. So we’re I’m hoping we’re kind of coming to that point, and a lot of it doesn’t make a lot of sense really behind the scenes when you look at it, because inventory levels have never been lower, new cars still aren’t hitting the lot.

00:03:31:07 – 00:04:05:17

Garrett Smith

You know, we have all these factors that should be continuing to drive used car prices up. But I think the market, the banks, the the valuation tools just have to do this course correction every so often. Otherwise they’re lending money, you know, crazy money on cars that they probably shouldn’t be. So I think that’s probably a lot of what we’re seeing is just seeing a lot of factors behind the scenes, kind of course, correcting a little bit, which we’ve seen very, you know, a few times during the pandemic as we watched these values just gradually go down.

00:04:05:17 – 00:04:28:04

Garrett Smith

Then they stopped, then they come back up, and then we’re our waves are much longer and more exaggerated than they happened in the past. So that’s kind of what I’m seeing, you know, doing some account reviews is just seeing a much longer cycle and a much longer trend when we’re seeing book drops and book increases as we’re kind of going through and evaluating inventory.

00:04:28:23 – 00:04:29:05

Garrett Smith

Sure.

00:04:29:25 – 00:04:52:23

Jake Silveira

Sure. Excuse me. Yeah, you’re right. You’re right there. It was right around the start of the year or we started the summer, rather, where we started to see Black Book reports were noticing they weren’t very sharp, but they were definitely noticeable declines in most all segments of vehicles. I think there was minivans at one point in time that were actually increasing in value.

00:04:53:06 – 00:05:24:00

Jake Silveira

So probably at the height of the fuel crisis, $5 gas and and that kind of scared people. But I think even more so when we talk about, you know, what you had mentioned about the lenders scaling back the valuation tools, kind of course correcting, etc.. What do we what do we foresee happening with some of the people that went out and spent 15, $20,000 over GMs, RPG, finance, those vehicles?

00:05:24:00 – 00:05:28:15

Jake Silveira

And now we’re looking at pretty steady declines in the market on some of these vehicles.

00:05:29:26 – 00:05:53:00

Garrett Smith

Yeah, I mean, it causes it causes some panic, you know, at the dealership level. It it causes some panic, you know, throughout, you know, various factions of the industry because we’ve we’ve seen that happen and we follow that trend. And we’ve we’ve asked for more money and and and and we spent more money on inventory that that we needed just to keep the doors open and keep customers coming in.

00:05:53:00 – 00:06:22:08

Garrett Smith

And now’s the time when you have to really start looking at a lot of avenues to see, you know, is this really a good fit? And that’s where a lot of the tools that we offer come in and and really explain what’s going on in the market, not just what’s going on down your street. And so, you know, there’s just there’s going to be some pain with some of this, but that’s when, you know, you really have to try and and help dealers understand this is this is a long term you know, this is a longer term term than maybe you’re used to.

00:06:22:18 – 00:06:48:23

Garrett Smith

And especially if you want to get back out of that vehicle, retain some of that money. I mean, profits ever been higher? So on the vehicles you are selling, you’re making better money than than you ever were. So you may have to take some losses on some of those units just to replace those and replenish that inventory. But you also have to look at the big picture, which is, you know, I just talked to the dealer this morning is averaging $11,000 a copy in the past.

00:06:48:23 – 00:07:15:21

Garrett Smith

That never happens. You know, that never happened. I knew or used or both. And so you have to kind of way that out to say, well, we’re going to have some some inventory losses on these units because we had to be aggressive and we had to pay that extra money for it. But you also have to look at your profitability and say, yeah, I mean, there’s times in the past where they may sell 50 cars and, you know, and net out at $100,000.

00:07:15:21 – 00:07:35:10

Garrett Smith

GROSS Well, now you sell five or six cars and net out at $100,000. GROSS So you’ve got to really kind of play both ends to the middle and say, well, we’re going to take the risk. Some of these are going to pay off. Some aren’t. And you really have to you really have to take those vehicles back to the market.

00:07:35:24 – 00:08:03:06

Garrett Smith

You know, get them back out there, expose them and see if you can recover what you can. But, you know, you new cars use cars. It’s they’ve never been more expensive for a customer to buy. But there’s also never been more opportunity for a dealer to make profit. But you can’t just focus on profit. You know, you have to there’s going to be some losses that you incur along the way to make sure that you’re you know, you’re you’re managing the market and managing your inventory accordingly.

