I’m sure you’re as tired of reading about supply chain issues causing inventory shortages as I am about writing about it, but if you’re in the automobile industry, there is NOTHING else more important to talk about. I had hoped the new year would show signs of improvement, but unfortunately the opposite is happening. COVID shutdowns are declining (at least directly), but other hurdles have risen that more than offset any improvements.

Microchip supplies are the major limitation now. The manufactures and auto suppliers order chips several quarters in advance, in huge batches. When COVID hit, everyone cancelled chip orders. Chip manufacturers shifted to computers, webcams, gaming consoles, and telecommunications equipment where demand spiked with the pandemic. When auto demand rebounded quicker than anyone expected, recovering chip supplies for cars is like turning an ocean liner.

Then, SNOWPOCALYPSE shut down petrochemical processing plants, who’s output is used for plastics, resins, and foams in vehicles. Additionally, the Feb. 13th earthquake in Japan took down several auto suppliers. Then last week there was the Suez Canal blockage and Japan suffered a plant fire that will make the microchip supply even scarcer.

Supply chain issues have impacted every major manufacturer, but certain models have been just decimated. Of our most popular models, these have been hit the hardest:

GMC Yukon & Yukon XL
Chevy Suburban & Tahoe (Tahoe inventory is down over 75%)
Cadillac Escalade
Jeep Wrangler
Toyota 4Runner
All Chevy Trucks
All Heavy Duty Trucks
Land Rover Range Rover
Mercedes All Models
BMW X5 & X7

This has certainly led to a seller’s market. Rebates are down and prices are up. Does that mean it’s a bad time to buy a new car? Not necessarily. Late model used vehicles have increased in value faster than new car prices. Trade-ins have NEVER been worth more, particularly if you have 60k miles or less. Just be patient while we find you a new vehicle.

You’ve heard me say repeatedly that the price of the car is not that important. Many dealers will advertise prices that are well below actual cost to lure you in. They make up that loss (and then some) with dealer add-ons, low-ball trade-in bids, and back end finance products.

Dealers make money on the front end and the back end of a vehicle transaction;

• Vehicle Price
• Trade-in Value
• Dealer Add-ons/Addendum

Back End

• Finance Reserve (interest rate markup)
• GAP Insurance
• Credit Life & Disability
• Extended Warranty
• Tire & Wheel Protection
• Windshield Protection
• And More!

AutoNation, the largest dealership group in the country, makes an average back end profit of $2,172 per vehicle* transaction! That’s up 12% over last year and represents 31% of the total dealership gross profits! The other public dealership groups are not far behind, and I know of several privately owned store that make those numbers look weak.

With the compression of new car margins, dealers are depending more and more on back end products to maintain and improve profitability. The dealers’ profitability on a transaction is less dependent upon the price of the car or the trade value, and more dependent on how well the finance manager sells additional products on the back side. If you’ve been through the grinder in the finance office lately, you know what I mean. There’s certainly nothing wrong with back end products. We sell them as well and they are each useful and appropriate in the right circumstances. In case you’re wondering, last month we averaged $381 per deal in back end profits. Pretty pathetic in comparison. You could justifiably accuse us of not being very good salespeople, but that’s ok. First, we don’t push these products very hard. We present them and discuss whether or not a product is a fit, but don’t push them. Second, we don’t mark up our back end products nearly to the degree that the dealerships do. We would rather have a client for life than try to maximize the profit on a single deal. That’s why you love us!

*Figures from Automotive News, August 10, 2020.

We manage up to $100,000 in bodywork per month and have learned more than we ever intended about the tricks and traps of auto insurance, at least from the claims side. From the customer perspective, picking an insurer is often strictly a cost consideration. You should also consider what happens when you actually need the insurance.

Biggest Trick of the Trade

The industry is pushing towards Direct Repair Program (DRP) shops or “preferred” body shops. The insurers push repairs towards those shops in exchange for deep discounts on pricing. These shops tend to be high volume chains with low quality repairs. The insurance company will claim they can’t guarantee the repair, but it should be the body shop that is guaranteeing the repairs! By law, the insurer CANNOT require you to utilize their “preferred” shops. If you take nothing else from this article, know that you have the right to decide who fixes your vehicle. If you take your car to the shop that you (or Brazelton Auto) chooses, the body shop works for you, not the other way around when you take it to a “preferred” shop.

