Wake up, Buy Here, Pay Here people. It's a beautiful day. Go grab yourself another cup of Joe and say hello to Jim and Michelle Rhodes on the Buy Here, Pay Here Morning Show. Take it away, you two. Hey, friends. Good morning. Happy Friday. Happy Friday. Welcome to the end of the week and welcome to the morning show in the studio in North Ogden. We woke up to snow this morning. Michelle wasn't feeling it. I was quite enjoying it. I like being out by the heaters. Well, I mean, yes, yes. Um, yeah, I, under, under a few blankets around my shoulder on my lap. Yeah, it was okay. It was, it was cold because the wind kept whipping around and then like hit me in the face and in our patio blowing snow into the patio. And I'm like, is this really worth Yeah, we were supposed to, I don't know what the temperature was. I feel like it was around thirty when we woke up this morning. But I know we talked to some dealers who were ninety degrees in Florida yesterday. So they're like, it's too early for that. There's an influencer that I watch an awful lot on TikTok. And I think she lives in Ohio or something. Yeah. And she mentioned yesterday because she posts every day. She mentioned yesterday, she usually broadcasts from outside. And she's like, someone asked me yesterday why I'm wearing a coat. She's like, because it's too cold outside. I don't live down in Florida or in Carolinas or wherever where it's like consistently warmer. Yeah, I don't see the national weather much anymore. But mostly what I know is from social media and people that I meet. We do virtual meetings with people all over the country all the time. You know, we go through this every year, though. whatever. Okay. So no more about, uh, about whether I had next had a V eight plus meeting yesterday about how AI can help a dealership and, um, Meg Jones. Yeah. Megan. And then there was an interview with a company that, uh, Pretty cool. They do, what do they call it? Voice agents. Voice agents and bots. So digital voice agents. Yeah, the founders actually from Apple worked with Steve Jobs. And so it was pretty cool to kind of get their perspective. on AI and and the things that it can do and you know what what is customizable and what's ready to do at least in the small independent yeah it was interesting because he he because I was said now can it can start to learn and learn the answers and he said something and I can't exactly remember the phrasing but it was like AI hallucinates oh I didn't hear him say that you didn't hear him say that and I was like I would really like to learn more about this That when you take off these, it's really important that we keep the bumpers on. Yeah. And because they see that AI does this hallucinating thing. And he used the word hallucinate. So I was like, I would really love to learn more about that. But I'm not sure that's something for the morning show. Yeah. That's probably just personal, you know. Oh, that kind of hallucinate. I don't know. I didn't catch that. But I think... They are working to kind of keep it within its boundaries. Yeah, yeah, yeah. Really cool. We use it all the time, AI. Yeah. But these guys, again, were specifically voice agent thing. And so that was interesting to hear them talk about that part. And I've heard they're voice agents. Yeah. And then you had a VA meeting last night that was really great conversation because Jim brought some interesting perspective perspective to running numbers yesterday yeah and that's what we're talking about today is this new kind of thing that I'm I'm calculating so in the latest edition of jim comes up with a new you know kpi like you know it's like but in fairness it's what what's what I when I sit around noodling early in the morning when the house is quiet I'm often thinking about and you know I work with spreadsheet a lot but really the effort is to try to find ways to take what data we have and Apply it in a way that dealers have a new angle on the thing. A new insight. Yeah. And so this one's different than a lot of what we've been looking at. And I'm always, because I'm a cash flow guy first. I always tell people, look, you know, we can't. We can't pay our techs with contracts. Hey, we're a little short on cash this week. Here's Mary Smith's contract. That doesn't work that way. We need cash for what we do, and so we've got to be able to generate cash. What this looks at very specifically is the cash return on cash, the cash return on the cash that we put at risk. We've got some metrics, but I think... What I saw, we had two meetings this week where I presented that for the first time. And I got to tell you, dealers, they weren't getting it. I probably have some work to do to present it a little differently, but it's good information. I think it's new enough that we're all going to be learning things. together what its value is. But really what I'm trying to give dealers a look at is this is, it's not about profitability. It has nothing to do with profit. It has to do with how the portfolio is producing and then what we can use, how we can then apply that to some other calculations. So are you ready to get into it? I am. And I just want to say rate at risk at reap it. Great. That's, that's, that's pretty catchy. Oh, that's, that's chat GPT. Thank you very much. So this was my first morning to actually, you know, run the podcast. Yeah. I sat there next to you and it's like, give me three catchy titles