How deep are you selling into your pipeline?
Right now, of my F-status vehicles, or freight status vehicles — the vehicles coming at me — 95 percent of them are sold, and they’ll all be sold probably within a day as they keep coming in. And we’re selling well into what we call A-status, or allocated status as well. Toyota has shortened things up, so they’re getting us the vehicles a little quicker, and every dealership is managing this situation a little differently. There’s not really a blueprint for doing this. We’re a smaller organization and able to really manage things closely, so I am taking sold orders at a pretty high clip and kind of underpromising and overdelivering with customers, knowing that there are certain products that I can get changed in the allocation system and do that, so we’re doing a pretty good job.
Our customers are really excited about the fact that we just communicate so well with them. They’re willing to wait for the right car and we’re managing that. So it’s an interesting environment. We’re kind of thriving in it. I think you’d be amazed. I think a lot of dealerships are thriving. I know there’s some that are struggling for sure, but I think many, many dealerships are thriving in this environment.
How do you convince customers who have spent decades buying off of dealer stock that they need to wait for maybe a couple months, or order their vehicle?
So you’ve got two concepts. Yes, we’re going to ask you to wait four months, and yes, we’re going to ask you to pay something that you never thought made sense: MSRP, the suggested retail price, and that’s reasonable. I think that the thing is, COVID has done this to customers in every industry.
Have customers been willing to wait for vehicles?
You know, if you go buy a refrigerator, there is a very, very good chance it’s going to take six to nine months to get a refrigerator today. They see restaurants that are half empty, but there are customers waiting because there’s not enough servers to help them. So we deal with a very educated consumer, and I think across the board, Toyota has a more educated consumer. They understand the environment that we’re in, so people say they’re willing to wait four months, and they’ll tell us their top three colors or their top three trim choices. They’re just offering some flexibility, one way or the other. And if we get one of those choices, we can usually make them happy.
Toyota’s had some pretty dramatic lineup changes over the last year: a redesigned Tundra, addition of the Corolla Cross, now a redesigned Sequoia, elimination of the Avalon. What do those changes mean for your customers?
Well, I think the Tundra has to be the volume piece that we’re talking about when we’re talking about America. We know that the No. 1-selling vehicle of all time and every year is a pickup truck, right? So that’s a segment that Toyota has really been pretty committed to. I know they may have slowed down there for a few years on things, but with the introduction of this new Tundra, they’re all-in, back in.
Outside of supply chain issues, the commitment they’ve made to the numbers that they’re going to give us are knocking on the door of double — getting us twice as many trucks that we can sell. I’m in the part of the country that’s truck country, here in the Upper Midwest. I think Toyota, its dealers — especially in the Midwest, Texas and all across the middle of the country — I think we’re really excited about Tundra and the Sequoia because they’re products that are Midwest products. We sell a lot of Corollas and Camrys and the like, but I will tell you that feels a little more like Southern California product. And it feels like now that Toyota’s moved to Texas, all of a sudden we are getting a lot of Midwest product.
Listen, everyone’s really excited about the Sequoia too; that thing looks unbelievable. And I’ve had the good fortune of seeing it in person, and it’s spectacular. But I think we’ve got to be excited about the Tundra just because of the numbers that we’re looking at and the people who desire that and the demographic that we’re serving there. It’s just really good for the brand.
If and when the chip shortage abates, what practices from the past 24 months or so need to be maintained long term?
I think there’s definitely an inventory and a supply piece to this that the manufacturers and dealerships alike have learned. And I think it takes something of this nature to really kind of get people aligned on the same page. There is a right number of cars to be sitting on a lot, inventory for dealers to carry, and there’s the right number of inventory that creates a demand and kind of a value statement for an automaker.
