In this episode transcript of the Used Car Dealer Podcast, Zach Klempf interviews Joe McCloskey of NIADA.
Zach Klempf: Hello, Zach here and we have a great guest on the podcast today. Joe McCloskey, who was just sworn in as the new NIADA, President of the Board of Directors. Thank you so much for joining us today.
Joe McCloskey: Well, thank you. It's my pleasure.
Zach Klempf: So let's get started. And for those of us listening, talk about how you got into the car business and what the last 50 years have been like from an industry evolution standpoint.
Joe McCloskey: I started in the car business over 50 years ago, I started out sweeping garage floors and then was recruited as a lot boy a lot porter back then at a Mercedes Benz dealership in Pueblo, Colorado. And it was there where I started learning also mechanics helper and helping repair vehicles, sweeping garage floors again, and then also cleaning cars and detailing cars. And then in 1974, at age 17, being a junior in high school, I got promoted to selling cars. So I would sell cars after high school and on Saturdays. And it was then that I realized that this is what I wanted to do for the rest of my life. And so that's what started my career. Shortly after that, I went up to Denver after graduating, graduating high school, and moved to Denver, and then began selling cars at larger stores much larger stores, and started my career. A true professional salesperson moved back down, met my wife in Denver, moved back down to Colorado Springs, and then also ran two local dealerships before starting out on our own in 1989. So we're now celebrating our 32nd year anniversary in our 33 years. So I've been a member of the Colorado and national independent auto dealers for over 32 years, I've served as a board director for 27 years, and as a national independent auto dealer or director for over eight years. So during that period of time, we've seen a lot of changes, a lot of things happening. You and I were talking and you said you might pose that question to me. And I was thinking back when we first started, there's been a lot of industry changes. I remember, Zach when the odometer statement first came out, and everyone thought that the world's coming to an end because we had actually right down the odometer of cars and certify that that was the actual mileage and how can we certify that that was the actual mileage to the advent of computers, you know, back then, when I first started, we were doing contracts by hand and figure payments by hand. I've a little black book. And it's certainly the industry along with technology has advanced quite a bit. Since I've been in the car business, multiple recessions, multiple wars, unfortunately, even presidential assassination attempts and all sorts of things that happened, oil embargoes and that type of thing. And that one thing that's always impressed me about independent dealers and car dealers, and that's in car businesses are perseverance, our passion for the business, and taking a statement from the military, our ability to adapt and overcome. And that's always really impressed me. In fact, that's what makes me so proud to be a part of our industry. Is that, that perseverance, and Okay, well, we've been out this, this item now, or this event or these rules or regulations and Okay, so how are we going to handle it? How are we going to adapt and overcome and continue on with our March two's being a successful business and operation?
Zach Klempf: Very well put and you mentioned to me on our first call that you've owned franchise dealerships as well as independent dealers. In your opinion, what are the advantages disadvantages of running a franchise store versus an independent because I've heard of some independents, getting like a Mitsubishi franchise for instance, to get better financing options, what's your opinion?