00:08:03:27 – 00:08:27:08

Jake Silveira

Sure. Absolutely. And I think those are all very strong points. I think it really does kind of speak to what we saw 18 months ago, where, you know, the market went crazy, valuations went through the roof. And that’s when dealers started making, you know, higher and higher grosses, you know, per copy amounts were going up and everybody was happy.

00:08:27:08 – 00:08:47:07

Jake Silveira

Everybody’s making money. And that that forecasting that projection mentality of looking ahead, you know, some of the guys, you know, back then that were not looking ahead of time, they were just stuck in the moment. They were freaking out, oh, my God, all the cars are going up. I’m not going to buy any, but I’m also not going to sell until I make my money.

00:08:47:29 – 00:09:14:19

Jake Silveira

And they got stuck. They got stuck flat footed. And I think the big thing here is how do we you know, help the community in general as far as dealerships go and how do we adjust course as an industry to, you know, be okay? I mean, 2008 came around, everybody freaked out, panic definitely set in. There was some help, cash for Clunkers, all that stuff and people made it out.

00:09:14:19 – 00:09:36:17

Jake Silveira

I mean, there are still people in the industry 20 years on that have been there and done that. So they’re not too afraid. But there’s definitely a lot of potential for panic. And, you know, I don’t think it’s a time for panic, but I definitely it’s definitely a time to pay attention a little bit more like you’re saying, about what’s going on, projecting out into the future.

00:09:37:07 – 00:10:03:11

Jake Silveira

If a vehicle is moving slow now, it’s probably going to move slower if the market or the economy, rather, continues to slide down. And there’s definitely talks and speculation of of a looming recession. Right. And so if that does take place, what does that mean for the industry in general? Right. We we have to adjust course now and position ourselves a little bit more advantageous.

00:10:03:11 – 00:10:17:22

Jake Silveira

And letting some of those cars go is a perfect way to do that. If you know it’s aging and you know you’re going to be losing your boat on it and ten days do your best to get rid of that thing so you can at least make the money that you can at that moment for sure.

00:10:18:18 – 00:10:39:19

Garrett Smith

Right. You know, you have to be more aggressive from day one. I think one of the best things that the dealership learned and I was in a dealership in a store when this happened in 2008 was how to do more with less, you know, how to, you know, go back to the basics, go back to your process in the store, go back to the things that help you sell cars.

00:10:40:02 – 00:10:59:24

Garrett Smith

And sometimes we get lost when we especially on a case like this and we’ve made all this money and we’ve set this new bar, this new threshold, and sometimes you just have to go back to the basics. You have to reeducate your staff on how to sell cars. You have to you have to dig deeper into the data to find out why this particular unit isn’t moving.

00:10:59:24 – 00:11:22:15

Garrett Smith

And sometimes you just you know, sometimes they’re just bad cars. You know, you just get a hold of something. Maybe you bought it emotionally, you bought it in the moment, and you have to go back and treat it like, you know, like a piece of inventory. You have to treat it, you know, remove yourself from that that process sometimes to really just go back and say, hey, you know, I made a mistake.

00:11:22:15 – 00:11:45:16

Garrett Smith

Let’s let’s get this thing out there, let’s expose it, let’s move it somewhere else, and let’s move on and try not to make that mistake again. And and I think recessions are are detrimental to, you know, for a lot of reasons. But they also force all of us, even individually, to reevaluate our budgets, reevaluate our expenses, our advertising, those things that are within our control.

00:11:45:24 – 00:12:07:17

Garrett Smith

When the economy seems to be spiraling in one direction or the other. And that’s the you know, that’s the encouraging thing for me, is I see a lot of dealers doing that now. I see a lot of dealers reevaluating their process and their staff and their managers and their used car buyers. And it just makes us all better so that when this happens or if it happens, that we’re prepared for it.

00:12:07:29 – 00:12:28:11

Garrett Smith

And, you know, and so for me, that’s encouragement. That’s that’s one that’s one little shining beacon of light in in what could be a tumultuous time ahead. So, you know, that’s just kind of how I feel about it. I sat at a desk when all this happened and 28 in 2009 and and I witnessed it. I participated in it.

00:12:28:11 – 00:12:35:25

Garrett Smith

And and I know that there’s a you know, there’s a better future ahead if you can get through this and make the right moves along the way. So.

