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Tips for Car Dealers on Best Ways to GetPre-Owned Inventory“Without question, inventory supply is the No.1 issue these days,” Bob Grill of Carfax says of auto retailing.By Steve FinlayShort on new vehicles, car dealers aregobbling up used cars to stock, say expertsoffering tips on the best ways to acquirepre-owned inventory. “Dealers are buyingas many used cars as they can get,” says TomKontos, chief economist for KAR Global,an auto auction company.The current new-car shortage primarilystems from not enough microchips to goaround for automakers to build a sufficientnumber of vehicles to meet a strong demand.“The chip shortage may limit new-carsales, but it is giving the used-car marketa tailwind,” Kontos says during an onlinepanel discussion hosted by the AmericanInternational Automobile Dealers Assn.Dealers acquire used-car inventory invarious ways. Sources include auto auctionsand trade-ins as well as off-lease and offfleet vehicles. Dealers get first crack atacquiring off-lease vehicles. If they take apass, the vehicles go to auction. But that’shappening less these days.“Dealers are taking all off-lease cars theycan,” Kontos says. Current high rates of socalled “upstream” purchases have reducedauction action. Brick-and-mortar auctionvolumes were off 20% in 2020 and remaindown this year.The used-car market is strong across allmodels, but the demand for pickup trucksis “amazing,” Kontos says. He notes the U.S.economy in general and the auto market inparticular remain relatively strong despiteCOVID’s fallout. Moreover, governmentstimulus checks have helped prop up theeconomy during the pandemic. “There is somuch money out there” for vehicle purchases,Kontos says.Citing various reasons, he points to a“drought” of used-vehicle inventory. That’sin part because rental and commercial fleetturnovers were off last year, putting fewervehicles on the market. It contributes to thedealer scramble to find pre-owned vehicles toreplenish their inventories to match demand.“Without question, inventory supply is theNo.1 issue (in auto retailing) these days,”says panelist Bob Grill, Carfax’s seniorpartner-development manager.He recommends dealers perfect their tradein process to enhance used-car operationsthat are as hot as ever.On average, trade-ins turn 10 days fasterand make 1,000 more profit than auctionsourced vehicles that account for 80% ofaging wholesale losses, Grill says.Not every trade-in is valuable enoughfor a franchised dealer’s used-car lot,especially beaters with six-digit odometerreadings. But high mileage is less ofan issue these days, says panelist MikeRossman, an automotive consultant. “A lotof (consumers) are OK with high mileage.”That speaks to the quality and durability oftoday’s vehicles.Detail and change the oil of trade-insput on the lot, he says, but cautions theservice department should not soak theused-car department in getting a usedvehicle lot-ready. (It’s not unheard of forone dealership to price-gouge another forservices rendered.)“Service should be fair to you,” Rossman says,addressing used-car managers. “If they arerunning a 50 oil-change special to customers,they shouldn’t be charging you 70.”He cites an egregious case involving aninternal order that ran 70 to replacewindshield wipers. “You wouldn’t do thatto a retail customer. Everybody should befair with each other.”Grill recommends that a dealership invitea consumer potentially trading in a vehicleto attend the appraisal process. “Have thecustomer part of it. It removes the mysteryand wins more trades. They like to beinvolved.” He also advises appraisers to“ask the right questions” of such customers.Those include whether they bought thevehicle new (being the only owner is apositive) and whether it has ever been in anaccident (a negative).Such factors affect vehicle value. Anexample Grill gives is the price differencefor the same vehicle: a 2017 Infiniti QX60with a premium trim, front-wheel drive and34,000 miles (54,400 km) on the odometer.A model that, among other things, had oneowner and no accident history would retailfor 25,750. The same model that had beenin an accident, came from a daily rentalfleet and was in poor condition would gofor substantially less: 22,500.Another way to obtain used-car inventory isto ask customers who are in for service workif the dealership could buy their vehicle,Rossman says. Use the right approach.“Focus on buying their car, not selling oneof yours. Think retail acquisition, not sales.That’s fundamental.”His tips for enhancing such vehicleacquisitions include offering a free appraisal;displaying in the service department and itswaiting room a list of vehicles the dealershipwould like to buy; and spiffing servicedepartment employees with a finder’s fee.“If you can pick up seven to 10 vehicles aweek that way, it dramatically increasesyour used-car inventory,” Rossman says.Separate from the AIADA webinar,Jonathan Banks, J.D. Power’s vice presidentvaluation services, gives his take on thevibrancy of today’s pre-owned vehiclemarket. He says it “continues to be red hot,and prices remain at record levels. Thisisn’t going to change in the foreseeablefuture. “Year to date, wholesale prices haveincreased a massive 32% while used retailprices are 10% above where they were at theend of 2020.” nSteve Finlay is a retired WardsAutosenior editor. He can be reached at Steven.Finlay1950@gmail.com.GIADA Independent Auto Dealer MAY/JUN 2021 5