that's around this. And, and oh, it was a hard decision. Cause it's like, and yeah, super again, AI amazing. Yeah, really, it thinks differently, right? Yeah, it does. It has a broader scope of information to pull from, and so, yeah, it's good stuff. Okay, so we're going to talk about Risk It, Rate It, Reap It, the cash-on-cash formula for buy-here, pay-here success. Yeah, so let me walk through it verbally before I start presenting on the screen. Okay. This is, I said already, this is not related to overhead. So everything that we're talking about here has nothing to do with whatever the overhead of cost of operating the business. That is a whole nother beast. Yeah. And it's, while it's cash, it's not, we're just looking at the portfolio itself. This is how much we put at risk in a contract often called cash and deal or the exposure. How much you're putting at risk. Yep. And so, but what we're, I can jump onto this one then. What we're looking at then is, The actual portfolio performance, like we're doing a six-month average on the, some would call it loss to liquidation ratios. I call it conversion rate. It's the rate at which the portfolio is converting to cash and or charging off. So it measures all those things. In aggregate, yes. That's like the entire portfolio, not a note. So this would also sometimes be referred to as like a rolling twelve or a rolling twenty four. And you do it usually three, six months and then what you do it further. But for this, it's six months. Six month history is what we're looking at in this. The numbers we're going to look at today. So you're taking the dealer six month of portfolio performance. So those who aren't seeing the screen, the drivers are actual portfolio performance. That's one. Those calculations on it, which projects yields. Right. That projects. Then we apply that to a forecast or rolling forward. And that then the next component is the average note or the amount financed. OK. OK. So I'm going to show some of those on the screen here momentarily. And then the last one would be the average cash deal. Okay. Okay. All right. You're with me so far. I'm with you. I'm with you. So the other thing this is not related to, let me make sure people know, because we talked about the portfolio size or the portfolio calculations. It's not about the amortization. If it's not that the customer put a thousand down and their payment's five hundred a month, so we forecast the payment stream on an amortization. This is not that. This is just what's coming in. Yeah. This is not what we're supposed to collect. This is what we're actually collecting based on our history. This is the rate at which we're actually kind of, I sometimes call it the burn rate on our portfolio. It's like, this is the rate that our portfolio is converting to cash. So if we apply all those things, then it starts to give us, you know, some information that, let me get over here and share the screen and then, or get loaded on the screen. And if you wouldn't mind sharing my, my screen for me. All right. So what you've got is, let me get back to the numbers that I think are going to be most telling here. This is a little messy to view. Give me just a moment. I forgot I made some changes. You can make that much bigger too. I will. And so let's get to the right part of this. I can show first while we're here, these are some of the numbers that are used to drive the equation. So, you know, here's that six month average. So what you've got is, you know, these dealers in one group, and we're just looking at one group, but these are some of the drivers that dictate that projection I was referring to so we calculate each month this is an actual six month average we have that number each month and so now when you look at that and you say okay this dealer is charging off three point one percent principal where are you on what line on row two or two, you see in that? OK, two or two. So where you're highlighted. OK, right there. Excellent. Thank you. OK, now I just need it in whatever. Yeah. So that's principle collected as a percentage of the opening principle. So that's kind of the method that you apply. Principle collected. OK. And you start to see like look at the relationship between this number. Whoops. This happens to me once in a while. The the that number compared to this number. This is the principle that's being charged off. like point nine percent compared to the the three to three point one percent. OK. Yeah. So so these are kind of the four numbers that really drive either collateral recovery rate. You can also see down here. This is just for point of reference, collected principal versus collected charge. OK, so what you want to see, this is just kind of what I'm seeing, is you want to see a higher return. Um, a higher, uh, principal collected than principal charged off. Um, and so it's like, you want that principal charged off as, uh, the low to be a really small number. And then the, you know, the higher it's like what you're able to collect, the higher the numbers, like I'm really great at collections. Um, the, what you are, what you're charging off, if it's a, if it's a high number, then, then, um, that's. Well, we look at both. When you say good at collections, it's both. Obviously, we're collecting both principal and interest, right, on that. And so the question becomes, and the reason this line down here I think is important, is this is the