Interesting Business Model - TexasCarsDirect

[XDCX]

I read an interesting article about TexasCarsDirect, a used car dealership in Dallas, TX, that uses a unique business model. For a link to the newspaper report - click here

Here are the highlight from the report:

The dealership sold 1,675 cars in 2012 with 80% of their sales volume coming from off-lease Mercedes purchased via auction from Mercedes-Benz Financial Services

The dealership uses a low frills sales approach with no receptionist or free coffee/drinks for their customers

The sales staff consists of four people who are not on a commission - they're paid a flat fee per vehicle based on the dealership's total sales

The dealership closes at 6:00 p.m. each day and is closed on weekends. The dealership also observes all Postal Holidays

The dealership does not negotiate and vehicles are priced $1,000 over their acquisition/recon cost.

Not surprisingly, the business model relies on back-end sales to make the dealership profitable.

Here's an excerpt from the newspaper report:

As much as Bulban loves flipping cars, that’s not where he makes his real money. Last year, he brought in $2.3 million off financing and warranty contracts.

“Just buying and selling cars wouldn’t cut it as a stand-alone business,” he says. “People call and say, ‘What’s your best deal if I write you a check?’ And I’m thinking, ‘I really rather that you don’t.’”

Is this the future of used car retailing, or just a business model that works for one dealer?

[mryan55]

I think there's definitely a chance for this model to become the prevailing business model, but it will take same time.

In our thirteen-franchise group, we target $1,000 gross on used after acquisition and recon no matter how the car is acquired. Our goal is just to more than double it up on the back.

Being in a Chrysler employee market, applying this discussion to new doesn't make sense in my case, but we'd happily do the same on new.

[XDCX]

Originally Posted by mryan55

In our thirteen-franchise group, we target $1,000 gross on used after acquisition and recon no matter how the car is acquired. Our goal is just to more than double it up on the back.

Wow, that's really interesting.

I wonder how many other new car stores are limiting used car gross with the goal of making it up in Finance? I get the impression that most new car stores are banking on used car gross to keep the store profitable.

That said, I won't argue with success - if your dealer group has 13 stores the concept must be working.

If I can ask, what's your store's commission plan for used cars? I imagine there's some component in the pay plan the keeps the sales staff from getting "bummed-out" that all of their used car deals are "minis."

[mryan55]

Used car commission is 27% front gross over a $300 pack, 2% back end.

Per unit bonuses are up to $100 per unit retro to unit one once a salesperson is over 25 units/mo.

It's one of those mental fights I have every day. I don't think I would personally want to sell cars on such a pay plan/strategy, but I suppose with have the luxury (if you want to call it that) of salespeople who have been in one spot for years.

[XDCX]

Originally Posted by mryan55

Used car commission is 27% front gross over a $300 pack, 2% back end.

Per unit bonuses are up to $100 per unit retro to unit one once a salesperson is over 25 units/mo.

It's one of those mental fights I have every day. I don't think I would personally want to sell cars on such a pay plan/strategy, but I suppose with have the luxury (if you want to call it that) of salespeople who have been in one spot for years.

Thanks for the information.

I thought it was interesting that your store has a retro bonus of up to $100/unit for salespeople who sell 25+ units. Do you have many salespeople who sell 25+ per month?

[XDCX]

Originally Posted by XDCX

“People call and say, ‘What’s your best deal if I write you a check?’ And I’m thinking, ‘I really rather that you don’t.’”

Later today when I get caught up I'll create a thread where we can discuss the future of Finance Reserve.

It appears Finance Reserve is back in the spotlight and there's mounting pressure to adopt a flat fee payment system to eliminate the possibility of racial discrimination.

[s-works]

I bid against these guys many times on adesa's online auction. Whenever I saw they were bidding I pretty much gave up on that unit. They paid good money for the cars and had to ship them to Texas. Obviously they are doing something right!

[XDCX]

Originally Posted by s-works

I bid against these guys many times on adesa's online auction. Whenever I saw they were bidding I pretty much gave up on that unit. They paid good money for the cars and had to ship them to Texas. Obviously they are doing something right!

Thanks for the post. I agree they must be doing something right.

When I read the newspaper report I linked in the first post I smiled when I read the dealer was initially confused when he first started buying Jaguar lease return vehicles. A rep from Jaguar indicated the dealer could earn $1000 if he bought enough vehicles to help offset transportation expenses. The dealer bought 11 Jaguars and was expecting a check for $1000 and was pleasantly surprised when he received a check for $11,000 - $1000/unit.

[mryan55]

Originally Posted by XDCX

Thanks for the information.

I thought it was interesting that your store has a retro bonus of up to $100/unit for salespeople who sell 25+ units. Do you have many salespeople who sell 25+ per month?

About 15% of the group has a rolling 90 day average in the 25-30 unit range. Mind you, at fairly low PVR as we talked about!

[XDCX]

Originally Posted by mryan55

About 15% of the group has a rolling 90 day average in the 25-30 unit range. Mind you, at fairly low PVR as we talked about!

Thanks for the update.

Frankly, I think your store may have the Business Model of the future. The days when salespeople can make a living selling 8 - 10 cars per month are going away - especially when dealers face declining gross profits on new and used cars.

The fact that you have 15% of your crew selling 25 - 30 cars per month shows the other 85% that it can be done and there's still good money that can be made in the car business. I'm also guessing that the low gross PVR also makes the factory cash for the salespeople more important.

[mryan55]

The biggest thing is simply getting buy-in from the sales staff. And simply not hiring the 10-car Joe who's used to making $80,000 a year by averaging $4,000 a copy. There simply aren't enough opportunities for that type of salesperson anymore. Granted, we are glad to take advantage of the opportunity when it presents itself, but we have be just as eager to act as order takers when it comes to a ZAG/TrueCar customer, an internet prospect that doesn't provide a phone number, etc.

The factory $$$ does become a lot of important for salespeople and sales managers alike, although having a flat 27% commission rate makes fairly skinny deals still pay a little more than a mini.