In this blog post we have transcribed the UCDP interview with Bob Hollenshead in written format. You can listen to the original podcast here.
ZACH: Well, Hello everyone. Zach here and it's episode #12 of The Used Car Dealer podcast and we have a very special guest, Bob Hollenshead, the largest independent wholesale operator in North America. He started in 1979, and in addition to his wholesale operation, he's also a serial software entrepreneur, creating Galves Data, Accutrade, as well as other brands. Bob, Thanks so much for joining me today, how are you doing?
BOB: Good brother, How are you?
ZACH: Doing excellent and you are a guest who I’ve really wanted to come on the podcast because the number one thing all the used car dealers are talking about is sourcing inventory. But before we get into that, I wanted to have you give a little bit about your background and how you got into the car business for those listening today.
BOB: Oh, I don't want to put everybody to sleep with that but you know I’ll try to make it brief if it's possible.
BOB: I started actually not in 1979 but 1972. I got into the wholesale business actually after being around a couple of folks that were buying and selling cars from dealerships that we’re selling new cars at and that evolved into what we do today. I think we've been through all the experiences--the first, the second gas crisis, I think we went through all the different phases of import and export. We've been in the export business in Africa and China long before it was stylish to do that.
BOB: And, I think we were actually very early when it came to understanding what data and using computers before fax machines. And that's actually when we started to develop software to value cars.
That led us to our first business, which was buyfigure.com, which led us to Buy Book Technologies and that was the basis of the trade and marketplace data which is now Kelly Instant Cash offer. I sold that to Cox after operating it for about eight years. They exercised their option and that's what people know today as Kelly Instant Cash Offer. What we do today, licensing to TrueCar as TrueCar trade and Auto Trader Canada as Trader ICO, and in the Canadian marketplace we offer Accutrade.
When we sold our company to Cox we had a two-year non-compete, it did not include Canada as a result we took that time to develop what is now an ongoing data company. A next-generation instant cash offer which includes a myriad of different options that dealers can leverage in the showroom with the trade process with different level of transparency, interaction with the consumer, in the service department, and obviously with digital retail.
So, that's pretty much where we stand at this moment. In our software development, we have logistics product also that's being distributed as we speak, made logistics that enables any dealer to have an Uber-ized process for service, digital retail and also for, and acquisition when you buying cars on different platforms on different places. You know today the way we're buying and selling cars is no longer from an aggregated source. It's typically in a onesie-twosie circumstance. So, I think this pandemic is changing the way we do a lot of different things. One of them is how we actually move assets after we purchase them. So that in a nutshell, is it, my brother.
ZACH: Well, you just talked about the next question I had on my mind and I wanted to discuss the change from March and April when COVID-19 first started to take mindshare to now and what you've observed in the marketplace and in your business.
BOB: Well, it's not just what we observed, so we are traders, so, in our own business which we obviously still operate, we're traders, you know? We are buyers and sellers, right. We sell and we have sold more cars in auction on Simulcast than any dealer or dealer group in history. It keeps us in tune with what's good, what's bad, and what's actually happening, right?
So, when we first went into the panic mode, when the market went into the panic mode we continued to sell straight through that. In other words, our business is based in replacement value and that actually has an effect on what we offer for cars. And when you sell straight through it, obviously, we were in free fall in the first two to, I guess maybe it was, four weeks.
In that free fall, we continued to sell 100% when all of the dealers actually decided to not panic and hold on to their cars forever. It's just is anti-logical test and as a result, we sold straight through. That was a painful point and I would say as painful as my 50-year career could possibly be but since we deal all in cash, we don't borrow money from people, you know, it's a circumstance where we’re perfectly happy to be liquid.
And on the opposite side of that, over the past, I guess it’s, 12 or 14 weeks, whatever it is at this point the extreme euphoria of the marketplace is the exact opposite. So, we hit the two biggest extremes in our 50-year career, right?
So, it went as low as it could possibly be with absolutely no interest, it had to be more or less something that's free for people to buy and obviously we sell and on the exact opposite side of that, I don't think we've had a no sale in the past seven or eight thousand cars. So, not only that, not ‘no selling’, I would say, they’re bringing what the average dealer reconsiders for retail, right? So if dealers don't have inventory and obviously they can't sell something they don't have, you know, progressive dealers are paying what they have to pay to get cars and taking them home and actually selling them, right.