Joe McCloskey: Well, you hit the nail on the head Zach, and that is exactly why we became a franchise dealer was to get better financing and more financing opportunities for our used car operation and I'll never forget, when we signed when I was at a local bank signing a loan, to go into debt for a new car store I had as an independent dealer at that point in our career, many years ago, we had our everything paid for, and we're basically running the business out of our checkbook, but in order to become, play that game of being in our franchise dealer and having, quote unquote, the credibility of a franchise dealership, we had to go over a million dollars into that, to purchase the franchise, inventory, that type of thing. And I'll never forget that the bank president came in to see me as I signed the documents to go into that debt, which my hand was trembling and my lower lip was quivering as a sign in that paper. And he came in and he patted me on the shoulder and said, congratulations. And he said, I want you to remember one thing. And I looked up at him as well, what's that? And he said, I want you to remember that you're a used car dealer that happens to have a new car dealership. And I thought I looked down per minute, he says, never forget where you came from. And I said, Okay, and I thought that, that advice really served me very well, while we had new car dealers, new car franchises. And you know, there's a lot of successful new car stores, and in a lot of those stores are very, very best in class, what they do, and they provide an excellent product and excellent service. The thing that I found differently was number one, is the amount of debt that you carry. Being a franchise store, the fact you, the franchise owes you, the manufacturer owes you much more money than you would ever own, owe the manufacturer, and more to receivables, co op receivables, and also contracts in transit. It's captive financing. So I found that that was really interesting. But heaven forbid, if I owed them 1500, they'd be all over me like white on rice. But probably some of the other things that struck me was the fact that, you know, being an independent dealer before I was used to taking care of the customer, the way that we knew, on our local way in dealing with customers that we should take care of. And I found in a franchise dealer environment, that that is a lot more restrictive, what you can and can't do. And we also felt that we were working towards our customer satisfaction on a local basis, we know our customers how to take care of them. On a manufacturer basis, you're trying to meet the requirements of a factory survey. And some of those are third party surveys that they send out, and your incentives in your standing with that manufacturers based upon how well you do and perform under that factory survey. Well, that factory survey is one survey. It's one one mold that is supposed to fit each and every dealership throughout the entire nation. And that doesn't necessarily fit that well. And how you should maybe take care of a customer in Colorado, Colorado Springs where we're located may not necessarily be the same way that you would take care of a customer in Cincinnati, Ohio, or Sarasota, Florida, or in Redding, California. There are just all sorts of different ways that you would take care of that. But so the franchises both of them ended up going out of business. They did want to make sure they made sure there's definitely so they went out of business not as and so it was at that point. We got our whole staff together and I said we're going back to our core. We're going back to being strictly independent auto dealers, and it's been our best choice we've ever made.
Zach Klempf: What has this inventory crisis been like from your dealership's lens?
Joe McCloskey: Well, it's been really interesting. I remember we started seeing some things on the horizon back in early in January, February, of 2020., I have always promised myself going through oh eight, no nine that I would always be more proactive than reactive. And so we started really buttoning down. And I had several meetings with our executive management, because business was rolling right along. And I said, we've got to make sure that we're cutting expenses, we've got to make sure that we're requesting every dollar, I want to go through everything and see where we could cut expenses, even though business is good. And if I'm wrong, then we would have improved our bottom line anyway, by cutting expenses and getting rid of maybe some, some frivolous expenses that we had or get, which I think is a healthy exercise for any business to do. And we start reducing the inventory. And so we drove down our inventory by about, oh, it's about 40%. And it almost was at the point that we had too few of them target young people start questioning well, what's happening with the business because we have parked cars like this on the lot versus like side by side. And then the COVID, we get shut down. I'm in Colorado, and retail sales got shut down. And, and as many, many customization of many things businesses were, then I remember studying and working with that. But there was one thing that seemed to keep going, which was being able to buy cars online. And at that point, we were in a very favorable position to purchase cars way back. And I remember calling my key managers and I said from home, it said, I don't know if I'm doing it right or wrong. But I'm going to start buying right now, because we were like $8,000, back of book 10,000 $10,000 back book, and swing moved in and bought very heavily. And that proved to be a really wise decision. Today, it's a bit of a different story, because we know that vehicle prices are probably going to be sustained at least through the first quarter of next year, we believe, we don't think that there's going to be a massive price drop. But the one thing that is done before, we always have probably a surplus of inventory, and carried Ideally, you want to carry a 45 days supply of vehicles. So if you sell 100 cars a month, you want to have 150 in stock, basically one and a half months supply. At least that's how I was always trained. And sometimes we get up to 60 days inventory. And just because we always kept buying and have an ample supply. Now we're just buying to fill the holes, because if there is a price drop, we don't want to get caught holding the bag. So probably our biggest challenge right now is getting from purchased to frontline. And minimizing that timespan. Because when we're running the leaner inventory, we've got to make sure that we're getting 10 vehicles, they've got to be on the frontline. If we're buying them on Monday or Tuesday, we've got to get those on frontline by Friday or Saturday. And that's our biggest challenge right now.