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FINANCIAL FEATUREThe Nastiest, Hardest Problem in FinanceBy Peachtree PlanningSometimes, you get the idea the expertsdidn’t think this through.uncomfortable. So, legislators keep waitingfor a better solution.THE BACKSTORYOriginally conceived as auxiliary retirementaccounts, individual saving in qualifiedretirement plans is now the primary sourceof retirement funding.Almost five decades ago, financialpolicymakers began a concerted effort toencourage Americans to specifically savefor retirement. Special accounts, like IRAs,401(k)s and 403(b)s were introduced toencourage workers to build savings tosupplement monthly checks from SocialSecurity, and employer-funded pensions.These innovations were met with greatacclaim; ambitious savers saw theseaccounts as a path to early retirement, a wayto stop working in their 50s. Except An unintended consequence of 401(k)s and403(b)s was the demise of pension plans.Defined-benefit pensions are a challengeto manage, especially when the pool ofretirees gets larger and the employer has tomake ever-larger contributions to sustainthe plan. Replacing pensions with 401(k)sor 403(b)s freed employers from pensionobligations which were both large anduncertain. In 1998, 59 percent of Fortune500 companies offered their employees apension. By 2017, only 16 percent did.Social Security, a government-administeredpension, is under-funded; there are toomany retirees and not enough workersto support future benefits. The fixes, toraise taxes or cut benefits, are politicallyTODAY, YOU NEED TO SAVE MORE!To make up for the loss of pensions and theuncertainty of Social Security, economists,policymakers and personal finance punditshave redoubled their efforts to encouragepersonal saving.The emphasis on more saving and largeraccumulations is logical; without retirementsavings, there can be no retirement. Andsince most Americans still aren’t savingenough for retirement, the message “youneed to save more” is still appropriate.But accumulation is only half of theretirement equation.DECUMULATION: THE “NASTIEST,HARDEST” OTHER HALF OFRETIREMENT PLANNINGThe other is decumulation, the orderlyand efficient spending down of retirementsavings. While planning for accumulationis a relatively straightforward task (youdetermine how much you will save, whereto invest it, assess your results, and adjustWe Help Independent Auto DealersProtect, Grow, and Pass on Their Businessas necessary), decumulation is a muchmore complex planning task. In fact, inthe opinion of William Sharpe, a NobelLaureate economist: “Decumulation is thenastiest, hardest problem in finance.”Decumulation requiresa different mindset. Thetransition from accumulationto decumulation is liketraveling on one track forthirty-odd years, only to findthe next phase of the triprequires jumping to adifferent set of rails.In a 2014 interview in AdvisorPerspectives, Sharpe explained that thevariables impacting decumulation aremore numerous and interconnected thanthose at play during the accumulationphase of retirement planning. Where anaccumulation projection might considerrate of return, taxes, inflation, andcontributions, Sharpe says a reasonablythorough decumulation model couldhave between 50 and 100 variables andcoefficients, and small changes in theseassumptions generate big differences inoutcomes. For example, the “considerationof whether you are alive along with yourpartner, or just one of you, or if it goes to thekids and the charities after we die,” resultsin dramatically different decumulationstrategies.“The dimensionality isoverwhelming,” Sharpe says, “and thebehavioral issues are of course, verydifficult.”THE BEHAVIORAL ISSUESMatt Justice, Vice PresidentO:404.260-1649 M:404.384.4140matt justice@peachtreeplanning.comDavid Gibson, MBAO:770.897.4913 2021-117225 exp. 2.238 GIADA Independent Auto Dealer MAY/JUN 2021The narrow focus on maximizingretirement saving has inadvertentlyneglected decumulation, at least from thebehavioral aspect. In a September 2017white paper, “Save-Save-Save, But ThenWhat?” UCLA Anderson Review authorCarla Fried highlights the problem:

“After spending years in an accumulationmode where the only message has been save,save and save more, it’s a big ask to suggestretirees deftly make a 180-degree pivot andbecome masters of decumulation.”Decumulation requires a different mindset.The transition from accumulation todecumulation is like traveling on one trackfor thirty-odd years, only to find the nextphase of the trip requires jumping to adifferent set of rails.Some retirees – especially those who havebeen prodigious savers – struggle with thechange.This can result in a “spending gap.” Studiessuggest many well-off retirees could spend8-10 percent more per year and not worryabout running out of money. But there’s aningrained mindset that finds it hard to letgo of savings. Shlomo Benartzi, one of thepioneers in behaviorism, says, “It is wellestablished that once people think theyhave something, they become reluctant togive it up.”The reluctance to touch principal alsoaffects retirees’ response to annuities.Economic studies show that annuities, withtheir potential for lifetime income, can beefficient tools to reduce risk and increaseincome. But while retirees can see the value ofthe annuity programs they already have (i.e.,Social Security and/or a company pension),it’s a different story when