Doubling Down on My Gut and a Purple Corvette Named Betty
As a young kid, I always had a thing for corvettes. Something about its V8 engine its bold lines and the thickness of its rear tires just made my little boy heart soar. I saw Jay Leno's corvette collection in a magazine one day and I knew that one day I had to own one myself.
Here’s the story:
It was 2018 at a small independent car lot in Chandler, Arizona called Auto Hall. Auto Hall was my baby. It was the result of nearly 10+ years of preparation and a lifetime of hopes and dreams packaged into it. We started out by obtaining our dealers license, tying up a lease on a building and lot, slapped a sign on that building, and we were underway. Now that we were a real business, I realized that we were missing something. The one thing that would ultimately allow us to pay our bills. Cars.
While I had some prior involvement in the car business, I never realized how challenging running a dealership would be. It wasn’t the day to day operations, it wasn’t hiring and training employees, accounting was fairly simple, merchandising cars came fairly natural. Within about 90 days we setup a well oiled machine. This machine was powered by incredible people and technology. Every part of our business was digital. I truly felt like we had an advantage due to our backgrounds in technology, but for some reason our business still wasn’t profitable. As we continued to try and find areas to refine our business, at the end of the day, it came down to one thing. This one thing would be the most important thing to keep us in business. You guessed it. Cars.
At Auto Hall, we used a very data driven approach to acquiring the right used car inventory. We would leverage tools that allowed us to understand comparable cars in our market and how much they were selling for on average. This allowed us to back into a number to understand what we needed to pay for a car to be competitive. I am sure many of you can relate. We relied on this strategy until we realized that all of the calculations were simply based on averages. This wasn’t good enough.
Think about it this way. If you have two people review a taco shop and one of them loves carne asada and the other one has an allergic outbreak because they didn’t realize the tortilla was doused in peanut oil, you will get two wildly different reviews. The average of those reviews will be 3 stars. That could be the best taco in town, but because it was given an average score, it’s unlikely that people will eat at this taco joint..
This is where the Purple Corvette comes in. We actually named her Betty because we got to know her quite well over the span of nearly 6 months. When we analyzed the demand for Corvettes in our market, we were confident this was a 3 banger (car guys will know) that would sell in under 15 days. This is what the data told us. Here's what the data didn’t tell us:
1) The size of the market for Purple Corvettes was like 9 people in the entire US. Because it was a manual transmission, our market size was even smaller than we anticipated.
2) This specific Corvette (1998) had a well known problem with the alternator around 50,000 miles. Well, ours had 51,000.
3) While the data showed demand, people in our market actually weren’t searching for Corvettes.
4) Due to the intense camber on the vehicle, the inner walls of the rear tires were splitting and ready to bust (and did while one of us was driving the vehicle).
5) We had never sold a Corvette before, so we were solely relying only on the averages of other data.
Now, I am sure many of you are shaking your head saying “these things are obvious, Tyler. Idiot. Everybody knows this about 1998 Corvettes." But I can guarantee with 95% certainty that you would have purchased this magenta beauty for the price that we paid, based on the data that we had at our disposal.
The Purple Corvette (which we ultimately offloaded at a $3,000 loss 180 days later) is just one example of how dealerships are acquiring inventory today. We had to make some serious adjustments in our appraisal process to understand precisely what cars we needed to maximize profitability and turn. We needed to leverage our own data (and other broader data sets) to understand how we had performed historically on specific vehicles, what consumers in our market were searching for, and the potential likelihood of major issues surfacing in the near future.
This is how Drivably was ultimately formed. Drivably leverages your internal historical transaction data, and uses special analytical powers to predict exactly what cars you need to optimize your lot at any given moment in time. Averages are not going to going to do the trick anymore. Don't just get a purple Corvette for your lot because you think it will sell. Use Drivably so you can be confident as to whether or not a purple Corvette will sell.