Zach Klempf: And how have you creatively sourced inventory in this market?
Joe McCloskey: Ah, we certainly would continue to purchase from auctions, we've really spread out through a wide band of auctions, geographically, we always try to stay in the Rocky Mountain region. And now we're expanding out nationwide and willing to pay that additional freight to bring those vehicles in that we know will work and will sell. We did hire a buyer a full time buyer. It used to be just me and I would fill that in. And I realized that in order to be much better, we needed somebody full time when we are looking for a second buyer. So if anybody's looking watching this podcastI had to slide that in being a car dealer always got to get that right. And then we in addition to that we're sourcing from buying off the street by not far from our customers. And we're also sourcing cars from our local dealers because rather than sending the cars to the to the auction, you know by calling in calling on dealers, we're saying listen if you get inventory whenever we'll buy it from you save you the costs and we're willing to pay a little bit extra because of car we know the dealer we're willing to pay extra because we know the vehicles been reconditioned in his front line ready. Rather than be more focused and myopic. We're really have expanded our vision on just trying to get vehicles from anywhere and everywhere, including our service departments, we have sayings in our service department saying we buy cars may not be the cars being serviced, but they may. So all over the place.
Zach Klempf: So what's difference, in your opinion about the pandemic customer versus a pre-pandemic customer, from your dealership's lens in the way they shop and interact?
Joe McCloskey: Yeah, you know, that's a really good question. Really good question. Here's what I would say: the pre pandemic customer was much more price centered. And they would, if they, they would shop you with another dealer over $100. And it was more of a transactional customer back then. Then it is today. Today, it's more in our opinion, in our stores we're seeing it's much more of a relationship buyer. They want to know that when they're purchasing a vehicle that we will have an ongoing relationship with them, that we will be there for them, that while we're going through that transaction process that will slow down will actually talk to them, help educate them, give them different options. And, you know, the number one reason we survey our customers, Zach, and we've been doing that for over 30 years serving that every customer and we have the same survey. So we have very good trends on those questions. And the number one, one of the questions is what is the one thing that most influenced your your decision to purchase a vehicle from McCloskey Motors. And that has always been the number one reason has been the salesperson. And it's been at a rate ranking of like 60 or 70%, depending upon the time frame, compared to 60% 70% of the Reason number one influencing factor compared to price as being 20 or 25%. So now we're seeing that even rise up even higher. So they want to see that relationship, I think it's very important that trust is much more important. The one thing is also changed. They're not shopping for $100. Now, because we're telling them that the shortage of supply is very true. If you leave over $100, then when you come back, there's a real good chance this person can be sold. And that has happened so many times that the salespeople know that it's not just the sales line, it's an actual fact, because they've had to feed the heat when the customer comes back, and they want to buy a car, and somebody else already sold it. And there's a lot of disappointment there. So they're able to genuinely convey to the customer. If you like the car, and you're close to the price, you need to make that decision to own the car today versus continue shopping around because it may be sold. And I think we're seeing that across all segments when I see something, a shirt or whatever it is, you need to buy them because of the shortage. If you're trying to buy a hammer and it's the last one on the hook, you better buy that hammer even. I think there's too much money, right?
Zach Klempf: Agreed and what is your strategy without giving anything away that you don't want to share with your inventory in the last part of 2021?
