Making market predictions is a fools game. What is chiseled in granite? "Whatever goes up, will come down. That's guaranteed." As this market plays out watch for: 1) Service demand increases. Paint at the wholesale level is no longer available, call your Sherwin Williams rep! 2) Your tax bill! The trillions are rolling out and someone is going to have to pay the bill. 3) Out of whack equity. Be careful of what is to come and stay on top of the current market. Payback time is coming.... will you be prepared?
Podcast Transcript
It’s been an absolutely irrational, insane market. So let’s talk about that, or talk about where it's going or what happens when it's over.
Well, that's something do you know, let the steam out of the brain a little bit in that when you take a second to, you know, take a deep breath, cause you can't even believe that it's happening, what's happening. Right. You know, when you've been around this thing for half a century and at the time when your sneakers are running thin, you bump into this circumstance where it's really it's not realistic. It's, it's so realistic. It's like a fever dream going in the good direction, not on the bad direction. Right? So it's incomprehensible, which is good. You know, when, when you're a kid and you first learn how to ride the wave, right. And you get out there and you can't believe the greatest feeling on earth is when you catch it and it's your slide.
And then it's the whole thing. And then what happens when it crashes on top of you? Right? So the post euphoria thing, right? Depending on how good you are, what you're doing, the post euphoria is it's not like you want to ruin the this dream that we're living. Cause it's not going to happen again. You know, the two by four, she's selling two by fours, you're getting 17 bucks. A board used to be nine, ten cents for lumber. So, you know, if you've already bid the job and you're locked in to what you said, you're going to build it before you're out of business. Because you can't get a two by four. Right? So the person you bid the job to doesn't care whether price of lumber went up, right?
It's no different than an iPhone. You try to go try to buy an iPhone. Can't, they're all sold out. Different stores came and got them. It's gas, it's blueberries. Right? We got a guy that we buy cars from, you know, every year he just goes out and buys new Rolls versus Porsche Lamborghini for ours and keeps them a month and sells them to us. Right. Because he makes so much money in blueberries. You don't know what to do with it. Book for jets, you know, like blueberries, right out of sight. All right. So this euphoria in the wholesale of the world that we're living as it's going crazy and dealers, I think we're all in a situation. If you're not having a record month, it's a shock. And if you aren't, you're definitely doing better than what you were doing last year at this time when the world was coming to an end.
Right. and then the question becomes, are you ready when the wave crashes on you? Right? Cause that wave crashing on your board, pops up, breaks your nose. Now, blood all over the place. You might not even be able to breathe. Then, you know, my feeling is when this wave breaks and you know an unfortunate thing happens like your customers now all own their vehicles for somebody is paying for these cars to bring in 10, 20, 30,000 over sticker, right? Somebody is paying for these cars that are bringing an 18, whatever it is, you look at where the car came from Accu trade. And the sticker price was 47,000 for 52,000 on an auction block with 10,000 miles. So it was really nice one, but it brought 5,000 more than it cost. So that's not real. That's, what's real because that's what the market is.
If you're going to do business, that's the commodities price at the barrel head. Like what if you're going to buy? And so of course it's for this, but we think about the waves then crashing, right? Somebody now owns that course. You got it over the curb, you hit a retail profit. That was unbelievable. Even though you paid too much, it wasn't too much because you sold right away. But you know, I'm going to send it to this today. So we're going to sell another thousand cars tomorrow and dealers bring a lot of money. Yeah. But the problem is they're calling and saying, Holy mackerel, you know, we paid too much, but we sold it right away. Made 6,200 on the car. So was it too much? Of course the answer is, of course it's not too much. You paid market value and you sold it for what, what the market would bear.
Right. That's easy. However, you know, it's just like getting drunk. It's really funny. I had an unbelievable time. The hangover, right? It's a little bit different, right? If you get me out of this one, I'll never do it again. I swear to God, God just get me. Don't let me die on this one. I swear. I'll never curse again, whole thing. Right? In other words, hail Mary, the whole thing. Right. But that's post euphoria. Right? And from my perspective, after being through the first, second, third gas crisis in the thing and all the other things you don't, when you think about it, when you're in the middle of it, you're looking left and right. And the cool validation, everybody else is doing it, it's okay to do it. The question becomes and of course, from my perspective, anyway, we'll never stop and try to act like we can predict the market.
(05:35):
It's you gotta be out of your mind. If you do that, typically as soon as you predict the exact opposite occurs, right? It's almost like science, where there's a direct relationship. You've got a magic wand. You predict something. The exact opposite thing happens immediately.. You can push anything because you predicted something and it would automatically then turns out to be something different, right? It's normal. However, in the back of your head, you know, that horse might not come across. You didn't mush it. And as a result, it's like, what do you do when your customer comes back in? Who paid? You paid 4,000 over sticker price. They paid 9,000, every sticker price four years old. And now all of a sudden, like any other person they'd like to change paint, changing nothing to engine.