00:12:36:03 – 00:13:04:19

Jake Silveira

Yeah, no, absolutely. And I think that’s that kind of hits the nail on the head. Right. I think the auto industry in general is made up of a lot of guys that are very resilient. They’re very determined. They they have a passion for what they’re doing. And I think that ultimately does lead a lot of guys to make it out of these hard times, to adjust course, getting flatfooted or getting complacent or thinking, you know what, we’re okay, we’re doing all right.

00:13:04:19 – 00:13:29:27

Jake Silveira

Look at all this money that we’ve made in the past 18 months. We’re going to be just fine. And you don’t really make any adjustments. So you could definitely be putting yourself in a position you don’t want to be in 6 to 12 months from now potentially. And that’s one of the things that I think some of the books and the valuations that we’re seeing right now, you mentioned it earlier.

00:13:29:27 – 00:13:49:10

Jake Silveira

I mean, we could see that this is a sharp decline now, but it levels out a little bit towards the end of this month, maybe at the end of November, etc., things start to really maybe rebound a little bit. I mean, we just don’t know. Right. And so kind of looking forward to like, hey, what’s my core inventory?

00:13:49:10 – 00:14:07:14

Jake Silveira

What moves the fastest and what am I making the most money on right now? That way I can stock my lot with that kind of inventory. And if I do have stuff that’s going to hang around a little bit longer is make that move, get off of it. There’s plenty of avenues. You’ve got options. You can circle back around to previous appraisals.

00:14:07:14 – 00:14:27:21

Jake Silveira

Maybe you guys were just a little bit too far apart on that deal for that customer. But with this newfound information and values are dropping. But you can still make your money. You know, you can go back to that customer, maybe drop that vehicle a little bit and get a retail customer happy. And you guys make the money that you can on that car before you lose too much more on that.

00:14:27:21 – 00:14:49:22

Jake Silveira

And that’s that brings me to kind of one of the other questions is, you know, right now what we’re seeing is, especially on J.D. Power, valuations have dropped, but market prices are still kind of up there. And there’s going to be a bigger and bigger spread between what the books are actually going to land and what the dealer is wanting to sell the car for.

00:14:49:22 – 00:14:53:11

Jake Silveira

And that’s going to create its own problems right?

00:14:53:11 – 00:15:17:00

Garrett Smith

Yep, it is. And, you know, again, we have we have a lot of factions that that work together and, you know, and help move inventory and auction prices are reflective of that and wholesale inventory prices are reflective of that. And they all kind of work in in symbiosis, if you will. But then you have market data and book data that are going opposite directions.

00:15:17:00 – 00:15:38:21

Garrett Smith

And when that happens, you have to kind of you kind of have to hitch your wagon to one horse or the other and say, all right, I’m either going to follow this book trend and I’m going to use that as my source or I’m going to follow the market and what is actually selling for. And I’m going that direction because if you try and follow both of those at the same time, you’re not going to acquire cars.

00:15:39:00 – 00:15:52:16

Garrett Smith

You’re not going to you know, you’re not going to be able to sell those cars for the money that you want because the books are dropping and you don’t want to take those losses. So you have to kind of you have to kind of figure out which direction you want to go. And, you know, I’m a big believer in the market.

00:15:52:16 – 00:16:14:22

Garrett Smith

You know, I think the market is going to dictate, you know, all those different you know, those different increases or decreases in that particular unit. That, to me is much more much more comprehensive of what’s actually going on. You know, like to down my street, in my region, in my in my market area. But those book values, the banks are using those.

00:16:14:22 – 00:16:37:06

Garrett Smith

So we have to, again, revise that process and figure out, you know, how do I how do I, you know, adhere to what’s going on in the market, but also not put my customers in a situation or not put my staff or my finance managers in a situation where I can’t get this car. All So you do have to kind of keep, you know, you have to keep an eye in both directions.

00:16:37:27 – 00:16:56:24

Garrett Smith

But to me, the market data is going to be the ultimate tell tale of of what’s going on in the books again. Well, we’ll drop and then they’ll resurge. But that’s where I think you have to you have to give it some you know, some credence. But you can’t put all your you can’t put all your faith in what’s going on in the book values.

00:16:56:24 – 00:17:18:09

Garrett Smith

Because, again, if you go back and look a year or two in this last year of what was done, the same car has very $10,000 one direction and $10,000 the other direction in the last two years. And that’s just not realistic. You know, the market may do that, but of book value in the past is really never done that.

