Dealership Profits Declining, Keeping Healthcare Costs Low, Cyber-Casket

Paul J Daly: 0:00

Be Monday, August 19. We have Todd Caputo in the studio for the show today. Kyle's on his way to the Reynolds and Reynolds amplifier event, and so Todd's gonna film. We have some special stories just for him today. The people really want to know, hand curated for the one and only tag and Pluto, how you good to spend a while since you've been on the show, it's

‍Todd Caputo: 0:27

good to see my friend as always. How's

Paul J Daly: 0:30

the summer been for you? What are you up to?

Todd Caputo: 0:33

Just took my daughter to college last week. That was, gosh, very emotional. Let's put it that way.

Paul J Daly: 0:38

So her first her first year in college. Yeah, her first

Todd Caputo: 0:41

year. It's my, I got one more to go. Where's she going? God, Charleston. Okay, so

Paul J Daly: 0:48

it's a hike, right? You're in Charlotte, so it's not three and a half.

Todd Caputo: 0:52

It's not, it's not terrible, no. I

Paul J Daly: 0:53

mean, that's, that's easily within weekend, like, spend a weekend at home. Does she have a car there?

Todd Caputo: 1:00

Very, very summer went by fast. I don't know about you, but summer was very, very, very fast it

Paul J Daly: 1:07

was. So what is your travel around like? Working with dealerships been like this summer. What do you

Todd Caputo: 1:11

guys some on site visits, but they were mostly local for the most part. You know, in the state, let's put it that way. So, you know, three, four hour drives, in some cases, or an hour or two. Those weren't so bad. And then, you know, some, most of the stuff that I do with vendors is virtual. So, yeah, right, some of my other clients is all virtual as well. I got a couple visits scheduled in the fall for

Paul J Daly: 1:32

a couple of those. It's going to ramp up pretty quick, though, once the fall ideas

Todd Caputo: 1:36

they should not need me forever if we're learning right, right until you try. The goal is to work yourself out of a job, correct, don't The goal is to work myself out of a job Exactly.

Paul J Daly: 1:47

Oh, that's beautiful. That's beautiful. We have a couple new things that dropped today or that are out now. Our other podcast auto collabs. Auto collabs, we have a great conversation with Bethany, Bethany sobzak, corporate HR director at Fitzgerald Auto Mall, talking about changing the culture through an employee stock ownership plan. So in Aesop, hearing more and more conversations about these so that's released out now. Also another in the dirt episode, which is our other podcast. If you just go to a podcast platform and search asotu, you're going to see the other podcasts that we have out there, a lot of good content, a lot of different topics. So there's something for everybody out there. But for today, we're going to get into some news. I'm going to read the story and then Todd. I would love your reaction on this dealer for many, many, many years, second gen dealer, you work with a lot of dealers. I think you'll have some unique insight on this one. Us. Franchise dealerships experience a significant 33.4% drop in average pre tax profit during the first half of 2021 reflecting a broader trend of shrinking profitability in retail auto according to a year over year dealership performance benchmark report from the Presidio group and NCM associates that looked at 3900 franchise dealers, the average US dealership sold 410 new vehicles, that's down 1.4% 364 used vehicles on average, that's flat from last year in the first half, front end gross profits dropped on new vehicles 32.9% used vehicle prices or front end profit dropped 22% and total revenue per store is down three and a half percent. Mark this all is marking a 50% reduction in peak profitability from 2021 overall. Dealer sentiment is positive, though, with half of the survey dealers expecting profits to rise in the next 12 months. Here's a quote from George Carolus, president of Presidio, he said, we're surprised that the typical dealership hasn't adjusted its spending and variable costs as quickly and appropriately as it should have, given the decline in profitability over the last two years. This is a time when dealers must be nimble and adjust quickly to the industry's changing circumstances. So there's a lot in there. Todd,

Todd Caputo: 4:03

so we knew this was coming,

Paul J Daly: 4:06

right? Yeah, we Yes, we could, we could play the tape back. We

Todd Caputo: 4:09

all knew this was going to happen. We talked about it before. I think you and I talked about it, of course, here, and also probably privately several places, more than one occasion, I think most dealers probably knew it was coming. You know, one of the big challenges is, geez, well, how do I cut my expenses? Number one, it costs a lot more to do business now than it did during covid because of inflation. Right? Money's more expensive, so your floor plan is going to be higher. People are more expensive. Health insurance is more expensive. Wages have gone up. So you got to figure out where you can advertising expenses have gone up. I mean, you know all the third party vendors, I could tell you right now I see financial statements. I know what dealers pay for all these different services. It costs a lot more now than it did before covid. So you got to figure out you. Be going to do to make it up, right? And it's it's not going to be easy for dealers. I think they're going to have to make some choices regarding pay plans. Probably some people conversations, finding people to do more than they did before.