So let's say this thing rides, it's going to last for, I'm not going to say the number could be next week could be six months or no, it might be a year because don't forget. You're not going to be able to get tires next. Right? That's the wholesale issue of tires. Tires are going to be scarce. You can't build new cars, cars can't drive without tires. After there'll be tires and there'll be wires. And there'll be something else who knows. What so predicting when this is going to end is obviously only for fools to do. However, the one thing that's chiseled and granted by God, whoever your God happens to be chiseled and granted, right? Like the, you know, the 10 commandments, whatever goes up will come down. Right. That's guaranteed. And when that happens, I'm not saying that again. We're not going to stop what we're doing.
We're going to do it until we hit the wall. Like when we crashed into the wall, that's where we said, Oh geez, the market changed. Right. but the post thing, it's almost like what you would call it from my perspective. Think about it. These people that are getting, they're not getting slammed because they're walking into doors, nobody's tricking them in or nothing. They got to have a new court. Cause it's, you're independent. You're not going anywhere, but you need to have a new court. Anybody knows that that's normal. You got up, got to buy a two by four, got to pay $17 for the one you throw in the trash barrel because they only cost two bucks, bro. And I was 17. So that 2018, F-150 that they paid 63,000 for. Right. and that car in a normal market is going to be 31 five.
How do you alert or mastermind your way out of that one? You follow me? And my feeling is because of that. Well service on one hand, I think it's going to go nuts. Just like renovate the house. You can't afford a new one. Therefore you're going to renovate the one you got, you got to paint it and spackle and do different things. Still get spackle. Although Sherwin Williams is out of paint just in case anybody's wandering. Right? So paint at the wholesale level is no longer available. Right? Talk to your Sherwin Williams representative, see how you make out. Right? You got your, a special customer. They'll still get it in for you. But in general, it's another commodity that is, it's not available. Right? So it as a car dealer and nobody has the time to think about this.
Cause you got to go find another car and go sell another car. I get that more than anybody could possibly believe. I'm the number one, you know, like proponent of all of that. Right. But what you got to think about in my estimation is post this euphoria. How are you going to actually transact business when there are cars available, right? And your customer is now upset anybody with a trade 60% of the cars. And don't forget, we're now going to change the residual on lease cars, obviously, in order to be competitive, you've got to do that. And the buyout on the lease car turns out to be no, not like it is today for GHG low, to be 10 G low, actually an awful lot of leases. You know, like a Ford pickup truck right now is coming back at 31 G, car’s worth 46 at the auction.
But if it's under 120 days, you can't buy it because you know, even the Ford dealer can't buy all of that's different. It don't matter. Right. It's understandable. It's all part of this insanity. Right. But when it happens, did they then Oh, 57 and it's worth 35. I'm not sure exactly how that's going to work out. That's a weird thing. I don't know where the magic wand is coming in. And then you got to do one last thing because I'm thinking about this myself, right? This euphoria is unbelievable. Right. And record everything's records. Right. But now when these folks start changing the tax, right. And it's going from X and it's going to Y and they're talking about a hook to go backwards on the tax. Right. So does euphoria that you're in and you're doing really good. You're even thinking about a jet and all the other things that you can think about.
(10:39):
Right. And then they start this tax thing, hooking backwards in order to pay for the first 2 trillion. You know, we already did the second 2 trillion. Now nobody can come to work because you know, are getting paid more to stay home. So why in a world where they go to work you know, all of that absolute insanity. And now we're talking about the next two or 3 trillion. Like it's, you know, you just say the word that pops out of the machine, nobody has to pay for it. Right? So now we're going to force people who are in your 40 at the moment, blueberry farmers, you know, two by four Canadian, two by four providers car dealers with cars. Now you're going to actually pay the Piper for the music. Right? And then when the thing goes, the other direction, my feeling is, I don't know if anybody ever had the experience.
Right. When I was in the Marine Corps, I was out in camp Pendleton and getting ready to go overseas in 1969. We were at the Pacific ocean, 16 years old, you know, drunk of course on a, on a weekend, on, you know, the minutes leave from camp Pendleton. And we get out a little bit too far. Then next thing you know, we're having a ball, riding the waves, man. And then one of them waves comes in. It was like one of the fifth wave in once it's gone and all of a sudden you're down and you really, really can't figure out how you're going to get out of that. Right? This wave, when it breaks, you see what I'm saying? You might come up for air, but I'm going to tell you with the tax thing going to hit you in the head, cause you made so much money.
