Interview with Dale Pollak founder of vAuto and Used Car Industry Expert

October 5, 2020| Zach Klempf

In this blog post, we have transcribed the UCDP interview with Dale Pollak in written format. You can listen to the original podcast here. 

 

Zach: Hey, it’s Zach here and you’re listening to the thirteenth episode of the Used Car Dealer podcast, and we have a really special guest today, Dale Pollak, the founder of vAuto. And I wanted to get things started with you Dale and ask you about your background and how you got the idea that led to vAuto, and if you could give us that story at a high level; we'd love to hear it.

Dale: Sure, thank you. So, I grew up in the automobile business; my father was a dealer. So from a very young age I was working around the dealership. I sold my first car when I was sixteen and really worked all through my high school and college years, summers at the dealership. 

And when I graduated college, with my undergraduate I went to work full time with my father and found that being in my father's business, one that he established and built for many years, wasn't very gratifying for me. I wanted to do something on my own. So my father did a really wonderful thing on my behalf, he sold out. He could have retired but he put it all back on the line with me on the dealership that we bought together in the suburb of Chicago, a Cadillac dealership, and that’s really where I cut my teeth.

Those were some tough years. There were some difficult circumstances in the economic environment, and Cadillac was just beginning what turned out to be a terrible down cycle of their product. So we struggled and we really had to depend on used car operations and one day my father came to me and said “We need to cut back on the staff and I need you to run the used car operation”.

And at that time, I certainly knew how to sell cars but I really didn’t know anything about used car management. But the worst problem was that I had been and continue to suffer from a life-long deterioration of my eyesight and I said “Dad I can’t even see the cars very well, let alone manage them” and he said something to me that was very profound, that would many years later, start the course of my professional life and he says, “You really don’t need to see the cars”, he said, “What you need to understand is that, it’s all about the money”

In fact his exact words were: “It’s about the money, honey” and I said, “what do you mean it’s about the money? And he said, well if you think about vehicles as an investment which you really need to need to focus on, is just getting in, am I right? He says you can depend on unreliable people to describe them to you, but you really have to know what the right money you use to get in. And then you have to understand, they’re like investments. In order to get a good return, you gotta pluck ‘em fast and do it often.

So, he charted me with that economic construct to run the used car operation and unbeknownst to me (and largely also dependent because I couldn’t make a visual assessment of vehicles and have gut instincts about you, know-how, much it would sell for based on its looks) I ran that department really attuned to the financial side of the business

Well, fast-forward the clock many years forward and the internet came along and it was eminently clear to me in the late 90’s and early 2000s that the transparency that the internet was going to bring to the industry would cause everybody eventually to be very much attuned to vehicle values and prices. And, because I had operated that way out of necessity for the prior decade, I saw the opportunity to create a solution: a software solution that would bring visibility to pricing and values in a way that never have previously existed. And it eventually spawned the beginning of my vAuto journey

Zach: Excellent. And tell me a little more about some of the challenges, because you eventually raised funding from a venture capital firm, but before that, there were a couple of challenges in kind of getting that initial version of vAuto out there. What was that like?

Dale: Well, when I originally started out it wasn’t called “vAuto”, it was called, “Mpower Auto”. And the flaws of Mpower Auto consistent with my financial perspective of the industry wasn’t about pricing vehicles, it was about buying them for the right amount of money. And what we did in Mpower Auto, we essentially give a score to a used car manager or buyer based on how much money they paid for the car. If they paid for the car, they got a lower score; if they bought it cheap, they got a higher score. 

I quickly discovered that used car managers didn’t want to be judged and nor did they want to be judged especially on something that they couldn’t undo or couldn’t change. And yet, I knew that how right they own the vehicle would ultimately have a lot to do with their success, their outcomes with the vehicle. But it proved very difficult for those reasons to get people to buy the software and in fact, it offended them. 

So, I found myself sitting with dealer after dealer showing them, based on what they paid for the vehicle and how they currently have a price, how absurd it was. And I would use sites like autotrader and cars.com as a reference to show them that they were just priced way over the money because they owned it for way over the money. 

One day, the thought actually occurred to me, that you know what, maybe instead of trying to get them to buy the car better, maybe I should start it from the other end and get them to price better. And it was difficult for any used car manager to argue when I would show them that their vehicle was priced $4000 higher than the average price of similar cars on the internet, they couldn’t deny that it wasn’t my opinion vs. their opinion, it was right there in front of their eyes, and equally as important. It was a decision, that pricing decision they had originally made that was too high, it was a decision they were capable of changing. 