Now, someone who’s a pontificator and is not going to participate in hyper-inflated prices, which is obviously the market, it's not like somebody is superficially infusing the market. They sit on the sidelines and don't participate. So that's the dealer's choice. And I think what we find is that in any market that is supply and demand-driven, in order to replace a vehicle you have to pay what the going market rate is and that's what is actually happening.
ZACH: So, what are some of the new or maybe unusual ways that your company had to clean, sanitize cars to be COVID-19 friendly or compliant, and what was that like to implement?
BOB: Well, it's funny you asked that question because that was not a pre--you did not figure out prior to having that conversation, right Zach?
BOB: So we own a company called PuroClenz. it’s a company that we developed I don't know, ten or twelve years ago, specifically to address a problem that every car dealer encounters 2, 3, 8, 10 times per month and that's a car that doesn't sell for 30 days until they stick their nose in the car and realize it smells like a church basement or a toilet.
And we developed a product called PuroClenz. It's a chloride-based product but it’s a vapor that is put into the car and kills all bacteria that’s in the car. Bacteria is actually what causes the smell. So, cigar smell, you know, rotten milk, baby--whatever happens with babies, whatever it might be, overcleaning cars, gets in the car, puts it in the headliners, it’s too wet, closed ‘em up in three days and when you go back to smell the car you wouldn’t get in if your life depended on it.
Therefore, it turns into aged inventory. That product, PuroClenz turns out to be, you know, the ultimate savior for anybody to get the old odder out. In other words, when you trade the car, with that car comes all the old owner’s germs. Our product takes about two hours to properly, um, not two hours of scrubbing but, actually, you put it in the car, vapor goes on, close the car, run for two hours with the air conditioning or heater on full blast, up and down and it’s sanitizing the, it kills all the germs, in the headliner, under the seats, wherever smells tend to, actually-- it actually even kills the horrific smell of the Christmas tree on the rearview mirror.
I think the dealers who are listening, they understand what that is. That’s a disaster. We actually have to throw your clothes away when you get out of the car appraising that unit, you following me? It does actually eliminate that smell as well. So, along with eliminating smells, there is no COVID that can live after the treatment.
ZACH: That's awesome. And for you Bob, what has been a surprise kinda given a COVID-19 pandemic and its impact on the used car market?
BOB: Tell me what you mean by a surprise, brother? Other than the fact that when you think about it prices of cars could never be what they are today, it’s physically impossible.
BOB: Let me tell you, our tool Accutrade actually shows you, from the day the car is new, where it’s been, who owned it, how much they were asking for it, how long it stayed on the lot, how many times it’s been on the lot, and how the price has changed every time. So, as part of the data that we actually deliver to dealers and I can only tell you this, more cars than not actually bring more money at the auction block than what the dealer was asking for the car retail.
So, if a dealer owns that unit, let’s say it’s 120-days old once I take it to you, Zach, you guessed it, February, right? Okay good. You did sell the car in February, you did what you were supposed to do, sell it to the bottom, keep lowering the price, the next thing you know you get smashed with COVID, right? Oh, and then all of a sudden it doesn’t sell and you continue to lower the price right? So, a $27,000 car turns out being $24,200.
Well, the dealer has no concept, no possibility of understanding what that car is actually worth in the open marketplace, in a ‘co-validated populated with motivated buyer’ market, Simulcast, for instance, right? In other words, no possibility of understanding what that actual market value is and what we see and what we can actually, not only--we can actually document the fact that a car a dealer may be asking $27,000 can bring $31,000 on an auction block. Now it completely is what’s a surprise. Would anybody ever dream that that could possibly happen? A Lamborghini--a dealer’s asking $312,000 brings $348,000 on the auction block even though it’s retail was $312,000. Until two days after we hit the block with the car, right?
Same thing happened with, not just with Rolls-Royces, but the exact same thing happens with any kind of Camaro or Mustang, or name anything that could have some desirability. It does not happen with ‘mud’, in other words, ‘mud’ being an old rental car or something highly traded off-lease from let’s say, for instance, you know, the GM Lane or whatever. It’s--cars are bringing big money but they’re not something extraordinary. When I say extraordinary something that is a reason to take a peek: it’s white, it’s got gear, it’s got a clock, you follow me? In other words, those cars are bringing completely, utterly, insane money. But it’s not insane, it’s the market.
ZACH: Exactly. And to piggy-back off that question, used car dealerships have been adapting to the change brought by COVID-19 when the challenge is evaluating the trade especially if you’re doing it virtually. What are some suggestions you have for used car dealerships to put the right number on a trade?