relationship of this is showing how much principal out of our portfolio are we putting in the bank versus how much is not going to the bank in that range of time. Okay. So this is charging off some of it, you know, principle leaves our portfolio in a couple of ways. We either collect it from the customer and put it in the bank or we charge it off because the account didn't perform and we write off that principle. Right. Yeah. So that's basically a comparison of those two things. And so obviously you'd like to see that number running higher. People would like it to be over a hundred. Yes, for sure. And I've had some old articles on this and you and I've talked about that particular number on the podcast in the past, but I would just, while we're here and we can see that, I want folks to be able to see that particular number. And then we take those kinds of numbers based on the six month of portfolio history and we start to apply it to, let me find this, bear with me. I'm going to have to, I know it's hard to watch somebody else around the screen, but Here they are right here. So this is something I call the PRI index, which is it's just my own calculations, just basically taking the PRI as principal repo and interest. OK, so it's again the yield like it's projecting. This is how much our portfolio is currently. yielding okay we're projected to yield higher number better yeah better cash flow yeah and so this um this basically is um we don't need to dig too deep in the weeds I feel like we've touched on this one in the past but I just want folks to know this is what then begins to forecast the the The anticipated cash flow on the portfolio that we currently have on the books. Like if we quit putting dollars in that portfolio and we just ran it off or the burn rate, if you will, then this dealer number one is projected to bring in about seventy eight percent of their current portfolio balance. In the next year. two years two years right okay right so okay and so you can see how that number varies you got seventy six percent sixty seven percent uh you got one down here down at fifty eight percent this is just cash it's just it's looking at you know based on all the numbers we've turned in so I mean if you were to look at that you'd be like okay this looks good this looks good this looks good there's some work that needs to be done on this one right a couple of them right yeah so yeah but you know it's there's some disparity there in the numbers, you know, between the groups. So this starts to highlight some stuff and we can talk about that more. But now you move to this cash on cash return number. And I've got that charted. I'll show you the graph here in just a moment. But the what does that tell you? That's telling us the the amount of cash that we're going to recover relative to the amount of risk that we're taking in cash. Okay. Okay. Um, well, based on, you know, we've charted it out. These are your trends. This is how much cash you're going to recover based on, or compared to your, what you risk you've got out on the street kind of thing. And so is this, this is risk and cash and deal. It's yeah. And it's, that's right. Risk and cash and deal. So, so that's like how much you bought the car for and all of your repo and whatever, you know, whatever it else it's financed. That's a beat that, that was money out of your own pocket because you know, we find it, we double. Yeah. So, okay. So again, no overhead in this number. This is just. Our cost of the car when we reconditioned it minus the down payment and net trade that we got. So that's our cash and deal. So now it says, okay, we put X amount of dollars. So let me jump over here and show you the numbers on an actual dealer's kind of what's driving these numbers. Let me pick one at the top here. Let me sit them in on this so you can see a little better. Yeah. You can zoom in a lot more. There you go. Okay. So this is the note amount. And so we use... That's the note amount. Right. That's the average note. That's not your risk on the road. That's like the full thing. You've already marked it up, plus whatever. Minus the down payment. This is the actual amount that we financed. Okay. All right. So this means... So what I do is I take that... burn rate, if you will, and said, okay, based on our current rate of converting our portfolio to cash, that seventeen six would convert to cash at the tune of across twenty four months, about seventy eight percent. Let's stop for a minute and explain. This is something that's going to be challenging for a dealer to do at home. Unless they're, unless they are a numbers spreadsheet, I can figure this out. I just need to know what the assumptions are and the, yeah. Yeah, for sure. They can build their own projections for sure. I just mean, this is, this is getting a little more advanced than what we see most dealers do. Right. So. Well, yeah. And I appreciate that. And I want to talk about why it's, why it's a good thing to understand. Of course. Yeah, for sure. So. I'm really focused on twenty four months for that's a whole separate podcast on why I think twenty twenty four months is the number or the range to look at. But what that tells us is if we apply this dealer, seventy eight percent. conversion rate or typically yield yes um then we apply that to the seventeen six what it says is we could expect to collect about thirteen eight on that contract across twenty four months