It's unbelievable. Of course, you're gonna pay taxes. Everybody pays her taxes. So whatever felt so good, record everything. And now you're paying double the amount of tax that you were paying previously. And then you got the cars coming back with wacko out of whack. Oh equity. Because obviously the market never stays high. Right? It's never going to be forever. Like this two by fours will not be $17 a piece forever. I swear to God, they won't. I know you're from Canada, Sean. So I hate to break you the news and so forth, but they're not going to be that way forever. The same way you know 2015 Corvette, because 73,000, who's not going to bring 86,002 years from now. It's not going to do it. And I'm not saying, I know that I'm just saying based on experience, what goes up will come down when it comes down.
My feeling is that you know, you gotta be a little bit, not, not where you're worried about doing business today. Cause you can't, you got too many things to do, but you gotta keep that in the back of your head, that when it does, how you going to modify right. And modify everything. So the fact that, you know, there's lots of new marketplaces, more common marketplaces, et cetera, process, and sell to the bottom of horses out the window. That's never going to occur again. That will never be back again, worry about what somebody else is selling and make sure you sell it for less. You know, that's the moot point in a non-existing inventory marketplace. And if you're following that, please just call me. I'll take all of your cars, a hundred percent of them, by the way. Good, bad and indifferent. Cause that's nonsense. How post euphoria does the thing you know, shake out which pieces will work? Are we still going to be completely maniacs about being sure that we have the full thing done for like Carvana, touchless, everything touchless. I think that could work, make an experience different negative, perfect, guaranteed. Everything happens as penny perfect. And everybody gets the car delivered in front of their face, et cetera.
But the thing that remains as a weird thing in the back of my little brain is, you know, first make sure you're paying attention to what you paid in tax, because you thought you made 19 million for the year, but you really didn't cause your tax rate change it to be something different. So hopefully we didn't build the overhead and to make sure we thought we made, we didn't make because everything's different. And then how are we going to deal with a handling the out of every, your fork right now? And ADA increased so much the lens it's beautiful. It's unbelievable. I'm sure ALG helped them do that and all the rest of it. Right? It's a little problem is when that reverts. And now everybody wrote their least to match that where everybody financed the match that, and then, and it could happen in July or August or sometime it's going to happen sooner or later.
Maybe it's not till next year, this time when it happens. But when it does and you're upside down 27,000 in a $20,000 car, that's going to be tough to deal with because you took that cat out of the market permanently, it's worse than cash for cars, cash for junk, whatever it was called, cash for junkers that ruined our market for buy here, pay your typically it's the end of November. We go goofy. Everybody stock it up for the tax checks. And you know, everybody bought a new Hyundai with a hundred thousand mile warranty because you gave away your trashcan. Obama's brilliant idea. Get it trading and trash. And you know, people bought new cars rather than buy it's free junks for that particular year. I think this is going to be, I could be wrong about it. I want to be wrong. I think the market's going to go up forever.
It's never going to come down, but if I ain't wrong, it does come down. Right? The, the post euphoric thing that we're in, I think is going to be weird. It's going to be really weird. And if you weren't able to come up for your second breath, you know, people that are paying a hundred million dollars for a franchise and bought a Nissan Nissan dealership for a hundred million, I saw that their friends from, what do you call it, bought it the other day. And California, I wish everybody all walk in a world with that. And, and these people are good operators. So I think they're going to do good. But the truth of the matter is when all of these things collide together at the same time, it's a question of are, are you prepared for that? And how do you get prepared for it?
And you know, are the fixed ops becoming more important? And are we doing recon in the service drive as opposed to, you know, just change your oil and so forth, to make sure that we got like all the bases covered because when things get a little tough boss, I need another 20 grand to trade this car. Cause their payoff is 80,000 cars worth 40. You know, that's going to be weird. That's going to be weird, cause it's not possible for it to be something different. It's not like these cars are going to be worth what they're worth forever. Right? They will be produced in the future sometime after there's no shortage of chips and no shortage of tires, cars are going to get produced. That's an absolute guarantee. And then the aftermath of that is we're going to be giving away everything.
Again, I'm positive of, it's a shame that we didn't have to do it to begin with, but because we're all, you know, based on volume and doing something better than your neighbor selling it for less than your neighbor, as opposed to what it's worth. Right. that's going to return. I'm absolutely positive about that as well. And the the playing field at that point is going to be weird. It's going to be very interesting. Does that make sense to you at all?
Well, it's a ton of food for thought, Bob, and I think it's important for everyone to remind ourselves, right. Even if we're in the midst of it and because you're right, it goes up halfway. It feels good, man. It does feel good though. You gotta admit. It's unbelievable. Ain't it? Yes, sir. It is. Every time something feels that good. Right? Like getting the high. In other words, really nice. She finished the bottle and it's really good. You had a nice evening. How you feeling the morning, payback time, big hangover.