Joe McCloskey: We're really trying to impart one thing I did learn being the franchise dealer. In parts you always tracked lost hours. And so if you have a parts department, you always wanted to make sure that by tracking that so if somebody wanted a particular widget, and you had three requests for that widget and you didn't have it in stock, then you now know you need to start stocking that that widget, right? And so we're tracking our lost sales to make sure that we're not only watching the turn of our inventory, which sells quicker and faster, but also what are our lost opportunities. And we're beginning to find that really interesting because in a car business, you always want to log the customer get their name and number, but I call it the LOST Sales Report. Why? If we're closing at a 30% rate, which is kind of industry standard. That means that 70% of customers did not buy. And if, in today's world, if they're going out, and they're walking into a dealership, that means that they may or may not be wearing a mask and that people just don't go out to window shop anymore. They're on a mission. And if they're on a mission and they come in and we don't have that product, we need to know what that product is, and then starts trying to stop that product if there's like two or three or four inquiries on that product. So we're finding that strategy is beginning to pay off for us. And I think the the better reconditioning of vehicles, because customers expectations are higher, our cost per car on the reconditioning has gone up by about $200. And like I said, that trying to get the vehicle from purchase to the prep line. And that shortest amount of time is very important, because we're still selling cars of our service department, meaning the vehicles are going through the reconditioning, and which isn't really a good thing. But because we know we'll get a more satisfied customer, and get a higher return on our investment. If we have the vehicle recondition frontline ready, in the conduct condition that the customer expects.
Zach Klempf: Inventory management is one of the key components of a successful used car dealer operation. What else is important for dealers, especially used car dealers to get right in this market?
Joe McCloskey: Well, number one thing is, you cannot improve anything that you cannot measure. And I really believe that you've got to really buckle down if you want, like measuring for traffic, measuring the phone calls, measuring the activities of your sales staff, measuring the activities of your technicians. And another way where it's if you want things to improve, we've got to figure out a way to quantify it and measure it, and then be able to clearly explain what what we're doing, why we're doing something, because I think the why is very important for our staff, that they know why this report is important, or why this activity is very important. And then certainly how to do it. Often we just go in and we tell them what to do. And I think that it's really important in today's world, today's social environment, that we've got to be more compassionate to explain to people, our staff, why we're doing things. The other thing I think, is really important, particularly in today's climate. And I had a I just got back from a 20 group meeting, and an IADA 20 group meeting. And one of the questions that was posed was, was similar to that. And I said, probably the most important thing that we've got to do as independent dealers right now is run it like we're going to sell it. And in the old days, you've heard to say, drive it like you stole it. Here is run it like you're going to sell it. So just think of like your house or your apartment, if you're going to be selling your house or an apartment, you really maintain it and get it in tip top shape, right? We've seen that all the house makeover shows that type of thing. Everything's painted clean, straighten up the content, it got rid of that extra junk and extra weight and that type of thing. Well, if you're doing that running your business, like you're going to sell it, then you look at your business from the outside in versus the inside out. Because we always sit at our desk, look out the window. But if you're actually standing on the outside and looking in, you know, what are your expenses? Are your expenses in line? Is it there? Are you overstepping in a certain area? Is there somebody that needs to be trained, transferred or terminated? What is your cash flow look like? What are your inventory levels look like? How does your balance sheet look? You know, do you have a quick ratio, your ability to pay off debt? What is your long term debt. And so if you're running your business, I think it is really important because I've been through all the things that I've seen in the past 50 years, you know, we always say while we've got the experience, but I think the past few years have taught us you just can't make this stuff up. You know, it's just like, who would have thought on top of everything, oh, let's drop in a pandemic. It's a worldwide pandemic on top of it, right. So I think really running your business efficiently, have it streamlined. And with the lowest amount of staff possible to do the job properly is absolutely key.
Zach Klempf: So what advice do you have for a used car dealer, just getting into business starting up in 2021?