BOB: So, what’s the right number, Zach? So you’re actually--t seems like listeners are going to believe you’re playing with me because obviously, my answer is one word, and it’s really simple it’s called Accutrade. In other words, that’s what our tool does. It’s impossible to make a mistake when you use our tool because it happens to be guaranteed, right?
So if you have no idea what X, Y, or Z is worth and you VIN decode the car and put in the information that’s necessary, takes you a good two or three seconds, not only are we telling what we would pay but we are telling the dealer how much that car would bring in an aggregated market, whether it be ACV, or Backlot, or Manheim Simulcast, or OVE, whatever happens to be. We’re actually showing instantaneously what a Carfax means, what options mean, what common problems there are around that car. And when you have that, where the car has been listed, what it’s history is, what the pedigree of the car is, you follow me?
That’s what our tool is built to do, in other words, everything that we’ve ever done in terms of understanding what’s important when it comes to the valuation of a car, it’s smashed into our little application. So if a used car dealer is using it, for that matter. If anyone’s using it, a bank, a new car dealer, and it doesn’t really make any difference what kind of new car dealer if it’s a Ferrari or a Flex.
They’re getting all the information that’s necessary to make intelligent decisions and not steal from yourselves based on theft by ignorance, you follow me? You know, there’s different kinds of wholesale theft. One is a used car manager taking a note under the table, right? The other much more, let’s call it, disastrous theft is theft by ignorance. Not knowing what’s something’s worth, taking a guess, wetting your finger, putting it up in the air, calling a friend who’s not a buyer, or using some other data that has no relationship to the marketplace, something that’s other than a cheque writer and plugging a number on it and hoping that you’re correct. And when you’re not correct, melting it into (this is where theft comes into play, because it’s theft by deception) melting that into that loss that didn’t necessarily need to happen.
ZACH: You bring a very good point up because right now a lot of used car dealers, let’s say they just use Black Book or NADA guides, they might not be using a software application, to give them up-to-date, like trade-in value on that particular vehicle. So, for dealers who’re still thinking ‘Hey, I’m fine with, my paper book that I still have’, what other words of wisdom do you have for them especially, you know, given the COVID-19 marketplace?
BOB: Why would you want to? It would be equivalent to asking a question if you’re going to hop in a Ferrari, you follow me? Hop in a car, right? And the car’s actually got your, you know, your bankroll all tied up, right? And you’re going to drive that car like flat out full speed. Because when you start spending your money, there is no going back, right? You’re the last bidder, you own it. You make an offer, you own it. And then, let’s start driving that car blindfold, you want to? Put the blindfold on, don’t just put your mask on, put the blindfold on, you follow me? And then go ahead and get her done, right? So it’s suicidal, right?
If you have, let’s say tools that aggregate all of the data you referred to, plus market data, plus your competition, plus how you’ve recently performed with that vehicle or that category vehicle, when it comes to a used car dealer, not typically brand-specific, although they can be, right? In other words, understanding facts, right? Before you weld yourself into inventory and need to wiggle your way out, right? So, there’s no reason on earth why you would want to go into a fistfight blindfolded, right? You’re not going to win.
And if you’re using your own money, it could be the craziest thing on earth not to use tools that are available to help you understand all the things that--it doesn’t mean that those tools are going to buy and sell cars for you, but the insurance that surrounds the availability of tools that help all of the rationality, you know, around what you’re doing, what you’re buying, what you’re selling, where you’re going, where are you successful, where are you not successful, you know? Hey Zach, do you ever go fishing?
BOB: So, when you don’t catch anything do you go back there, do you go back there.
BOB: Not really, right? So, in other words, when we have success-- like you’re fishing for trout, you’re in a nice, like, dead warm, no you’re not going to fish, no trout don’t exist there. They’re in a little brook of rapidly running clean water right? If you’re going for catfish right? In other words, you know exactly where to go because it’s in dead bottom-feeding muddy water right? And that’s how you fish for those. It’s the same thing with automobiles, it’s identical, actually, right?
If you know what type of fish you’re looking for, you gotta go fishing in that type of environment. And if you have the bait to go with it and all of the intelligence surrounding it, and maybe you don’t even want to cheat, and use a drone to see where the school is, right? In other words, you want to do it but, you can’t, but, in other words, not using what’s available to you, it’s suicidal.
Dial up phones still work really good right? Why don’t they use them? Why don’t they use them? Why don’t we use Kodak film? No, it’s gone, isn’t it? Never to return.