again not the amortization just the based on the so based on like seventeen thousand now you're going to be collecting you know, across twenty four months, this dealer collected about thirteen eight. And so what that says is if you measure that thirteen eight against the average cash and deal, that dealer will have pocketed about twenty eight hundred dollars. Against that, so thirteen eight versus the ten nine of risk says we've now across twenty four months, we've collected. And is this principal only or is this principal and interest? This is principal and interest plus repo recovery. Okay. So it's applying all the stuff, all the kinds of cash that we can bring in. So if you think. So how long is it? It's obviously more than twelve months before they break even. Correct. And this is dealer's numbers it is. Yeah. Okay. And so what it now says, and this is an annualized number. You see I put over there this annualized. So what that means is that twenty eight hundred dollars is relative to that ten nine it took two years to generate that positive twenty eight hundred dollars then we're at about twelve point nine percent for that dealer annualized okay so about thirteen percent per year is what they're getting back on their risk do you know what the uh what the note length is on this dealer off the top of your head because it's more than three years it's about three years is the average okay what's when when they originate the note is it like a three-year amortization schedule I can go find that okay help me understand why it matters because I'm just looking at like um you know if they've if they after three years have collected ninety six point five percent of what was financed Um, then, you know, if they're going four years, I mean, what's, what's their, what's their, um, their rate of collecting. And this is part of why this is different is I would say it doesn't matter what the term of the loan is, what matters here. Cause it's not based on an amortization. It doesn't matter what the term is. It just says, regardless of whether you make the contracts, or whatever, this is the amount of cash that you're yielding out of contract period. Okay. And, and, and it's, I, I like the, it's twelve, twenty-four, thirty-six because there are very few dealers out there that work than less, that less than that thirty-six months. Yeah. But again, I think this is where, this is where we have a chance to get lost if we're not careful because it, it almost doesn't, you could, let's say dealer one does a thirty-six month contract and dealer two does a forty-eight month contract. Uh-huh. They could both have exactly the same numbers here on the results because it's only calculating what you actually put in the bank. Yeah. Right? So across twenty four months, it's what they both put in the bank. So their numbers could vary as far as how well they convert that portfolio. So it almost doesn't matter what the length of contract is in this calculation. OK. OK, so I would just be careful about that, because what it is saying, though, is that, you know, this and I'll show you over here on this side, it shows that this dealer That's a good indication of term because it says this dealer is going to collect seventy eight percent of that money, but still have about thirty seven percent of the account balance to collect or the principal balance to collect in twenty four months. OK, so, yeah. So we look very kind of hyper focused on twenty four months and what we do in V-Eight. So this is, you know, we didn't say this is, you know, one particular V-Eight group. And I just use their numbers as an example because we had all the calculations pulled together. And we had six months worth of history with this particular group for all members. So that's what that looks like. And so I think, you know, now you've got this one dealer at twelve point nine annualized. So now we can go back and look at the difference in. Those numbers, here's dealer one again at twelve point nine. And the next dealer is forty five percent on that same number. They're getting back forty five percent annually against that risk. Everybody remember, there's no overhead here. We're just looking at the amount of risk that I take and how much cash I recover relative to that risk. And so this is saying this dealer is recovering about forty five percent. Okay, so how would deal structure be a factor in the difference in those things? Um, because of the amount of risk in the contract. So, so let's jump over here. We'll give an example. This dealer over here, dealer seven is at, for those who can't see the screen, that dealer is about sixty four percent highest in this small group. OK. OK. So what that really means is it's a function of a couple of things. That dealer either is converting their portfolio to cash well or they're portfolio conversion relative to their cost in their contracts is favorable they may be collecting at the same rate as the other dealer but they have less risk in their contract okay so they're so again the portfolio the contract is up here and I collect out the contract based on the amount of Finance at some rate my burn rate but my risk in that same contract is less Okay, so now how much cash I recover against my risk. Why are you laughing? I'm just like, there are so many questions going through my head that may have nothing to do with where you're trying to go. But I mean, I'm just, because I'm