they contemplateusing their own saving to buy one. PerBenartzi: “The purchaser (of the annuity) hasto write a big check to get a series of smallchecks, which may simply look like a baddeal to a naïve consumer. An annuity shouldbe viewed as a risk-reducing strategy, but it isinstead often considered a gamble.”Unsure about how to spend, it’s no surprisethat “Many Americans look with longingat old-fashioned pension plans,” says AnneTurgeson in a February 2020 Wall StreetJournal article. “(A)side from providinga guaranteed monthly paycheck for life,pensions spare retirees the hassle andanxiety of figuring out how to make theirnest eggs last.”But old-fashioned pensions aren’t comingback. So how are you going to handle thenastiest, hardest problem in finance? Trymaking it a group activity. Decumulationis not a DIY project; look for professionalassistance.If you want to maximizeyour retirement assets andminimize the financial andemotional risk, you wantto consider how insuranceinstruments can transformyour accumulation balanceinto a stream of benefits, justlike the company pensionsused to do.And if you’ve been a rugged individualistof personal finance, diligently saving andmaking your own investment decisions, tryto open your mind to the value of poolingassets and spreading risk.A TRANSITION FROMBALANCES TO BENEFITSThe accumulation phase of retirementplanning is a personal investmentproject, where success is measured bythe accumulation balance. In contrast,decumulation is primarily an insuranceproject: the main objective is to ensure youwon’t run out of money. The success ofdecumulation is measured in benefits, howmuch can be guaranteed for how long.You can self-insure your decumulation;that’s what the retirees who won’t touchprincipal are doing. This makes theprincipal your insurance, and not touchingit is the annual premium. But insuranceworks best as a group effort, where therisks can be spread over a large number ofpeople. That’s what pensions and annuitiesdo; they ensure payments for everyone bypooling assets and risks to guarantee thatthose who live longer will be subsidized bythose who did not. nContacts:Matt JusticeMobile: (404) 384-4140Office: (404) 260-1649matt nday, June 7, 20215:45 pm - 10:00 pmMonday, June 14, 20219:45 am - 2:00 pmThursday, June 17, 20215:45 pm - 10:00 pmSaturday, June 26, 20219:45 am - 2:00 pmTuesday, July 6, 20215:45 pm - 10:00 pmClasses held atSonesta Atlanta NorthwestGalleria, Atlanta GAFOR MORE DETAILS, VISIT:georgiacardealerlicense.comAre you a GIADAmember that has adealer testimony orstory you'd like to sharewith other Georgiadealers? Contact us! Ourpublications team wouldlove to share contentprovided by dealers,for dealers. Emailpublications@giada.orgDavid Gibson, MBAMobile: 770.584.6258Office: A Independent Auto Dealer MAY/JUN 2021 9

The Pros and Consof Buying LowerCR Grade InventoryBy Curtis Sampson, Rapid ReconAs the supply of Grade 4 and 5 used carscontinue to dwindle, franchised dealerswill increasingly turn to lower condition-grade vehicles to supplement their lots.“Condition of units [at auction] istrending toward the ‘edgier’ side withdamage, dash lights illuminated, andvehicles running on red and yellowlights,” Black Book noted recently.Can a dealer acquire these cars and stillrecondition them to make a profit? Yes, ifdone smartly.Lower condition report (CR) units arenot necessarily older, higher-mileagevehicles. They are two to four-year-oldcars in rough condition, presenting at theauction or as lease returns having dents,scratches, bad brakes, torn seats, andother evidence of wear.Chevrolet dealer and used-car bestpractices consultant Ed French said he’snow buying 2.5 to 3.5-grade vehicles for10 GIADA Independent Auto Dealer MAY/JUN 2021his dealership, 500 Automotive ChevroletBuick GMC in Clinton, Indiana.line. Notify staff they won’t be docked forslower time to line results on these units.“We’re doing so for two reasons. There arefewer bidders on these cars because manydealers don’t know how to reconditionthem efficiently, and they’re moreaffordable for us to buy,” French said.Certain times require a paradigm shift.Dealers get in a mindset, driven bycustomer requests, that a vehicle needsto be near perfect, if not perfect. You’renot restoring used cars, but you are inthe business of reconditioning preownedones.“Even in a white-hot market, valueshoppers are still buying. When you canrecon lower-grade cars right, they presentas mechanically sound and cosmeticallynice, not perfect,” French said. “If you’reusing your recon software data correctly,you’ll get the answer to the big question,‘Is there any juice in the squeeze leftbased upon what we would have to spendon it in recon?’”Because these cars are likely to requiremore recon work and thus more time toget them sale-ready, it is wise to create aseparate recon time-to-line bucket. Thus,these cars’ longer slower recon timedwon’t skew the dealer’s typical time toFor edgier condition units that needa durable recon process, providingbona fide accountability, transparencyand communication in every step areessential, for both inside your operationsand with outside vendors. I cannot overemphasize the importance of having inplace a robust recon process, the keyto creating profitability from lower CRunits. nCurtis Sampson is a new business managerfor reconditioning software company RapidRecon. He is a former dealer principal,general manager, and used vehicle director.

