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Inside The World Of Wholesale Auto Dealers

In the world of wholesaling vehicles, if you can't be trusted to make a deal after a few minutes on the phone, chances are you won’t go very far in the business. This is one of the last professions in the country where your word is your bond. A wholesaler may guarantee a price on a car after a two-minute conversation, sight unseen. He'll sell it to another dealer much the same way. If the A/C doesn’t work or some unexpected damage shows up, he had better be prepared to make it right for the dealer. Otherwise, the phone stops ringing and business goes dead.

According to wholesales J.D. Tomlinson, the most important aspect of a successful wholesale operation is "the ability to be able to have a working relationship with a lot of dealers. Thinking long-term, that’s probably the key." Tomlinson runs a wholesale operation along with his own retail lot in Gainesville, Florida.

Thinking long-term means wholesalers have to avoid short-cuts or quickie deals aimed at winning a few extra dollars at a dealer's expense. For Tomlinson, who has been wholesaling for the past 20 years and whose father has worked at it more than 40 years, earning a reputation as a straight shooter makes it possible for five guys in his wholesale business to market about 300 to 350 vehicles a month to a network of 60 to 80 dealers. Each of those five guys has a dealer network of his own and each spends all day on the phone, walking the walk in a business that relies on fast turns and slim margins.

Shirlie Slack, who runs Shirlie Slack Auto Center, has built up her reputation in the wholesale business over 38 years, and she's quick to attribute her success on things that never change about the business: "The right set of cars, honest representation, and building a relationship with people you sell to."

Most of her cars come directly from dealers and undergo a rigorous reconditioning before they go up on the sales block of the Fredericksburg, Va. auto auction. That means they go on the block clean, without chipped windows or any dings. There's another feature about her cars that dealers like: each one has her name on it. "It’s front-line ready," says Slack, "with no apologies to be made for the car. They can see what we did."

Both sides have to play by the rules. "The most important thing about this business is finding dealers you can work with," says Tomlinson, "working with the dealers, instead of trying to make it a one-time shot [deal] and getting the better end of the deal."

"We have a no-negotiation process," says Ben Harned, who runs Performance Motors of Amarillo and wholesales most of his vehicles in Texas and New Mexico. About 60 percent of his deals are done over the phone. "If you are not happy, we'll just buy it back." In part, that's to protect the dealer, but the no-negotiation policy also helps Harned.

"In the past, dealers sometimes came back looking for a $500 discount," says Harned, claiming the car wasn't everything Harned had made it out to be. That $500 typically represents what Harned expects to make off a deal. "We'd get the car back and find no issues. I don’t want to ship a car 500 miles and have the dealer say, 'let's hit him for a discount because he doesn’t want to ship it back 500 miles.'"

For the dealer, a good working relationship with a wholesaler can mean a break from the auction scene. Wholesalers may never fully replace a steady stream of auction vehicles, but they can provide a big part of the mix. For dealers trying to figure out ways to cut down on their transportation costs or scale back the amount of time and expense of going to auctions, a direct working relationship with a wholesaler can make a world of difference.

"Dealing with someone direct is just more efficient than dealing with someone at the auction," says Tomlinson. There are also no auction fees to pay. A dealer can take more than the 20 seconds he may be allowed at an auction to make up his mind.

Ease of service is a key selling point. "We price with transportation included," says Harned. "It's less hassle. Independents want cars tomorrow, delivered, the way we say they are. We price our cars sitting on their lot." To make it all work, wholesalers need to develop a near-instinctive sense of a car's value. Any wholesaler will tell you in a heartbeat what a car, any car, is worth, or they don’t stay in the wholesale business very long.

"After you lose money on a few cars," says George Dodd of Dodd Motor Company, "you'll know what they're worth." Specialization, he adds, is not encouraged. "When you're wholesaling," says Dodd, "you can't be picky about what you buy. You go with everything. You can't say, 'I'm just going to buy a certain type of car.'"