ZACH: A thing of the past, right?
BOB: Yeah, you see what I’m saying to you friend? Absolutely. That’s why we would, as used car dealers, want to use very inexpensive, totally effective, and guaranteed software. Yeah.
ZACH: So, with your years of wisdom, some of our listeners are just getting into the car business just getting their dealer’s license, what advice do you have for them from the wholesale auction kinda standpoint?
BOB: Really, simple, Zach. If you’re getting into business, just like going to the casino, you follow me? This is a, I know it’s a weird analogy, but 100% of the time it’s true. Every time you buy a car, you gotta buy it like it’s the last money you gotta spend. Without fail. Don’t get on a roll and start, you know, you walk into a casino, what do you hear first? ‘Ding ding ding ding ding ding’.
BOB: There’s 800 people sitting at machines yanking on handles but they hear somebody else get lucky therefore they believe they can get lucky, somehow--could be the dumbest thing in the history of the world. In the car business, when you get lucky, you have to forget. Remember what you did. but you have to forget that you got lucky. Because if you go out and do the exact same thing to get lucky again, 99 times out of a hundred it’s not going to happen.
So the next piece of that, if you’re just getting into the car business, do not borrow money. And if you borrow money, treat it like it’s better than your own money. Now, if you’re using your own money, you know what it feels like when you lose, ‘cause it stings. ‘Cause you know what you had to do to get the money, right? And, every time you leave a car sit on a corner and it melts on you, and you know, you think you’re making a profit, you’re not making anything until you liquidate whatever you got laying, right? You got to make ten bucks, save nine.
Use your own money. And if you’re using somebody else’s, if you’re using, you know, another source, say AFC NextGear, somebody, West Lake, who knows what, your uncle, whatever, treat that money like it’s the only money you’re ever going to have so that you don’t develop bad habits of letting shit lay around because you happened to sell a car and make a profit. Next thing you know you’re doing the 52-week math millionaire stuff. It’s no good, bud. It’ll catch up with you and it’s going to bite you right where it hurts.
ZACH: And lastly, you know, is there anything that I didn’t bring up that you want to discuss or any futures or outlook you have on the used car marketplace?
BOB: I mean, you’re opening up a can of worms there brother. We could go on for fourteen volumes that’ll look like Tolstoy’s War and Peace, you understand? I would say, and believe me I have no wisdom, I have experience, I have no wisdom whatsoever because today is like the first day in business, you learn constantly and the day you stop learning you’re in a world of trouble. Because we’re in business and in a marketplace that is constantly evolving. Constantly evolving.
And I would say that the euphoria that we’re in, you know, everybody wants to pontificate ‘so and so three weeks and it’s over, four weeks, twenty-two weeks and it’s over.’ My theory is really simple. You buy a car and you sell it as quickly as possible, doing the best you can to put it in front of the right eyeballs, to understand that you feel comfortable that you got what the car is worth.
As this market evolves--and it could go down, it’s possible. I think we’re in a--you know, it’s totally unpredictable because, with the crazy guy that we have running things, we never know what’s going to happen next. And as a result, you know, the market basically is at the mercy of, you know, we shut down again, we do something else, whatever. You know we stopped giving up this money. And I think that money has a lot to do with the insanity of the market that we have. People get the extra six hundred bucks here and there, they don’t know what to do with it and as a result, they go make a, you know, like a, sometimes not the best decision in the world to spend that money and buy a car.
So you have easy money that came in, the other piece of this is right now, it’s really easy to buy cars from individuals. A lot of people not going back to the office, they got an extra car. They just want to liquidate that car. A lot of times, it’s really good merchandise but they’re not coming back into the market.
You see, so, as this is happening, you know, we’re in a weird circumstance, that it’s not going to duplicate, it’s not going to last forever, so we have to remain agile, highly attentive to what’s going and I would say maintaining liquidity as opposed to lulling yourself into a sleep that ‘well, it’s not really bad this week, it might get better next week’.
As we see this thing going back to normalcy, you need to be able to cut and reevaluate the inventory. That’s my theory, you got to keep going. But when we start to see it go the other direction, you know, I think you have to be prepared to face the music, right?
BOB: That make sense to you, Zach?
ZACH: Makes perfect sense, Bob, thanks again for being on the Used Car Dealer podcast today, you’ve had a lot of words of wisdom, and experience. So thanks again for joining.
BOB: My pleasure, brother.