Joe McCloskey: The number one thing I would say is join your state association and get involved in your associations and get involved in educational programs, and we have NIADA at NAIDA.tv. NIADA has all sorts of workshops, we do have the 20 group program. So if that fits for you, we will have programs will be available for those starting out, that's we're going to be rolling those out in the next year. Participate in your state associations, their workshops, and probably one of the most important thing is to network amongst those fellow dealers. Because they'll help you if you're first starting out, they want to help you, they want to see you succeed, and they want to see you grow. And they want you to avoid the pitfalls and the tragedies that maybe they've seen in the past or that they narrowly escaped themselves. So those would be the important things. The other thing is to be also a student of the business, even though you may or may not have automotive experience, running an operation is a lot different than ever managing one. And you've got to make that transition from business employee to actual business owner. And it's a whole different mindset. And so, lastly would say find a good mentor, or mentors to help you grow and help you learn.
Zach Klempf: Very good advice. And it kind of touches on my next question, but personally for you, how is the NIADA and your local IADA been helpful for you as a dealership operator.
Joe McCloskey: NIADA is celebrating its 75th anniversary. So they've been around for many, many years, obviously many decades to aid the independent auto dealer and to protect the interests where they've really helped. And I don't think people realize this, both on state associations, as well as the National is they really protect the interests of the independent auto dealer, both from a regulatory rule making legislative process, that there are so many different government agencies that from recalls, to financing to taxes, those types of things. The association really helped in that area. And that's one of the reasons why I got involved. Because as a young car dealer, young business person back many years ago, I would become frustrated. And I would call my local Congressman, and be barking at them about what I was upset about legislatively a rule making or policy or whatever. And it was kind of interesting, because the short time after, I would always get audited from some government. And so I realized if I put my head up right through this, it would get cut up. So I decided what I would do is join the greater good and, and certainly through that numbers speak volumes. And when you can go into a legislative affairs show and say we represent over 14,000 members or under state level state legislative, we represent over 1000 of your constituents, you know, these small businesses each employ people. So that really helps. The other thing Zach is I've been a member of our 20 group for over 25 years. And that is I've always said that's the single best thing I've ever done for my business, because it's like having a built in board of directors. And it really helps keep your business on the cutting edge, and that has really helped plus all the conventions that again, was state as well as national. Because there I get that networking. We've talked about the workshops, and it just helps keep my business on the cutting edge.
Zach Klempf: So lastly, Joe, what are your predictions for the rest of the year in terms of the used car marketplace?
Joe McCloskey: Boy, that's a tough question because there's so many different variables. Again, I think what we're going to see the car businesses. I love being a used car dealer. I just love it because it's and I don't want these words to come back and haunt me. If times are good, people are trying to get a nicer, newer vehicle. And times are bad. They're not going to be buying a new car, which right now is not available and may not be available and don't get a used vehicle and then save your money. So I think the pandemic has proved that this era has proved that with a shortage of new cars that use vehicles are much more viable options. So I think that because of the quality of independent dealers around the country in a way that we have been really striving to improve our image and our customer satisfaction, we've actually come up quite a bit on the notches and the trust factor in the public's eye. And so we have used vehicles that have come up. So it's interesting that once for the remainder of the year, I think it's going to be strong. Even if they do start coming out with some chips, which again, they're from what I'm reading, they're saying is going to be at least the first quarter. But if they do, they start plugging chips into vehicles. I think a lot of those those vehicles that will really be receiving the chips are already spoken for, they're already pre sold. So again, I think the inventory is going to be constrictive. Interest rates are at an all time low. That really fuels the buying so customers, regardless of their credit could get a nicer new vehicle. And as long as businesses don't really watch the news, and all of their drama, the political drama in the news, and they really pay attention to instead to their business, their people, improve their people. I think that they'll find it. They'll have a marvelous fourth quarter of this year.
Zach Klempf: Very well said Joe, and I appreciate you so much for coming on to the podcast today. It's been an excellent episode.
Joe McCloskey: Thank you. I appreciate it. It's an honor to be on your podcast, Zach. I really appreciate it. Thank you.