like, what kind of, it's the, I see so many factors in what would drive these numbers. One, the cost of the car. Yep. Two, your underwriting. the underwriting is going to affect the portfolio performance. It's not going to change the cost or the risks numbers, right? Your collection practices too. Yeah, for sure. So like, and well, those, those are the first three that I came up. So I was just like wondering, do it, does it, does it, Are you seeing on when you're looking at all these different portfolios, because we have lots of different portfolios that we're looking at and where ones, you know, they may have a smaller portfolio because they haven't been in business as long, maybe don't have multiple locations, whatever, and bigger portfolios. Are you seeing trends in cost of car driving this? Yeah. Well, keep in mind, this calculation is brand new. This week is the first week that we're seeing it. So when you say trends, we don't have history of trends here, but certainly cost of car is one of the main drivers here. So do you know, when you look at this and you know these specific dealers, are they... Because we deal with dealers that buy clunkers, right? those that buy, um, uh, rebuild titles, those that buy really nice vehicles. And I mean, the spectrum is really nice vehicles. And then they, they repo the, or not repo, but they refurbish the heck out of it. It's like, there is nothing wrong with this car. Like it's, it's people are going to get in and go, it's almost like it's new. So Do you know, just from what you understand about these, which type of vehicle is performing better? No. We don't have enough information on that yet. It's not something we're analyzing. We're not analyzing... So what assumptions from what you understand about these portfolios can you make? Can you feel more confident in making about how they're buying and pricing and collecting? Does that make sense? Cause it's like, I really would like to see, are there a couple of takeaways that we can go like these, what we are, what we see here is that X, Y, and Z are, are that, that my assumption is, are the reasons why these numbers are better. Yes, I've got some. So, so probably a good illustration. Let's look at dealers five and dealers six right there, side by side. You're still seeing my screen, right? Five and six, yes. Okay. So we start at seventy two point six and seventy two point two. Pretty close. Whoops, I lost it. I got you. I'm scooted on over just a tinge. I know. Technical. A tidge, she says. It's a real word in my vocabulary. It's a Michelle word. That's okay. We all understand this. If Jim can have unique metrics, you can have unique words. Exactly. All right. So let's look at five and six. And so let's look at the comparison. What conclusions can we draw? Okay. So... Dealer five is seventy two point two percent yield. They're going to collect about seventy two percent at their current burn rate across twenty four months. Dealer six is right about the same number. Same thing. Projected cash yield. Yep. In twenty four months, they're about the same. Yep. OK. Remaining balance at the end of twenty four months for dealer five is about twenty one percent, whereas dealer six is about thirty five percent. Okay, so that has nothing to do with their amortization with like how long the note is for? No, it does. That's one of the conclusions we can draw here. So obviously dealer five has shorter notes. That's what I would conclude. Okay. If I were just offered this information right here. Okay. Because they're both collecting about the same. They're both going to squeeze about the same amount of money out of their portfolio across twenty four months. But this one dealer six has got more money left to collect. Okay. Gotcha. Gotcha. So it starts. So this is part of what I like about this. This calculation is it starts to test business models. It lets dealers see, oh, look at your model compared to my model. And as they get to know each other and they understand more and more and more as they're asking questions about the business model, it's going to. Yeah. Yeah. Yeah. Gotcha. And now you jump over this while we're talking about that and comparing. Let's look at dealer number eight. What this says is, look, you know, the math is the math. It's the same exact math as applied to the other members. So when my collection rate is lower, projected to collect less in twenty four months, a couple of things are happening. But the first thing that points to is we're just not converting that portfolio to cash as well as the fellow members. Or it says one of three things. It either says that it says that Jim's math is wrong. Or it says the dealer's numbers are. Well, but I'm looking at this and I'm going, okay, here's some of my assumptions. Is that if they're only collecting fifty eight percent and then the remaining portfolio balance is twenty five percent. I'm yeah, it's like I came my my brain just fried. I'm wondering if that has anything to do with the interest rate. Well, that's one of the three components in this line right here, that fifty eight percent. So it's all three numbers. So keep in mind the PRI index. It says over there in the definition on row one seventeen, that is principal plus interest plus repo proceeds. So they're all in there. So in that way, it doesn't much matter what the mix is. I mean, you would you would feel it if obviously if it's heavy in repos, that