Last Friday's All Things Used Cars Clubhouse conversation with Dale Pollak was as exciting as informative! David Long started the conversation by reminding attendees, "Remember, the spirit of intent of this room was not to have debates or argue or yell at each other. Like some of the other rooms on Clubhouse, the spirit of intent is one thing. And that is to get better, to learn, to grow, to share ideas, and concepts."
David was excited to discuss the two "elephants in the room," one being the recent acquisition of ADESA by Carvana and the other simply being the day’s guest, Dale Pollak himself. David opened the room by asking Dale three questions.
Dale shared an optimistic disposition saying he expects a strong spring bounce with tax returns coming a bit later and bigger this year. He went on to caution that the second half of the year may be more challenging with higher interest rates and some wind taken out of the used car market's sails as new car production starts back up. With specific awareness suggested to dealers entering the second half of the year to have their inventory cleaned up by mid-year with an approximate 30-day’s supply on hand.
"We think in the car business, our job is to sell cars…But ultimately, our first responsibility is to make a net profit…Having cars to sell is not as crucial as having suitable cars to sell when the taxes hit or when the new car market starts back up. That is how we make a net profit, not just move vehicles off the lot.”
"This year, I'm bringing three things new to the industry, and it's kept me really busy. So the first thing that we're going to announce at NADA is our global acquisition system. You know, over the course of the past 18 - 24 months, dealers have been forced to source vehicles from all sorts of new channels. Dealers have had to learn to source vehicles from places other than trade-ins and auctions. The greatest challenge to dealers today and probably for some time to come is not going to be to sell the cars but to acquire the cars."
Dale explained that these new acquisition methods have no standardized metrics, but his new tool will empower dealers to manage these multi-channel acquisitions for the first time.
"The second thing we're bringing to NADA is something called Upside. We are going to change the wholesale business. Done right, wholesale should be breakeven at best and even a loss. Dealers made a ton of money wholesaling cars over the past 18 months, but that was a black swan event, and it's already fading away. So we're going to introduce a program called Upside, which will change the wholesale business over time. We're gonna show dealers a proposition where we will guarantee them a profit on their wholesale. I mean a substantial profit. And we could only do that leveraging the power of Manheim and the data science that we've created."
Guaranteed profits in wholesale? If anybody else said it, we wouldn't believe it!
Dale said the third thing he is excited to bring to NADA is his sixth book called Whole Truth.
"You know, all my previous books have been talking about retail strategies. Well, you know, when the pandemic hit and the wholesale market got weird and interesting, I spent much time studying it and getting into data science, and this book would be my first book on the wholesale side of the business. It uncovers a lot of the half-truths of the wholesale business and formulates a method for dealers to have what I call a ‘double-barreled used car business’ where they're guaranteed to make money, not just on retail cars, but also on wholesale vehicles."
All of these projects go live at NADA Show in Vegas from March 10-13.
"Around 2017, I began to realize that the velocity method of management was no longer helping dealers and was starting to hurt them. I created the vAuto software to drive behaviors consistent with velocity. And I began to realize that that game was up, it did become a race to the bottom. I didn't think it would be a race to the bottom, but came to realize that it was. If I can't help dealers, I'm not going to hurt them, and I gave serious consideration to retiring and riding off into the sunset. But before I was going to do that, I would give it one last look. And, honestly, I had zero hope that I would find a better way forward. But thanks to some brilliant data scientists that we have and a lot of transactional data that we had accumulated over the years, we made some stunning discoveries. It led to the creation of ProfitTime, an investment-based approach to managing use vehicles. I gotta tell you something, it is the real deal, because the dealers who do it, and it's not easy, but the dealers that have dedicated themselves to the investment-based practice of management, have far outperformed the norm."
After opening the room with some questions we believe everyone had on their mind, David Long opened it up to questions from the visiting audience. The audience consisted of more than 300 automotive industry professionals, both from the dealer and industry partner side of the business. Questions came from industry leaders like Brian Benstock, David Spisak, Brian Kramer, Kyle Mountsier, and more.
"Let me say a couple of things. Cox Automotive owns Manheim; Manheim has been the leader in the wholesale industry for who knows 100 plus years. And they serve the broader industry. And they're going to continue to be a leader serving the broader industry. I think that the acquisition of ADESA by Carvana is fascinating. I mean, it's the likes of which we've never seen. And, and these are smart guys, I'm telling you, these are really smart guys. And I certainly understand, you know, the instinct of dealers' reactions to this. But you know, I think everybody needs to let it play out. And, you know, I wouldn't assume that it's nefarious. I think people are always quick to think when Cox or some of the big companies in the industry make moves, that you know, it's nefarious…I think it's prudent for everyone to take a breath in this one, and let's see how it's gonna play out."