So, it was a significant pivot from coaching them, initially, on how to buy the car right to how to price it right, taking them from a decision that was ‘my opinion vs. their opinion’ to one that was indisputable. And it was taking them from a situation where it was a decision they had already made they couldn’t change or undo to one that they could easily change or undo. So, making that pivot fundamentally changed the trajectory of my software and of course, I had to redevelop this software to be oriented towards pricing rather than buying and the business really began to take off with that pivot.

Steve:  Well, I have a Dale Pollak story, if I could share with you for a minute there, Dale, for our listeners, that I’ve told many times, if I may. It was 2014, I’m a Vice President of sales of Dealertrack for the Western US trying to get a hold of an old colleague of mine at vAuto. I called the support line there, It’s like 6:15 PM Central Time, you answered the phone. I couldn’t believe it! He’s the founder, the CEO, answering the support line calls.The way that you’ve been able to stay close to your customers is absolutely amazing. I don’t know how you do it. So many, always refer to you as, you know, ‘Dale Pollak’s a very close friend of mine’. I don’t know how you do it but very impressive.

Dale:  Well, thank you Steve, I still answer the phone, on weekends and nights. When it rings too many times it puts over to my phone. I think that just comes with growing up in the dealership, you know? When the telephone rings and no one’s answering, you just pick it up. And the principles are no different here. And also, to tell you the truth, I’ve met a lot of interesting people, answering that phone on weekends and nights. And I’m talking to them when they’re in a moment of need and, very often, desperation. And you know solving somebody’s problem particularly when they’re in a great state of need, it’s a really wonderful way of building relationships. So, I appreciate the fact that you recall that story and It’s very meaningful.

Steve:  You really attract, you know, dealers with your knowledge. And you’re authentic.

Dale:  We did some things right and we had them locked too, for sure.

Zach:  So Dale, let me ask you this: what keeps you going and continuing to innovate with vAuto given all of this success that you’ve had in your entrepreneurial career?

Dale: Yeah, this is a problem for me because it’s just the way that I’m wired. And, you know it might, quite frankly, have something to do with my vision. ‘Cause sometimes I wonder at this part of my life, if I could play golf, if I could fly an airplane, drive a boat, race cars, you know, maybe I’d be less focused on solving problems in the industry. I wonder that, but not being able to do a lot of things that normal sighted people might do with time, I get my, I guess I get my energy fulfilled, and my fire burns towards attraction of something that I can feel, some fulfillment, some productivity or meaning to my work. 

You know it’s a really big industry and it’s a really dynamic industry—why stop its changing? And those make for great problems. And I’ve grown up in the business and I have an innate feel for it and I see the problems and, you know, many of the problems are ones that I feel, I see a path to solving. So, it’s just kind of what I do, it’s how I’m built, and how I’m wired. And honestly, sometimes, I wish I could wake up in the morning and not feel like I have to get out after it. It would be a nice feeling if I didn’t but it’s just not who I am. So, I guess that’s the best answer I have for you.

Steve: Well, it probably feels good, you know, helping people, to chat a bit, for sure. Well, we’re in August, used car inventory, you know, all-time high. You obviously see what’s going on here in the marketplace, what kind of recommendations are you giving the dealers right now regarding the high prices of, you know, acquiring inventory from online auction to purchasing vehicles directly from consumers?

Dale: I can’t remember a time in my 40-some years in the industry where I’ve had less certainty as to what the future holds. And I’ve seen some pretty significant macro events happen in the industry across those 40 years. But there’s so much uncertainty right now that it’s very difficult to be prescriptive. I’ll speak briefly to some of those questions you raised but let me just say I think the first best advice that I could give a dealer during these uncertain and volatile days that we’re in now is to stay very attuned to what is happening, like, in a daily basis, because things are likely to change very suddenly. And you’d like not to be caught short or long if you can avoid it.

So, okay, that said, to be clear the whole sub-market has been red hot and is basically driven by supply and demand obviously, it’s the case. I happen to think that there is good reason to believe that the market, the wholesale market will ease in the 3rd and 4th quarter, I don’t think it’s like a bubble that’s going to burst. I think it’s more like a bubble that will likely deflate. 

However, there is a thesis that says that, before it deflates it might even get stronger and that’s largely because history shows us very clearly and without exceptions that the moment American consumers get money in their pocket, they’ll spend it, and often on vehicles. So, we’re in for another round of stimulus I believe. And if consumers behave consistently with what they always behave when it’s tax season—when April 15th of this year came and we got stimulus—they go out and buy cars. 