means we're charging off a fair amount. Right. So you would feel it in a different way. Uh huh. right yeah but but it still puts all of them in the bucket it's like all the cash because that's all the cash that's coming in now for me for my it's like so that I can understand this better is I would love to be able to see individually, principal interest repurposing proceeds. Because I think I would learn a lot more. Okay, good. Future podcast. Future podcast. So we can bring that split information back and dig it a little deeper. So this is a combined thing of all of those. And so what are your assumptions about dealer eight? Well, what I see is, again, let's rule out a couple things. If my calculations are right and the numbers that the dealer's remitting to us are right, then the only thing- Yeah, that's a, yeah, which is something that we're working on. We validate the numbers, but there's like- We're seeing some problems still in the way people are reporting. But if my numbers are right and their numbers are right, then what it tells me is their portfolio is not generating as much cash relative to the dealers in the group. They're not producing as much cash across a twenty four month period as their neighbors. Yeah. Their cash on cash return is not bad. It's not bad. Why? Why would that number be okay? It's because their risk is low. Their cost in car must be low. So the cash that they're bringing in, that fifty eight percent relative to the risk is, you know, is on par. So cash on cash yield return. So, you know, if you're looking at this, like which line is the moral of the story? Would it be line one twenty where it's the cash on cash return? I prefer the twenty six month one. I prefer the twenty one nineteen or one nineteen. I'm looking at twenty four months. So so based on that, dealer eight is doing pretty well. Not bad. That's a thirty nine percent annualized return. Dealer seven is doing fantastically. Yeah. Great. Yeah. Fantastically. So again, on a cash basis, here's what we don't know. These dealers could have varying degrees of overhead. So cost to operate this particular, you know, this is a cash machine, right? So this is why I prefer to look at it like a cash machine. We, we, take a certain amount of money to build this cash machine. And then we wait to see how much cash it brings back to us. Yeah. Yeah. So, you know, I'm just going to, I'm just going to do a side note on this. If you all are listening to this podcast, please go to our YouTube channel. You'll see the video. You'll see all of the pieces that we're talking about. Those that are listening live, you know, that's usually they're able to see all this stuff. But if you're listening on one of the syndicated podcast stations, go to our YouTube channel because you're going to be able to see the things as we go through it. So, Okay. Moral of the story. Well, my big moral here is I think what it does is, and again, by looking at twenty four months and there are a lot of our dealers. In fact, let's go back across this quickly. You can see that. Let's look at dealer. I'm just going to say something while you're shifting screens. Every dealer out there. That. feels or that are a lone island that are not meeting with other dealers in some kind of peer group, have no, it's being able to compare yourself to others and have the conversations around what are you doing different? You can't have this conversation with someone you've just met at a conference. This kind of conversation requires like we've been in the trenches together for a certain amount of time. And so it's something that's kind of difficult for you to plug your numbers. And I'm just saying, whatever it is that you choose, dealers out there, is there is an immense amount of value in in being a part of a peer group. And a peer group is like, you know, the, the, the dealer, twenty groups and IADA handles a lot of those. And those are, you know, there's a lot of aggregate data. There's a lot of, a lot of comparison and V eight groups. I'm not sure. I think there are probably others out there, but I'm not, I'm not really sure, but yeah so yeah what we do is you know our v-eight thing is pretty simple that this is all built off the dealers send in about twenty five numbers each month and this all that we're looking at is built off of those twenty five numbers right yeah so we're but we have to reconcile and validate the portfolio numbers that are coming in when I say reconcile it's a soft reconciliation plus or minus one percent so that we can make sure we're working with clean numbers and so again there's still some work ongoing but you know so twenty groups been around the story what can you take away from this I here's, here's, let me be a moderator. Any actionable, anything. Let me, let me be a moderator for me. Okay. I, I want the dealers to decide. And so I, I'm going to put the numbers in front of them. And of course you've heard me draw my own conclusions around what we're looking at here. But I think what I would be looking at, first of all, Go find a way to measure your portfolio metrics. Measure what I call conversion rates. Start calculating. Start capturing this information month over month. Stack it together month over month. Is this one of the tools you're going to be giving away at NIADA? We can. It's the same tool that I offer on the podcast. If you guys want a portfolio performance calculation tool, just send