Paul J Daly: 5:13

Would you say that the number one area to save expenses is to be more creative with pay plans and how, I mean deployed

Todd Caputo: 5:20

the three, the three things that cost the most, right, are people, floor plan and advertising. That's those are the three highest costs, and pretty much that order. So you have to decide how you're going to control those. It's difficult, though, to control some of the floor plan expenses depending on what franchise that you own, right? And we know the names of the ones with very high day supply? Yeah, I don't think we need to go through those right now. Nope. Those dealers, you know, those dealers, are experiencing some serious challenges with with floor plan expense. And I think, right, you're probably going to see that problem continue into the fall, because new car day supply is going to continue to go up. Floor Plan expenses are going to continue to go up. We are going to have a small rate cut, but that's not really going to affect dealers, floor plan bills all that much, yeah. And, you know, sales this fall will probably be good, but not great, for obvious reasons. You know, we've got some things going on in the world, like an election, yeah, and a war overseas, and we're going back to school now, and, you know, it's the fourth quarter, right? So, you know, the money's made the first half of you in this business, not typically the second half. So if I still own dealerships or the clients that I work with, I'm recommending to them to buckle up and be ready and be very, very, very efficient. Who,

Paul J Daly: 6:38

who is doing, in your opinion, who has exhibited extreme discipline in this area. Is there anyone Publix or anyone that you can point to to say, like, Hey, here's some people that are really taking it seriously.

Todd Caputo: 6:51

Well, you know, if you want to look at the publics, because they, you know, they have to basically tell the public what they're doing, for obvious reasons, because they're publicly traded. A lot of them are all talking about expense control. You know, Sonic being one of them, right? Because that's why I sold my stores to SGA. Is very, very important to them, and expenses are very important to them. And you've probably read some of the things that they've said, and some of the others as well. You know, the privates I can't really comment on the ones that I do business. Course I have, I have nine disclosures, but I can tell you that most dealers are aware of it, but definitely some are kind of asleep and switch a little bit. And I think, I think it's important to that study that came out last week from was it Presidio? Yeah, right. The one that was quoted, I have, and I do an

Paul J Daly: 7:39

NCM, yeah. So

Todd Caputo: 7:41

I mean, if I still own stores, I would be very much sharing that with people in leadership, so they understand. Because what's happening now is a lot of people in the industry, not necessarily dealers, but people that work in car dealerships in general. They're out looking for jobs like I see it all the time. They're constantly on LinkedIn. They're sending out at they're sending out resumes and filling out applications to leave, because they think if they leave where they are now, it's going to be better somewhere else. But this is industry wide, right? And a lot of people got involved in the car business the last couple years before covid, or, you know, during covid, and they don't really know the reality of this business. And you and you and I have talked about that as well, and they're thinking, geez, I can go somewhere else and I'm going to make more money, or it's going to be like the money I've always made. And not only that, they have spending, right? They have their own personal spending. They have mortgages, they have car payments, they have other things, and they have to be able to maintain that, that level of of income and their lifestyle. And they're finding that they can't. So it's time to really grind. And those that have been in business a long time know what that grind is all about.

Paul J Daly: 8:47

Yeah, what what's old is new again. What's old is funny. How

Todd Caputo: 8:51

things have a habit of repeating themselves. They kind

Paul J Daly: 8:53

of do well. Speaking about expense savings, got a good segue here. Very creative. This isn't obviously a lever that you can pull immediately, but Carter Myers, automotive in Virginia, you know them. Liza borches, good friend of us. Soto investor and just close, close, dear friend, widely known for their ESOP employee stock ownership program. It's employee owned company. They found a new, novel way to manage escalating health care costs by adopting a self funded insurance plan. No surprise here with potential premium holidays, if they're calling in quotes like where you don't have to pay your premiums if year end, surpluses are achieved, employees basically are encouraged to make cost effective health care choices, and they you know, this is a group that really invests heavily in training and educating their people, and any of the savings that happens because as a group health insurance plan happens right like it's all self funded. So if the group is more responsible in their management, guess what happens? There's money left over that goes back to premiums that go right back into the employee's pockets. Basically, they experience no. Premium increases for the first two years in the program already, and have provided so far, two premium holidays, each lasting about three months, with an average savings of $900 per household that works at the store. Focus groups and surveys have helped shape the plan. Continue to shape the plan, getting good buy in from employees. Liza shared quote, the benefit of an ESOP is that you share the responsibility. As we're looking at some benefits plans, we said, how do we apply the same philosophy to other areas of our business? So I don't know if you have any any experience here. Actually, I'm going to respond to a comment. Anita asked, where is the article? Can you share it? If you just go to the show notes, all the articles are linked in there. And if you don't listen to the audio version of the podcast, just go to like Apple or Spotify, search, automotive troublemaker, and all the show notes are in there as well. So Todd, have you had what do you think about this as for cost savings? You've managed people, you've had health plans, you've done all that. You've seen a lot. So

Todd Caputo: 11:00

first of all, we know that Liza is really, really talented, and I think she's brilliant, and she's always thinking three steps ahead of most of her peers in the industry. So I'm not surprised that she's done something like this, and I'm not surprised that, you know, she's successful at it. You know, the first word that came to my head when you were talking about this was culture, right? Like this really creates a culture of people that want to really take care of themselves in the car dealership, and it's it's hard, it's hard to eat healthy. It's hard to be healthy in the car business. It just is, because the hours are brutal, right? You know, the vendors are always bringing in unhealthy snacks, right? They're bringing in pizzas,