HiramLoganvilleGainesville(770) 534-5385Theresa SheltonLoganville(770) 931-0846Melissa Johnson, Mgr.HiramEric Forrister, Mgr.Marietta(770) 422-2730Carlos EcheverryGIADA Independent Auto Dealer MAY/JUN 2021 11

F&IH I G H L I G H TUSED INVENTORY IN HIGH DEMAND:How Dealers Can Sell MoreF&I Products in 2021By Tim BlochowiakConsumers today have a diverse set of needs that match various F&I products.Over the last decade, consumer focus hasshifted to cutting-edge electric cars andfeature-loaded new SUVs and pickuptrucks. However, entering 2021, usedcars are among the automotive industry’shottest commodity because they offermany of the technology features andconvenience packages consumers want ata more affordable price.Consumers today have a diverse set ofneeds that match various F&I products.With so much emphasis on used carstoday, auto retailers must ensure their F&Iproduct portfolio matches the variousneeds of their customers looking for usedinstead of new.Consumers today are hot after usedvehicles so they can avoid trains, buses,or Ubers during the pandemic, whileenjoying the independence of vehicleownership. As demand for used inventorycontinues to rise and manufacturers adjustto production capacity brought on by thepandemic, dealers need to ensure theirF&I product mix matches the interestsand needs of today’s shoppers.In terms of the outlook for usedvehicle sales in 2021, industry analystsat Edmunds are forecasting 41 millionunits this year, up from an estimated 38.3million sales last year.CONSUMERS HAVE UNIQUE NEEDSFOR USED VEHICLESConsumers today have a diverse set ofneeds that match various F&I products.Some products stand alone, while otherscan be combined to better meet theconsumers’ lifestyles, protection needs, orbudgets.12 GIADA Independent Auto Dealer MAY/JUN 2021It is critical for dealers to understandtheir customers’ wants and needs. F&Ipartner providers are now taking more ofa consultative approach to understandingthe dealer’s goals to properly align productsand services that help dealers reach theirbusiness and financial objectives.What’s more, the pandemic expedited theintegration of digital retail requirementsfor dealers. Consumers have beendemanding a more digital shoppingexperience in the automotive spaceprior to the pandemic. As a result, moredealers have implemented digital retailingelements to incorporate F&I productoptions and education earlier in the onlineprocess for car shoppers.With used inventory in high demand,here are the product trends we’ve seendeveloping in recent years: Pre-Owned Vehicle Service ContractPrograms: With multiple levels ofcoverage and a range of model yearsand mileage bands, many consumersare choosing auto care plans for usedvehicles. Certified Programs: Dealers tend togravitate toward certified programs,such as limited warranties, becausethey offer numerous options relativeto eligibility, coverage, and deductibleoptions. Additionally, many certifiedprograms offer dealers investmentopportunities in the form of dealerparticipation programs. Ancillary: Ancillary programs are inhigh demand because they protectkey elements

Not only do we handle insurance, Ron is a licensed used car dealer! . panel discussion hosted by the American International Automobile Dealers Assn. Dealers acquire used-car inventory in . Auto Dealer MAY/JUN 2021. GIADA Independent Auto Dealer . Independent Auto Dealer MAY/JUN 2021. GIADA Independent Auto Dealer . Independent Auto Dealer .