So, even though retail market seems to be softening and as is the wholesale market, if we see another round of stimulus in the next 30-45 days, which will demand quick pick up again, which will drive more dealers to auction and the difference this time around versus when they went to auction in late April is that we have to buy half as many cars. 

So, you could see people chasing as more supplies of these cars which could raise prices and if, and I stress IF you’re willing to take the thesis, it might even suggest that you go out and buy some cars now. Perhaps more than you should, otherwise think you should. That’s a gamble, that’s a bet. And it’s really not my nature to fall on that side of the bed. 

My basic nature is to say, run it for what it is today, and what it is today is a swollen business. It’s clear—I’m watching it on a daily basis, the retail sales on a daily basis are falling off and fewer people go to the auction. And it is, you know, it is the third quarter and followed by the fourth quarter and we all know what tends to happen in the fourth quarter of the year. And you know there is a good case are really beginning to dial it down. Unfortunately, many dealers are still very heady from the unbelievable strength of the market in May, June, and July. 

And, I fear that they get to realize that it’s actually starting to slow. But again it’s like stated, it could heat up again, the stimulus. So this is why I say it’s very uncertain and it’s very volatile. So, I think the need is ever-present for dealers to really pay attention, not on a month-by-month basis or even a week-by-week basis but, you know, they should be tracking their rolling 30-day sales, every day and when it begins to heat up or slow down, they’ll have early warning, and hopefully, they’ll adjust their inventories accordingly.

Zach:  Dale, I have a question for you. One challenge COVID19 has brought on is accurate trade appraisals, whether done virtually or at the dealership. And most used car dealers, believe it or not, they don’t have a software product like vAuto. What advice do you have for them? Why should they be using a tool like vAuto, especially you know given the environment of the pandemic?

Dale:  Well, they don’t have to have vAuto as their tool. But it’s hard for me to understand how any dealer is in the used car business today without any tool. And as I said it doesn’t have to be vAuto. vAuto is a very sophisticated high-end tool that might be more than the average used car dealer really needs. 

But, you know, that’s for them to assess. But they have to have some sort of a tool, otherwise it’s just, you know, doing business like we did in the 1950s and 60s, and that doesn’t work very effectively in a very transparent efficient market. So first, they should have a tool but then the next question is you know, how do you appraise a vehicle? And I think that there are two really important principles, that are often overlooked. 

The first principle is that the appraisal process itself, with the customer, needs to be done with discipline; meaning that you need to have a consistent, repeatable, intelligent process to appraise a vehicle. The inspection, the conditioning, the involvement of the customer in the process: these are really critical steps. So, these essentially have very little to do with the tool. Although some of the tools out there today, take, you know, guide the appraiser through the appropriate checklist of items. But getting proper conditioning of the vehicle, involving the customer who owns the vehicle in that process is the first critical step.

The second critical step or principle is ‘should you appraise the vehicle against the wholesale market value or the retail market value’? Well, clearly if your intention is to wholesale the vehicle then I would appraise it against the wholesale benchmarks but if you’re going to retail the vehicle, the best way to know how to get in a vehicle is to first know how to get out of the vehicle. 

And today, the tools that are out there today show you what is the price that likely is going to take to sell the vehicle. And once you know what’s it going to take to get out the vehicle, back out, I should say, your minimum desired profit, back out your reconditioning expense or transportation expense and derive the right amount to pay for the vehicle. 

So, this is what I often refer to as the ‘retail back approach’. And if the vehicle is intended for retail, I would definitely recommend that the tool the dealer uses, the methodology that incorporates is the retail back for retail vehicles. Wholesale vehicles, appraise them against wholesale benchmarks.

Steve:  And how are used car dealers leveraging vAuto and Stockwave you know during this pandemic, any differently with, the wholesale market?

Dale: The rage is acquiring vehicles because you know the supply is short and the demand has been strong. Again, I would caution you that, that imbalance may not persist in the coming months as it has in the past. But nevertheless, it’s still, the primary concern of dealers today is the acquisition of inventory. 

And one of the tools that I created outside of vAuto is a tool called Stockwave, which is a tremendous time-saver. A dealer can essentially filter down an entire wholesale market across all auctions, not just Manheim Auctions but all auctions. It could filter hundreds and hundreds of thousands of vehicles found to a shortlist of 10 or 20 that absolutely, precisely match what the dealer’s current inventory requires. 