I think automakers have realized that throwing as many cars out there is not the way, and I think they’re learning a lot; just as much as dealers are, manufacturers have learned a ton about incentives. We don’t have access to all those budgets, but I’d be willing to bet their No. 1 marketing spend was an incentive game. And maybe there’s some incentives, and I think that’s great for the customer. But let’s get to real transaction prices. Let’s live in what I would consider a true supply-demand balance. That’s economics 101. That makes sense and keeps some of these extra forces out of it that manipulate the market. I think it’s great for the customers, it’s great for us and for the manufacturers.
Which practices from during the pandemic would you like to fix?
I think the biggest thing we’d like to do, and I was really working hard on this, is have a lot of transparency on logistics, so that we can tell customers when a vehicle will be here when we’re talking to them, because things change so quickly. I don’t care if it’s a railhead that doesn’t have employees because of COVID, or it’s a supplier that can’t supply a part that stops a line, or all the different things that go along with that. It would be great to have some transparency so that we could tell a customer that their vehicle was going to be here in two weeks or 10 days or four months, whatever, but be able to update them when something changes. What we’ve all found during this period is that customers are incredibly patient if you’re honest and transparent and can keep them informed. And we need to do that much better.
So the kind of cadence of which cars come when — and we have visibility on all these things, but it’s amazing how it bounces. So I think the No. 1 thing that we’ll get to, and this is strictly a supply chain thing, and this is easy to take care of, but we’ll be able to tell people who are willing to wait when distinctly their car will eventually arrive. If we can do that, and provide that kind of visibility, that will help us get rid of the fragility in the logistics pipeline.
How are Toyota dealers preparing for the bZ4X and subsequent EVs?
I’m probably not as in tune with the whole electrification thing as our dealers on the coasts. The infrastructure for fully electric vehicles is just not here in Iowa. But in those states [with ZEV mandates], Toyota is going to be where they need to be. They are unbelievable when it comes to doing what they need to do to hit those mandates and those requirements.
As dealers, electrification affects each of us differently, depending on our market. Dealerships are going to need to do some infrastructure. We understand that. I don’t think there’s a dealer in America who doesn’t believe that their business is changing and changing for the better as we electrify things. But we have a business partner in Toyota that started the electrification movement. So we know we’re on the right team in that world.
We want to take the common sense approach on electrification, and on council, there’s never been a dealer in the room that says no, we don’t want to take the common sense approach.
Toyota CEO Akio Toyoda stood in front of a palette of future products in December. What did you see in that future showroom that should get dealers the most excited?
The whole market is going to be inundated with EVs in a very short time, if you read about what’s coming. I think we’re all really excited about seeing where that truly lands in the next five years, and where it goes five years later and beyond. We all know it’s going to evolve into what customers want. We can’t take the top 5 percent of car buyers and expect to change the whole industry, because it’s not going to work that way. And that’s who we’re advertising to and who we’re pandering to is that small margin of customers, and we need to worry about the other 70 percent. We obviously need to get the carbon footprint of these vehicles down from an environmental standpoint, but I’m much more excited by the electrified Tundra, frankly, because that’s where the volume is.
What pressure do Toyota dealers feel from Tesla and the way it does business with its customers?
This is a great point. If you noticed, even with Toyota ending No. 1 in terms of U.S. sales last year, and with the great year that dealers had, you don’t see them banging that drum, do you? Instead, you see them talking over and over and over about customer experience, about improving the customer interaction and what can we do to create more customers. That’s how they’ve grown so organically over the years in the U.S., and it’s ingrained in the culture. And when you talk about Tesla, first of course is their product, but then, there’s also their customer experience, and that doesn’t look too great to me. It seems shortsighted.
I know that Toyota nationally, their commitment to the dealer body is just outstanding; above and beyond any other manufacturer right now, they’re talking about we need to create the guest experience and the customer experience that are world class. They’ll always build the quality of cars that are going to be what they are. If we create a world-class car, we need to have a world-class buying and ownership experience. That’s the whole enchilada right there. And so I think that’s what we’re really focusing on.