Wanting Gross Profits and Fixating on Them Are Two Different Things

When auto-retailing veteran John Griffin tells somebody he doesn’t care about dealership gross profits, he qualifies that point before jaws drop.

“That doesn’t mean I don’t want gross profit, it means I can’t manage it, so instead I manage things that drive it. It’s a matter of focusing on the metrics that drive the desired results.”

Griffin spent about 20 years managing individual dealerships and dealership groups. He started out as a lot attendant at a Ford dealership while in school, then sold cars while earning an MBA at DePaul University.     

With his economics training, he didn’t consider himself as a traditional car guy. “I love cars, but I looked at them as an investment. I applied what I learned in business school by looking at metrics that make a difference and using them to get to your goals. What do you manage? What levers do you pull?”

In 2005, Griffin was running a Minneapolis dealership that was among the first to beta test a then-new inventory management software product from what now is called vAuto.

In 2006, when Griffin was relocating to his hometown of Chicago, Dale Pollak, vAuto’s founder, asked him to work for the fledging company. “I remember thinking, ‘What company? It’s like you and two or three other people.’”

But Pollak and vAuto president Keith Jezek were persuasive, and Griffin says their business philosophy jibed with his. “They convinced me that if I took a 40% pay cut and worked for a company that probably wouldn’t be around in six months, it’d be a great career move.”

Turns out, it was.       

Today, Griffin is vice president of the performance management software group for Cox Automotive, which in 2010 acquired vAuto.

Its inventory-management system is designed to help car dealerships select, price and sell stock based on current marketplace supply-and-demand analytics.

Griffin jokes that vAuto’s founders “convinced me that if I took a 40% pay cut and worked for a company that probably wouldn’t be around in six months, it’d be a great career move.”

Dealers across the country engage Griffin to speak on various topics, including used-car strategy, best practices and process engineering.

He focuses on finding business opportunities to counterbalance dealer margin compression in today’s digital world of shoppers armed with much buying information, particularly competitive vehicle prices, acquired on the Internet.

He also offers advice to dealers on what he considers the best way to attain a business objective. It requires something of a reverse-order process.

He explains: “Decide what you want to accomplish, then build a strategy to get there, then a process to manage the strategy. Then look at what data and functionality is relative to that activity.

“You start with the objective and move backward. Don’t focus on the results, focus on metrics that drive the results.”

A vAuto recommended practice is for dealers to price used vehicles low enough to spur quick turns of inventory. That ultimately generates higher gross profits than if the cars were priced higher but took longer to sell.

“A dealership manager screaming, ‘We’ve got to make more money on cars,’ is in itself counterproductive,” Griffin says. “If you try to do it by raising prices, you create aging inventory, which is the death of margins.

“Cars are a depreciating asset. Day one is the best opportunity to make the most money on a car. If I price my cars at higher numbers to protect gross, it causes slower inventory turn. It undermines margins.”

Before the age of Internet-driven pricing transparency, many dealers would high-price cars hoping uninformed shoppers would come along and buy them.

That still happens occasionally today, but Griffin says it’s self-defeating in the long run. It’s not necessary to offer the lowest price in town, but a dealer must stay competitive, especially if an Internet shopper is searching for a vehicle by price. Showing up on page four or five of a search-engine result is tantamount to not showing up at all. 

“With today’s transparency, there is a ceiling for what you can get,” Griffin says. “Go over that ceiling, and no one comes in to look at the car.

“So if I want to manage gross margin, I want to manage cost. I want to manage turn. If I sell cars in 20 days, I make more than if I sell them in 40. Then I want to manage transactional efficiency. How does my sales process defend that market-based price, or are we giving away a lot of discounts?”

He likens dealership inventories to stock portfolios.

“Don’t look at individual cars. You may have $2.5 million invested in a used-car inventory. Your job is to get the best return on that $2.5 million, not one piece of it.

“If your stock portfolio includes Apple, from which you made a whole lot of money, but also includes four stocks that tanked, you can’t go around giving yourself high-fives.”

Vehicle reconditioning is another issue that on the surface can create paradoxes and consequently cause management misjudgments and missed opportunities, Griffin says.

“Some used-car managers look at reconditioning as something that erodes margins, so they may say, ‘I’m not going to buy that car, because it needs $2,000 in recon.’ They are looking at the $2,000 as an expense factor. But the dealership is keeping 65% of that money in its fixed operations for internal parts and service, and dealers will say they want that money. So you have the dealer, fixed-operations manager and the inventory guy looking at the same metric from different viewpoints.”

Griffin’s way to resolve that issue is to adjust the inventory buyer’s pay plan by adding incentives for using internal parts and labor to reconditioning vehicles.

Sometimes, dealership used-car managers will send a car to an auto shop down the street to get it reconditioned because they can get the work done cheaper and faster than at the dealership.  

That may seem odd, but “we see things like that all the time,” Griffin says.

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