COMMENTARY: Shocks to the system
In the face of disruption, be empathetic, patient, and open-minded – it will be better one day!
I wanted to take a few moments and look back at the last two economic shocks I've experienced in my automotive career.
It’s these experiences that can make us stronger and more resilient if we seek to embrace and tackle them the right way.
The Great Roller Coaster Ride of 2020
The last three months have been quite the roller coaster ride for our economy, the automotive industry and me personally.
As I take a moment to step back and think about what I have experienced over the last three months, my first thought comes to the conversation I had with my wife on March 1.
I was heading back to Virginia from Colorado when she said, “You know, this Coronavirus situation in China is not looking good. We're updating our force majeures in our contracts.”
My wife, Brooke, has a small family business that works with groups and provides shore excursions for cruise ship passengers who visit Coastal Virginia. Little did I know that in the next three months, virtually all of Brooke’s 2020 business would be canceled.
Fast forward two weeks, and we are in complete shutdown mode with virtually all states issuing stay-at-home orders. The governor of Virginia, the only governor who is a doctor, issued our stay-at-home orders until June 10 — basically three months!
Needless to say, I was very concerned about what this would mean for my family, our business, and the world in general.
My First Major Shock: $4.00 Gas
I started my automotive career with Enterprise Holdings in 2003. I was recruited into the remarketing department and my primary responsibilities were selling off-rental and off-lease vehicles directly to local dealers in Virginia. By 2008, our financial system was breaking down, global investment banks were going bankrupt, and the tipping point for the automotive industry was gas topping $4.00/gallon.
Rental car companies have some of the strictest cycle times in the remarketing industry. Cars HAD to be gone in 29 days. Selling all your inventory in 29 days or less is already very challenging. Combine that with the fact that it coincided with our annual “Fall Pull,” when we would pull our current and 1-year old models out of the fleet in the fall to make way for the inbound new-model-year units. You couldn’t ask for worse timing.
This requirement put extreme pressure on our entire sales team as The Great Recession started. I recall downloading our daily morning list of units to sell and seeing oceans of Tahoes, Suburbans, F-150s — basically the biggest offenders from a gas guzzling perspective.
We all very quickly realized after making our daily sales calls that there was basically ZERO appetite from our dealers for this product. Consumers were shifting rapidly and downsizing their SUVs and 4x4s to compact cars, sedans and hybrids.
I recall watching used Toyota Prius vehicles sell for more than new ones, which makes absolutely no sense in normal times. After we felt the pain of selling some of these gas-guzzling vehicles for prices less than market, Enterprise quickly stopped pulling them out of the fleet and kept renting them. Management stepped back from operating “business as usual” and figured out how to embrace the disruption and modify business practices to take advantage of it. We stopped the bleeding.
We continued working to sell as many vehicles as possible, for the highest possible prices in the fastest amount of time but we did so by hitting the road and expanding our dealer base to include as many independent dealers as possible. That strategy paid off because we uncovered new demand for our inventory which lessened the need to rely as much on our large franchise dealers. Those practices endure today and contribute to Enterprise’s success as a leading remarketer.
Cash for Clunkers
I’d be lying if I said the fall of 2008 through the beginning of summer 2009 was fun. Quite frankly, it was brutal.
Selling wholesale current model and 1-year-old vehicles to over-supplied dealers during the financial crisis was at the time, the biggest challenge I had ever faced in my career. Also, my first son was born in September 2008, and so dealing with the challenges at work while helping tend to a newborn certainly added to the chaos.
However, things did improve as we’ve seen they always do. The brightest sun shines after the rain. As we headed into the summer of 2009, our government launched The Car Allowance Rebate System, otherwise known as “Cash for Clunkers.”
Cash for Clunkers was a game-changer because it instantaneously stimulated demand from car buyers and sellers. Our dealers quickly started saying yes to our inventory instead of no. Cars were selling and for good prices.
I also recall hearing stories from dealers who had speculated with those trucks and SUVs at the bottom of the market, and now they were making a ridiculous amount of money on “the flip.” They too embraced the disruption, modified their business-as-usual practices and won big.