00:17:18:09 – 00:17:38:12

Garrett Smith

Right. And so they don’t they don’t know the answer either. You know, they’re trying to, you know, to keep everybody happy. But the books don’t necessarily know the value. So, you know, so follow that market data and use that as your guide stone, if you will. And then, you know, obviously rely on that book data if you need to, to, to justify it with the bank.

00:17:38:12 – 00:18:02:28

Garrett Smith

But, but adjust your prices based on that. And you may have cars that only qualify for cash customers because you know that the market dictates that. And that cash customer may not be a retail deal. That may be another dealership that’s also a cash customer. So, you know, you have to look at it that some of those vehicles may fit that mix, may fit that book value and some just may not.

00:18:02:28 – 00:18:30:21

Garrett Smith

They may have to qualify for a dealer or a dealer sale or are just a retail customer that has cash available to buy that. So there’s just so many different avenues to move this inventory, but you do have to just kind of decide at some point, am I following the market or am I following the books? And the books are going to lead you down a path where you may not be able to survive some of those drops, if that’s what you’re adhering to.

00:18:30:29 – 00:18:51:09

Garrett Smith

But the market data will always let you survive and strive because it’s going to ebb and flow and it doesn’t change that wildly. Like we’ve seen the books change lately. The trends are much slower. Yeah, they’re much smoother. And, and those are what cars are actually selling for, not what they’re being financed for sure.

00:18:51:22 – 00:19:13:07

Jake Silveira

Absolutely. Absolutely. All right. So one final question for you. Just the kind of close out the show. Give me two things that you’re looking forward to for the rest of this year and going, I guess, into the beginning of next year, just in general with the auto industry, wholesale values, do new cars pick up like whatever your thoughts are?

00:19:13:07 – 00:19:17:16

Jake Silveira

I want two things that you’re thinking about that you’re excited for.

00:19:17:16 – 00:19:42:24

Garrett Smith

Yeah. So a couple of things. One is new inventory is slowly coming back, which is great that I think that gives, you know, that gives the industry, you know, a little bit more flexibility as far as what they can sell on the lots. And you can see dealers are smiling again because truckloads of cars are rolling back in and you start to see this energy, you know.

00:19:42:24 – 00:20:06:27

Garrett Smith

So that’s one thing that I think is pretty optimistic and exciting. But the other thing is just some stability. You know, we’ve had we’ve gone through the pandemic. We’ve gone through the mask, the lockdowns, you know, all of these various different factors. And just to see, you know, some stability back in our home lives, you know, our work lives, the dealerships, the inventory, you know, it may not all be good.

00:20:06:27 – 00:20:32:21

Garrett Smith

It may not all be bad, but there’s it’s starting to feel normal again. I guess if we can use that term very loosely, I use that term again. And I think just so normalization in this business is what we’ve all kind of craved the last two years. So. So you know, getting back to having some cards to sell and seeing some normalization, I think are two big things that that I’m optimistic for.

00:20:32:21 – 00:20:47:02

Garrett Smith

And, you know, and looking forward to as we get into the last quarter of the year and closing out what I think is going to be probably the most profitable year for most, if not every dealership out there. And we’re all going to celebrate together in the end.

00:20:48:01 – 00:21:04:14

Jake Silveira

Cool, cool, sweet. Well, definitely picked up on the Old Spice tone. So be ready for the nickname to come it. We’re going to call you probably Mister Old Spice or something. I love that. That was great. It was very classic.

00:21:04:14 – 00:21:07:24

Garrett Smith

So I thought, boy, silence did, but I got knocked through.

00:21:07:24 – 00:21:17:26

Jake Silveira

So hey, no worries. No worries. Impromptu moments are always great. So really appreciate your time. Definitely. Thank you for joining us today and we will talk with you later.

00:21:18:16 – 00:21:20:26

Garrett Smith

Absolutely. Keep that big dealer’s link energy.

00:21:20:26 – 00:21:43:10

Jake Silveira

Go and absolutely take care. Thank you for joining us today for another great episode of Dashboard Dialogs. You can follow and listen to Dashboard Dialogs on YouTubeApple PodcastsSpotify and Google Podcasts. Also, remember to follow our socials on LinkedInYouTubeTwitterFacebook and Instagram.

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