Insurance Companies Ranked

There is a wide variety of claims quality, depending on your insurer. I define claims quality as speed of processing the claim and the use of OEM (original equipment) parts. Below is a spectrum of how we would (very un-scientifically) rank the major insurers in the area from a claims quality perspective;

You’ll notice a widespread between Chubb and Pure and the rest of the pack. That’s intentional. Both company’s claims processes are very consumer and shop friendly. The claims process is fast and efficient, and they don’t try to push foreign, aftermarket replacement parts.

Quality Shops

Surprisingly, oftentimes the new car dealer is not the best place to go. Body shops are usually the stepchild of the dealership world, and it’s easier to get away with sloppy body work than poor mechanical repairs. There is a major luxury dealership chain here in Houston that is well known for their poor quality paint and body work, along with customer service.

Don’t know which body shop to use? Give us a call. We work with multiple body shops in the area that range on quality and cost depending on what you need.  Which shop we would suggest would depend on the age/value of the vehicle, whether it’s insurance or out of pocket, and other considerations.

Back in April of last year I joked that I had “gone to the dark side” in buying half of a Dodge/Jeep dealership in Sealy TX. Well, the dark side was not for me!

My partners and I did not see eye to eye from the start. We’ll just say they are more “traditional” car guys, and I am not. About three months after closing on the deal I told them I wanted out of the partnership. I looked at buying them out but ultimately we just put the store on the market late last year. We had two deals fall through on it but lowered the price and had a lot of activity early in the year. Then the pandemic hit. All of our suitors vanished, so we closed the store down at the end of March.

As you can imagine, it’s been a hectic few months, even without Covid-19. It was a spanking financially, but the dust is settling and it’s REALLY nice to be home at Brazelton Auto!!!

I learned a TON in the process and was very proud of the team we built out there. One of the most important realizations was just how good we have it here at Brazelton Auto! I talk about the people and processes here all the time, but the Brazelton business model is far superior in my mind;

• Very limited inventory (and therefore inventory costs) while still having access to thousands of vehicles.
• A completely different client relationship. At the dealership I’m a bad guy; here I’m a trusted advisor.
• No deceptive marketing or pricing.
• No manufacturer telling us what to do or not do!
• Saturdays off. Hard to go hunting when you have to work weekends!

So while my dealership experience was painful in many regards, I’ve come out on the other side really focused on taking Brazelton Auto to the next level. Be on the lookout for greater client focus, more service offerings, and even a little marketing budget (look for us on Facebook and Instagram). Around here we call it Brazelton 2.0.

Help us spread the word! If you have thoughts on what you’d like to see added or changed at Brazelton Auto, please let me know (lewis@brazeltonauto.com). Your suggestions, and your business, are always greatly appreciated!

-Lewis

This has been our moto from day one. It’s what sets us apart and why our clients trust us with their pre-owned needs.  Quality comes with a few costs though, make-ready expenses and time. 

Make-ready consists of reconditioning, up to date maintenance, and making sure the vehicle comes with 2 sets of keys, floor mats, owner manuals, etc. We spend on average $2,000 on make-ready while the industry average is $600-$700 for domestic and $1,300 – $1,500 for luxury vehicles. This isn’t because we start with lower quality cars, instead most of the money is spent on what you don’t see, the maintenance. We have seen many vehicles in our shop that still have the paper plates on them come in for hundreds to thousands of dollars in maintenance.  We also start with high quality cars that have not been in accidents and are a good platform for the reconditioning we do.  With this quality, we back it up with our Brazelton Certified Program.  This consists of a bumper-to-bumper 3-month/3,000-mile limited warranty and free Concierge Service (loaner car for life).  Also, because of our make-ready process, vehicles qualify for a full coverage extended warranty, tire & wheel policy, and windshield protection.

The other cost of time is in regard to when our clients have us go out and find a vehicle for them.  We are very particular on cars we present to our clients.  We scour our wholesale and retail outlets and go through hundreds, if not thousands of cars to find one that fits our client’s needs and our standards.  Depending on vehicle and flexibility on options it can take 2-6 weeks to find the right car. In some cases when looking for harder to find vehicles it can take 6+ weeks, so give us plenty of lead time when in the market for a pre-owned vehicle.

Occasionally we get some older unique cars, that due to their age we may not be as particular about every single item on them, but that doesn’t mean they are not a good vehicle.  However, they’re still inspected just as thoroughly, but we may be more lenient on them to keep cost down, as these are typically more budget vehicles.

Remember, most used cars we sell are ones we go out and find for our clients, though we do stock a few vehicles.  Most of these are trade-ins that we know the history on.  Others are ones that we sell a lot of (Tahoes, Suburbans, Land Cruisers, F-150s) that we come across and scoop up for inventory.  We may not always be the cheapest, but we promise we’ll be the best quality for the money, and we back it up!