"Yep. So definitely, it's going to be very closely tied in with KBB ICO."
"I would say the one thing that gives me concern for dealers is that success has come so easily over the past 18 to 24 months, and I get concerned that dealers lose their discipline, they lose their focus to practice in principles, that that, you know, are sound. And I think the one thing that dealers should stop doing is to assume that, you know, they've got it all figured out. I think that thing they should start doing is to refocus, rededicate themselves to sound practices and principles."
Dale continued by answering what he thinks will happen when the market turns. He said the key to thriving in the market turn would be having and knowing how to use and communicate data to your team.
"This is very much where data science can help us because there are certain vehicles that even though we know that they have, perhaps greater wholesale value than they do currently on the retail side, you know, we can see the change in the market quickly coming. And if we can see that, hey, if you hang on to that cart just a little bit longer, there might be a stronger retail profit 30 days from now than there is a wholesale profit today. Those are tricky decisions that have to be made, I think through individually, but one of you know, one of the values that we have today and some of the tools that we have is the ability to see the market and to react to the market more quickly."
Dale sale this topic is covered quite thoroughly in his upcoming book, so read Whole Truth!
"It links together KBB ICO, vAuto, and it leverages Manheim. But I want to be very clear: It only leverages the Manheim buyer base because Manheim, you know, obviously has the greatest amount of bitters in the industry. So it ties together and leverages the strengths of a number of the different products across Cox Automotive. And that's very much at the core."
"It's a big problem. And I don't think that I have all the answers. I know, I don't have all the answers. I'm not even sure I have any of the answers. I mean, to address the affordability issue, we have to extend the term…or you have to come up with more down payment money, or customers have to accept an older car than they want. I mean…there are only so many levers that will address the affordability problem. And I guess if there's anything that gives me a little bit of optimism, you know, these used vehicles are at record high wholesale value price values, and it is going to come down. You know, one of the things that Jonathan Smoke, long-time economist, is projecting is that we're probably going to see accelerated wholesale value depreciation in the second half of the year. However, they're still going to come down from a very high point. So I think there will be some longer-term relief of affordability. But you know, against that, everything eventually continues to go up. So you know, we're in a particularly painful moment of use car values, and consequently, affordability problems. I think, you know, it's going to ease a little bit, but I don't necessarily think it's going to get tremendously better…When the cost of everything goes up, and there are only so many months, you can finance a car rationally, and there's only so much down payment money people have. I mean, I don't know what the answer to that is. I think it is one of the really big issues in the industry that probably deserves more attention than it's getting."
"As I said earlier, it's becoming more of a technical market where the spreads and different segments of vehicles and price classes vary a lot more than they used to. So you know, that's where we spend our time. You know, from the consumer side, probably not enough to your point."
"You could get me going on that. I mean, this is one that I've been passionate about for years. I mean, what irritates me is that you know, the DMS (Dealership Management System) providers that have tried to, you know, monetize your data or claim ownership or control over your data. I mean, that's just, that's heresy. You know, the data belongs to the dealer. Nobody should violate a dealer's interest by trying to lay claim to their data or controlling it. You know, monetizing it is the opportunity that belongs to the dealer who owns the data."
"I tell you, the thing that concerns me the most about the future of the dealer are two things that would keep me up at night is the effect of electric vacation and the fixed operations. That is, I think, an existential threat to the industry. And I'm not exactly sure what to do about it, because we're not going to stop those electric cars from coming. And then, of course, the other thing that gives me much concern is direct… to the consumer, and that trend…we're even starting to see it now on the used car side with…GM's program. I mean, those are the sort of things that, to me,…concern me for the viability of the dealer."
The room closed, still alive with the energy and encouragement shared by David, Dale, and the group of Clubhouse attendees. With less than 2 weeks until NADA, the energy around the automotive industry is palpable. We are excited to see and hear more conversations like this as we lead up to and enter the show this year. We even have something very special lining up with All Things Used Cars and the team at ASOTU so keep an eye out for more information on that.
If you missed the room and want to catch it in its entirety, you can listen here.
*All quotes in Q&A by Dale Pollak