in the email, jim at whitehatway, if you want to put that on the screen. Just jim at whitehatway.com. Send me an email and I'll send you the template that we use to You know, if we're working with a dealer for the first time and we want to see some historical data to be able to build some of this kind of stuff, this is what we would use. But I think when you tell me, I'm really still at the place where I'm assessing. You want to take this spreadsheet down from the screen for a minute because I'm going to come back over and that way it won't get so ugly for our viewers. There we go. I did because I had it on the right. So many buttons to push on our software. So the other thing I would say is I think that part of the reason this matters is it really starts to test the business model. And let me just tell you, we had some dealers in these two meetings this week that came up. They were they were pretty uncomfortable. Right. I mean, one dealer is like this is this has got me a little disturbed. Right. And obviously, I'm not trying to upset anybody, but the math is the math. And it's probably helpful that they get this kind of wide view to say. Maybe your business is not doing what you think it's doing. And so this is why I think it starts to test the model of when you stack it against other dealers. And so, again, I'm looking at cash here. This dealer is generating this much cash and they have this much risk. This dealer's generating this, and let them decide. What do you like? Because to me, this starts to illustrate. And the reason I did the thirty six month thing is because when you start to look at twenty four versus thirty six, it's like this starts to really put a stress test on the model. and say look all the overhead we're busy we're hiring people we got all the stuff going on we're reconditioning cars and whatever and all this really does is step back and say you know what we're putting this much cash at risk and this is how long it's taking us to get that cash back or to you know and dealers have had in twenty groups and we have it in our V-A composite a a number that calculates what we call months to break out, which is really taking that cash and deal and saying, if the customer pays what their payment is, it would take us this much, many months to recover the cash and deal, which is a component in what we're talking about here. But that's assumed the customer pays all those payments, right? Exactly as they're supposed to. And so that would be that math. But what I'm trying to do is, is look at that and say, let's measure it across a period of time. And I'm hyper-focused on twenty four months to say, What does that look like? What position are we in at the end of twenty four months to so that we can make a judgment about where we go next? And I think people like Alan, I'm sorry, I didn't mean to interrupt you. No, I think it just it's stress test the model side by side. We had Alan on the show, Alan Keat, last Friday, and he's he's someone that just really understands the markets and the and the money and all of that. Is that is that, you know, if you if you can get a note to collect through twenty four months, the rest is just gravy. It's like, you know, that that it's the key is to keep people engaged for twelve to twenty four months. And then, you know, so if if you're not converting your portfolio to a place where you're now above the you know, you're you're. you've made more than your cash and deal and in twenty four months because there was one on there that is just like they're still and they were at zero. They're at zero in twenty four months. It's like there's something there's something potentially inherently flawed with the model that you're that you're working on. Yeah. And so what that that particular dealer that we saw in there, it caused them to say, we've got to go back and look at our numbers to say is something reporting correctly. Right. Are we reporting incorrectly? So this is another thing that kind of exacerbates or kind of exaggerates the, some of the parts of this in a way that I think is useful because it, it puts it to the test. And, and, you know, we talk a lot about apples to apples, trying to make sure that we're, you know, regardless of what software, regardless of whether we're lease your pay here, buy here, pay here that we have. And that's something we do in our, our, our V eight groups is we put lease your pay here and buy here, pay here. in the same group. Some of our dealers said this, that twenty groups do the same. Last I knew they were trying to create specifically a lease or pay here for their own groups. But we like the idea and especially now in light of these conversations, I like the idea of having the dealers in the same groups because it really starts to test the models and we're just looking at cash. We're not looking at profitability. We're not looking at value. We're not looking at LTV. We don't know what the car value is. We're just saying, regardless of whether that's a twenty sixteen Camaro or a twenty nineteen F one fifty, the portfolio is not is here's the rate at which those contracts are converting to cash. And you know, there's it's like I see this. I see there's there's a there's Some dealers like everything to look really a certain way. And then other dealers are not as interested in what it looks like as much as it is what it yields. Because I see that. I see it's like the whole idea