When times are tough and we are going through a downturn, things will improve, whether it’s through a government stimulus program, changes in strategy or sometimes just plain time.
A Bull Run
I decided to leave Enterprise at the end of 2012 to help build CarLotz.
We were a start-up at the time, and quite frankly, it was a scary move to make with a wife and two small kids. Enterprise is a fantastic company with great people, but to move up quickly, it helps to be mobile. Marrying a girl with deep roots in Virginia didn’t help my mobility, so it was time for me to bet on myself along with my new teammates at CarLotz.
It has been quite a run since 2012. Our team has built the only retail remarketing business in the United States and we currently have eight retail consignment centers in five states (Texas, Florida, Illinois, North Carolina and Virginia), with more regions opening soon.
We have partnered with hundreds of businesses, from local privately held companies all the way up to Fortune 500 businesses and some of the largest commercial consignors in the industry.
We have continued to grow year over year because of the net-retention increases (or what we call “lift”) our sellers receive versus their alternative channels. Our team is proud of the work we have done, but there is so much opportunity ahead of us.
My Sophomore Shock: COVID-19
2020 was shaping up to be a record-setting year for our company. Our largest commercial consignors had agreed to double down on their inventory assignments, based mainly on our 2019 sale results.
January and February ended up being very strong and March was set up to be our biggest month ever as a company. And then COVID-19 hit. We saw a significant drop in sales and leads to the point where we had to make some very difficult decisions.
We went from a team of 160 down to 30 in a matter of a week. I was one of the ones furloughed briefly and, while it was a tough pill to swallow, I understood that it wasn’t based on performance or results, but that demand had simply dropped off a cliff.
Fortunately, we’ve experienced a “V-shaped” recovery. We bottomed out the week of March 28, and every week since then, we have experienced increases in sales, leads and consignments. We are now above pre-COVID levels and ahead of where we were this time last year, which is extremely encouraging.
In addition, many of our furloughed teammates are back with us! What has been most interesting through this downturn is how our clients’ vehicles performed in the retail market during the last several months. The wholesale market started its freefall the week of March 15, when most shelter-in-place orders were issued.
It bottomed out the week of April 19, and as of this writing, has climbed back to pre-COVID levels. The lift our accounts earned during this time turned into thousands of additional dollars PER VEHICLE in proceeds back to their bottom line.
We are talking millions of dollars in aggregate. The reason this happened is because retail prices only decreased by a few percentage points compared to the 15% drop in the wholesale market. I’m confident that every one of our commercial accounts is very happy with their decision to incorporate retail remarketing into their overall remarketing strategy. It’s another great example of companies taking advantage of the disruption, leaning into it, and making sure they come out on top as a result.
What I’ve Learned
As I think back to my experiences through the last two disruptions, there is no doubt that we have all faced big challenges. Everything seems more difficult but in reality, I believe our mindset is what gets us through it. I’m a naturally optimistic and positive person. It’s the way I am wired.
Sure, there are times when I get frustrated, and it’s during these times that I reach out to my teammates for perspective, support and feedback. While The Great Recession and COVID-19 have been the biggest shocks and disruptions to our economy in my lifetime, I’m certain there will be more shocks to come.
We can use these experiences to take a step back and evaluate everything we do as business leaders and operators. Nobody knows what the future holds, but there are several key points I believe we can keep in mind as we operate through these challenging times:
1. Be empathetic: There are a lot of people hurting right now and we are ALL in this together
2. Have faith that things will improve: If I have learned anything over the last two economic shocks mentioned above, it’s that things WILL improve, and downturns don’t last forever. In fact, they can be relatively short lived and create a lot of opportunity
3. Be open minded: Just saying no because it’s “too hard” or “different than we are used to” or throwing your hands up will almost certainly mean missing out on real benefits and opportunities
4. Embrace Disruption: Companies that embrace change, try new ways of doing things and build a culture of disrupting themselves stand a much better chance to survive, thrive and WIN BIG.
Brent Garrett is director of commercial sales at CarLotz.