Paul J Daly: 11:44

they're bringing in donut, all the stuff, um, you

Todd Caputo: 11:48

know, look at stress sometimes makes you eat. I mean, let's, let's, makes me, that's the reality the business, right? Um, there's still a lot of smokers in this business too, right? In the car business, right? So, you know, I think that if the entire organization is incentivized by taking care of themselves, it's just going to create a culture of like minded people that work in all the dealerships. And I don't see, I think it's really, really, really smart, and I'm not surprised that she's already seeing success in it. And another thing too that I thought of also is, you know, car dealership pay plans are also typically very siloed, right? New cars paid off new car. Used Cars paid off UCAS services, paid off service. You understand where going with this? Yeah? Oh, yeah, when you have an employee owned stock plan like this, you know, people are going to think a little bit differently and think a little bit holistically about, you know, not just the used car department versus the service department when it comes to how much we're going to put into a used car or whatever like you're going to think about what is the best for the business holistically, which is really, really, really smart, right? Because, again, a lot of the pay plans in this business are very, very silent still. So did I ever experience that with my stores? No, I have not worked with any groups that are as progressive as is hers as of yet. I mean, I've worked with a couple of really progressive ones, but none that have gone this far with self insured for health, yup. And also, you know, she's just, it's Liza, next level, next

Paul J Daly: 13:19

level. I mean, so this, this is indicative. And if you're wondering, like, oh well, she maybe she has a massive like, she doesn't have a small group, but she, it's also not seismic. They were 900 employees. Then through acquisitions, over the last year or so, they've gotten up to 1200 so I think they had the plan in place when they had 900 now they have 1200 just to give everyone a sense of scale, of what it takes size wise, to actually get into one of these. And I think that's about the entry level size for something like this. She did say that, well, you know, one of the main concerns they had going in is that when you have this plan, right, everyone takes more ownership over it. So they needed to make sure that, you know, for people that were having a health needs, they never felt bad about using the insurance right, and and so it is. It's super important. And I do think that it takes a strong culture to begin with to be able to handle this with, like, a family mentality of maturity. But if you can get that, that's amazing, that the people have, like, had a full third of the year, a quarter of the year, where they have to pay any health insurance premiums. The coverage is really good. And, you know, like, leave it to Liza to think about a way. This is how we can keep costs under control and build culture. Not surprised,

Todd Caputo: 14:27

look at it takes leadership, number one and number two, communication, right? Like, I'm sure there's a lot of communication that goes out to the employees with an explanation of exactly what's on this spreadsheet. How did we save? Where could we improve? Because, I mean, health insurance is not simple. It just isn't. So I think that the better you can communicate that to people simply, the better off. You're going to be okay.

Paul J Daly: 14:51

I didn't think about this, but this is an interesting transition. Segway, I didn't think of this when I put I didn't. Get this when I put the show together, speaking from health insurance, we're going to talk about how you can go out in style. There's a new casket on the market. It's called the Titan casket, and it's borrowing from Tesla's playbook by creating a bulletproof casket, complete with vegan leather, a design that looks oddly similar to a Tesla cyber truck. It's called the hyper casket, and it's available for just $1 under 10 grand 999, 99 is car people selling these things on pre order with delivery starting in q4 of this year, so you still have time to get yours. Basically, the design affiliation is super clear, but they do say their hyper casket is not in affiliated or endorsed by Tesla or Elon Musk. Design similarities are for creative expression and do not imply Association. Put the picture of this thing back up so it basically looks like a cyber truck box, and it's made out of all metal. It is bulletproof, and you can buy it and go out and style Todd. You're a Tesla fan,

Todd Caputo: 16:03

I could so here's what I could see, four wheels on it, and then some kids using it, like in a soapbox derby. It looks

Paul J Daly: 16:13

I I mean, would you? Would you? Are you this, this? Are you less conventional than this? Or would you be buried in something I'll be honest with

Todd Caputo: 16:21

you, you know, you know you understand me better than most about my faith. Yeah, I don't really think it matters what kind of casket you're going it sure doesn't when it's all said and done. You know, as far as I'm concerned, dig a hole and throw me in it and put up a cross and I'm good. I don't really need

Paul J Daly: 16:42

yellow pine box. Yeah,

Todd Caputo: 16:45

I don't need it. It's but I think there's going to be a lot of car dealers out there that do not like Tesla. They're going to be making quite a few jokes. I'm looking forward to seeing some memes about the cyber truck casket probably hitting Twitter, probably immediately

Paul J Daly: 17:03

without without a doubt, I know it's just a little fun one and Monday's show with Todd. Thank you so much for being here with us today. It's always a pleasure to have you. All right, let's keep out there. It's Monday, fresh week. Still got half of the month to go. Get out there, sell some cars, care about some people. We will see you here tomorrow. You

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