of recon. You know, how far do you go? You know, the, the, are you, you bought the car for five thousand or probably like the one I'm thinking of is like, let's say twelve thousand. And then you're putting another fifteen hundred to two thousand dollars into it. And it's just like that, that, you know, that's money that you're putting in. Because why? And, and so, you know, we see it's like, are, are, are people going to not buy if you don't fix the scratch? And maybe you might bring in two more people because the price is a little bit different than the one person that's like, I want it to look perfect. So there's so many just different variables. And I do see frequently... um dealers that that there's there's a a pride element in my cars look perfect and and that doesn't put money in the bank No, for those dealers, they would argue, well, it helps me sell a few more customers, you know, that wouldn't buy otherwise. Is that an assumption or is that a, yeah. We had that conversation in the group last night. It's like, obviously you're doing that reconditioning. And we asked the dealer who had done that. They moved to a higher ACV model, you know, as a strategy. And so now they look at the numbers and they get to ask themselves, is that working? Is that strategy working? Is it working? And here's one of the beautiful things about being involved in something like this or being a numbers nerd and doing your own is that you can't change a variable. and have really solid understanding about whether it actually moved the needle unless you're tracking it over six months, twelve months, twenty four months. And then so, you know, it's like because I've I've watched I've watched also dealers that they see something that needs to be improved and they throw everything they can at the thing and then make assumptions about what's working and what's not. So, you know, it's there's there's an awful lot there. Yes. Yeah. So I guess in summary, I would say, you know, you can look at these numbers and say, how could I improve? If I'm a dealer in that group and I look at my own numbers, how could I improve that number? One would be collect better. Convert the portfolio to cash better, right? That would be step one. Anyone in this business, if they can move that needle by two percent, it's like it's a night and day difference to them. So then the other side of this equation, sort of the denominator, if you will, would be... cost of car, got to get my cost of car down. So, you know, what I've spent for the car, what I've spent in reconditioning, it's a total inventory cost. Got to get that number down or get my down payments up because it's really calculating the difference. The risk on the road. The risk on the road at the time of delivery. And so if I can reduce my risk, then now obviously this and I can and without changing my portfolio yield, if I can still get my seventy five percent out of my portfolio in twenty four months. then I'm just getting more cash against the risk that I took so that's back to sort of a an alternate way to look at the risk to reward ratio thing that I talk about it's like the how much reward are we getting against our risk and over what time period so that's why we annualized it is just to say annually it looks like this okay so it's it's pretty deep you know this is going pretty deep in the weeds and like I said a lot of our dealers in fairness they were just kind of um I don't I don't quite get it like I I don't quite and that's okay I want them to be truthful about that and I and we are definitely going Well, and it is one of the things that dealers, knowing these things, knowing them deeply, knowing intimately, knowing your numbers is really, really helpful for you to make choices around where to pivot. if you don't know your numbers intimately, um, then it is that I'm throwing everything at this because I know there's something wrong. I don't know what it is. And it's like the more, the more you understand your numbers and Darla's actually speaking about this at the, at the, um, and I ADA conferences about know your numbers. Um, so she's speaking about that. Jim is also speaking about, about numbers too. It's, it's, Um, we've got two success formulas, one for a quick look at profitability and a quick look at cashflow. Yeah. So, um, you know, please, uh, those of you guys that are on the fence about whether or not you're going to come, there's some going to be some really, really good information from people that, um, either are currently dealers or have been dealers and that really dive into understanding where their numbers are, which is super helpful. Um, I, uh, Well, just a couple of quick calendar items. We got Brent Carmichael coming to join us on May second. That's a Friday. And then on May fifth in Texas, Brent presents the collect the cash, not the car thing. So folks can certainly fly into Texas. That's going to be primarily for dealers in that area. And to George Spatt, I saw your message. Um, and so, yeah, we'll look to see, but also George be watching your email because you're going to be getting an invitation to something today. So, um, we really appreciate you. And for those, everyone that listens, we really appreciate you taking, uh, you know, we know that your, your day is busy. Yeah. So thank you for making it a part of your day. All right, everybody have a great rest of your week. We will see you on Wednesday. All right.