Dodd was quick to add that any wholesaler worth his salt understands what kind of vehicle turns the fastest in his market. “Right now, buy here/pay here is hot,” sums up Dodd. "Some lots handle just under $4,000 vehicles, others just under $8,000 and others under $20,000. You've got to know what they're looking for."

A good relationship with a wholesaler can also provide dealers with some valuable market intelligence on what's selling. All wholesalers do all day is buy and sell large volumes of cars, trucks and vans. They also get a steady stream of feedback about market conditions.

Wholesalers usually work over a big enough territory so a car that might go begging in one area can be moved to a dealer in another area who will typically turn it in days. "A small town may not use imports," says Harned, ticking off the Chevrolets, Fords and Dodges that sell on Main Street America. If they get an import trade-in, chances are it's a wholesaler who gets the call. "We're able to market that import trade-in from the smaller market and resell it in the larger cities or franchise markets," says Harned.

At the same time, a wholesaler's crew can make it awfully easy for a dealer to swiftly unload an aging unit that has been stubbornly sitting on the lot for weeks. A few phone calls around the network usually turns up someone who feels they could move it quickly to a different pool of potential buyers.

"In today's corporate market," says Harned, "most have a 60-day turn on inventory. We can buy old-age inventory." If a dealer suddenly finds himself staring at a trade-in he doesn't know too much about, a quick call to Tomlinson's crew is a snap method for insuring himself a deal and moving the vehicle – in one phone call.

"If a customer comes into a Cadillac dealership with a Camry or van, they know they don’t want to keep it," says Tomlinson. "They also don't know the market or the car. They call us and we'll say the car is worth “X” dollars. If the dealer trades for that car, they'll give us the car for that amount. It's like insurance. If we gave them a figure and they trade for it, assuming everything they said about the car was correct, then it's our car."

This may all sound easy enough, but any wholesaler knows there are plenty of pitfalls to watch out for. "Reliable haulers are kind of hard to find," admits Tomlinson. A wholesaler always has to worry about pickups and deliveries, seeing inventory – and values – damaged in the process.

Also, a wholesaler has to trust his dealers as much as they trust him. “There are times,” says Tomlinson, “the car isn't everything the dealer made it out to be. Some dealers take advantage of the fact that we would give them a figure on a car and use that figure as a guarantee. Then they shop the car. If we insured it for them and stepped up so they could make a deal and they don’t produce the car, it’s just not a fair thing to do. They may keep it, but you can't do that consistently in a relationship."

Another pitfall according to Tomlinson is that many times, if a dealer misses something they expect the wholesaler to buy as is. But if the wholesaler sold it to them, they'd expect the wholesaler to make it right.

In addition to watching out for pitfalls, wholesalers also have to keep up with the latest technology. "The Internet has affected the wholesale industry, like a lot of other industries," says Tomlinson. "A lot of dealers are finding cars online. We've had to adjust to that, becoming more of a presence online and still providing the same services." Once again, though, trust is the key. After all, who are you going to trust most, the Web site of some anonymous seller or the Web site of a wholesale dealer you've known for years?

The Internet has fundamentally rearranged the business cycle. "In years past, before the Internet, tax returns didn’t hit until April or May. Now its January, February. We have to start buying in November and December, which used to be the soft time of the market."

Online title history services from operations like Carfax.com have made it easier to weed out the salvaged vehicles. Check 21, a law that took effect in October 2004, which triggers an immediate transfer of funds via an electronic copy of the original check, has put a premium on established dealers with reliable credit. With that much inventory going through a wholesalers hands, they have to have a relationship with their banker that's every bit as good, or better, than the one they have with their best, most loyal dealers. Being able to take a vehicle and sell it quickly through a network is a big plus. "The turn might be a few days versus weeks or a month or two for retail," says Tomlinson. "That turn helps cash flow. A lot of times the car is sold before you have to pay for it."

Whether you are a wholesaler or a dealership working with a wholesaler there are a few keys to remember. Clearly state your expectations. Keep your word. Deliver as agreed and you will create a long term relationship that will serve both parties well for a very long time.

Vol 3, Issue 6

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