It could filter out all the vehicles except for the ones that are in the year range, the mileage range, and the likely price range or wholesale acquisition range that the dealer is looking to fill. So, unless you’re using a tool like that, I think you’re just going to spend needless hours searching for vehicles, many of which you want the ability to actually buy. So, I’m not trying to plug the StockWave product but it’s proven to be a tremendous asset to any dealer, but particularly in an environment like this where everybody is looking for the same cars.

Zach: So Dale, what are your thoughts on some of the online used car dealers like Carvana, for instance, their share price has skyrocketed during the pandemic; Vroom, you know, they recently had their IPO; and now Shift, they’re looking to do a reverse merger & go public. What are your thoughts on some of these online used car dealerships?

Dale:  Well, it’s difficult to speak for me with any intelligent authority on their valuation. I think I understand some of it, I think number one: we’re in a very hot stock market right now, which is a completely different discussion why that is. But these are retailers that I think are enjoying favor from investors for a couple of reasons. 

Number one: the COVID environment is playing in their favor because they are offering continuous vehicles in a much less physical environment. So, I think COVID is favoring them in that respect. But I think the favor that they’re getting from investors more fundamentally goes to the fact that it’s a more efficient selling model because one of the things that we all know is that margins have been compressed and that compression will continue. 

So, eventually, all dealers are going to have to find a way to sell or deliver vehicles at a lower cost. And if you really stop to think about it, the biggest cost the dealers have in the traditional car selling model are people and property. And if you think about the Carvana’s of the world, they’re selling vehicles on much less acreage because instead of expanding, out they’re expanding up and air is free, and they’re doing it in a way that has many fewer required people.

So, if you could remove that two large cost elements of land and people from vehicle sales, which is what they had done, I think it signals the future for all car dealers. So, it’s you know, I wouldn’t be confused by the fact that they may not be making money right now. I think they could make money and probably a lot of money right now if they wanted to. But rather they’re taking the course of you know being a land grab where they’re expanding and they’re building their brand and they’re investing purposely and intentionally in areas that will serve them down streams. 

So, I think what they’re doing is actually a smart and ultimately it will cast a die, I think, that all dealers are going to have to figure out how to follow. And to that end, COVID has shown the traditional dealer that they really can retail cars with less dependency on their land and less dependency on people. 

So, in that respect, I think COVID has had a silver lining demonstrating to dealers opportunities for greater efficiencies. It’s hard to get out of your property, really hard, any time soon. But, you know, eventually, I think the square footage of the average dealership is going to have to shrink or merchants are going to have to expand and I don’t think that’s going to happen.

Steve:  Dale, you’ve given some terrific advice to our dealers, listeners out there, anything you additional you’d add, as they battle this pandemic, climate and the rest of 2020?

Dale: Well, as I think I already alluded, stand your toes. You can’t get comfortable, you can’t assume that tomorrow is going to be like today. It might but there’s so many different external forces and ones that are relatively unnatural to us in the car business like sickness, infection rates, government stimulus. And these are definite wildcards. 

So, if there’s ever a time to be especially vigilant about tracking the pace of your business relative to the size of your inventory investment, I think this is one of the most critical disciplines. Always, but particularly in today’s environment 

Zach: Great, and Dale, was there anything that we didn’t bring up or we didn’t mention that you’d like to discuss?

Dale: We’re in a very critical election year. And I think that people should think very carefully about where we’re headed as a nation. And they should exercise their constitutional rights so we have a say in that future. They should definitely vote. And I think they should definitely not depend on social media to shape their views. 

Contrary to what some would have you to believe, I think there is a very legitimate responsible media out there that reflect legitimate responsible views on both sides of the issues. But I think one of the deserving things is what some would have you believe that you can’t or shouldn’t depend on any media. 

Clearly, there are challenges with media but I think a discerning, intelligent, discriminating mind can filter out the obvious from the legitimate and really make informed decisions and vote. Because I have a great concern about the future of our country and it is our country that has allowed the automobile industry to be as great as it is and I want it to continue to be great for a very long time.

Zach: Well said, Dale. And both Steve and I, all of our listeners we appreciate you so much for taking time out of your busy schedule to join the podcast today, thank you so much!

Dale: My pleasure, Zach and Steve, and thank you.

Steve: Yeah, this has been a real treat for the Selly Army out there and listeners. Thanks, Dale, and keep fighting the good fight out there, we’ll see you on the next podcast.

Read the Used Car Dealer Guide from Selly Automotive

Tags: bhph independent dealer car dealers automotive industry covid-19 corona virus used cars vauto dale pollak dealers stockwave cox automotive

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