Porsche: Won't give up gains in used-car market

Porsche dealerships won't give up on selling used vehicles once new inventory rebounds, according to Porsche Board of Regents Chairman Mike Sullivan.

They might pay less for used-vehicle inventory and sell it for less as the market softens, but they won't stop hunting for stock, predicted Sullivan, managing partner of the LAcarGUY group and dealer principal of Porsche South Bay in Hawthorne, Calif. Dealers will try to sell the same number of used vehicles they've grown accustomed to, Sullivan said.

Used-vehicle sales also mean reconditioning as well as customer revenue for a Porsche dealership's service department, he said.

Sullivan, 69, spoke with Staff Reporter John Huetter on Dec. 21. Here are edited excerpts.

Q: How are Porsche dealers handling new-vehicle pricing? Does Porsche take punitive actions on dealerships that charge above manufacturer's suggested retail prices?

A: Porsche wants us to sell for as close to MSRP as possible. That's their official stance, and they're going to reward the dealers somehow for doing so, and that's fair, I get it. That being said, the normalish cars — Cayenne, Macan — they flow through the system and the people that need a payment of $900 versus $1,200, we can do that. Those normal cars are selling in a normal manner.

About half the dealers, on special cars, sell for over MSRP and that's their prerogative. They're going to get very small numbers.

We see it where we'll sell the car at MSRP, and we see it on Bring a Trailer in a week and sell for a hundred grand over. That's probably not fair either. For a speculator to come in and say, "Oh this is my dream car. I'm going to keep this forever," and then we see it on BaT in a week, that rubs also. I think it's worked out pretty well. I'm sure there were some people that were discouraged by it, but, the guy that wants it, we're also buying his previous GT3 for 50 to a hundred grand over what it was worth.

So when a guy comes in like that and has a trade-in, [they say], "OK, pay me too much for mine. OK, I'll pay your price. I want the car, obviously. I can buy it. It's not a dollar and cents issue, it's an ethic issue. But as long as you pay that market value for my trade-in, I'm OK." And that was a big deal. It just took a conversation. The guy that buys that car is an educated guy. He understands the market. He plays the market to some degree. Stocks, real estate. He doesn't trade at yesterday's numbers. He trades today's numbers.

I would say probably half [of dealers] are selling above [sticker], and it creates frustrations for the guys that sell at MSRP, too. They have an order list a mile long. There's a good chance they won't be able to fill it. So they've got to then have that conversation and say, "Yes, I'll take your order. Right now I don't have a slot for you. But I do earn more cars every month, every quarter." That guy might be waiting, I don't know, for a long time.

The reason people are willing to pay more for it is they want into that club. There's no gun to their head. They want a GT3 RS. It's an amazing race car that's street legal. They want one.

How are rising interest rates affecting Porsche's new- and used- vehicle sales?

Last year, if someone [returned a lease], we would pay them a premium for it.

Last year, consumers were telling us, "No. I know you need it. I know the market is inflating. I want X." And that was fair. We just brought it up. When they came in to appraise it, we [said], "You know you've got equity here." And some would say, "No I didn't. I can get a check back?"

So, [market inflation] is coming back down. And so used cars' values are coming back down to more of a normal basis. But it's coming down slowly and gradually. Do interest rates affect all this? Sure. Again, the special cars, that guy writes a check for it, he wants it. He has a big fat trade-in. Not a big deal. Where we have to be careful is on our more bread-and-butter cars. We have to make sure that leases are competitive. And they'll do that. We all know how to do that, how to structure it to where it's — you kind of know what a Cayenne competes against, and it's got to be within a hundred or two hundred dollars of that number. BMW, Mercedes, everybody's got a car that you could buy. You have to want the Porsche. But, interest rates will affect Porsche the least.

Are you seeing demand for those bread-and-butter cars soften because of the interest rate?

No, and we're going to sell out this year again. We've got two weeks to sell out 40 cars or something. We'll go into the new year very, very lean. I actually like to have a few cars in stock. Some of the manufacturers want us to sell to zero. That's not a great model for the consumer. When they come in, it's not good to see no cars or one car. So, to have a few Porsches, 10 or 15 or 18 — that's a healthy number where people can go, "The Sportback is prettier, but it takes a little bit of space." So, a few cars is a healthy place to be.

Are Porsche dealers seeing demand soften in the used-vehicle market?

Oh no, we just have to be a little more careful. There was 15, 18 months where there was hardly any cap on what the car was worth. It was worth what someone would pay for it. So as long as you're in that hot market and turning cars in a 30-, 45-day cycle, you're fine. What happens is when it slows down and you start going to 60 or 90 days — well now I've got a car that I appraised in September. Very different market.

So, a sharp used-car operator has a very quick, short turn and you price to market. If in September it was worth 100 grand and now it's worth 85, hey, that's what it's worth.

Think of all of our online marketing now. Everything is so transparent. You go on looking for a 3-year-old Cayenne, and you can see how many there are in your area, how they're priced, what the miles [are], what the CARFAX is. The homework has gotten so easy for a guest that it's really a good thing for a consumer.

How sustainable is Porsche dealer profitability?

The manufacturing plant thinks like we do. They understand which car is going to sell. So, this is going from the street, me, all the way back to Germany, and, if we do this properly, we can be sold out all the time. But we're getting through this recession not unscathed but pretty much. So, done properly with great communication, there's no reason to change this model.

Porsche wants it to be a little short, we want it a little short. The consumer wants it a little short. They talk like we do. A good guest talks like I do. He starts telling me about the car market, and, so, if it's short for him, that's a really valuable position.

Is more sales training necessary following such a dealer-friendly market?

When we go into electrification, you've got to really be sharp. People don't understand a watt, a volt. I didn't. If you're talking to an experienced Tesla trade-in owner, you can talk to him pretty quickly. You talk to someone new: "Do you have 110 [volts] at home or 220?" They just don't know.

So, training is going to get more intense across the board. OEMs are in various stages of getting ready for this.

Are Porsche dealers dialing back their used-car acquisitions?

If you don't have as many new cars, have to have more used cars. So you can't pull back. Now I have to be really sharp. I've got to understand the market, the auction. I got to study how many lease terminations I have coming back every month. Then I got to get in front of the guest and go, "I'm telling you, I want to buy it." No, you can't dial back [acquiring used vehicles]. You just have to, in an educated manner, dial back both acquisition and retail [price].

Do you see Porsche dealer interest in used vehicles waning as new-vehicle inventory increases?

No. Instead of selling 30 used cars, now I sell 60. I'm not going to want to go backward. [I will] still try to sell 60. This model is a living thing. There'd be absolutely no reason for me to decline in used-car sales in three years.

In a down market, you have to be pretty sharp. So, some guys will pull back just because of that. But the car's going to get sold. Those cars have to be sold. Those trade-ins, those wrecks — those cars are going to get sold.

How is fixed operations at Porsche dealerships?

We're having a big year. Porsche's business is very good. By the time you combine that [higher] volume, this mass used-car market that's very, very volatile; that's all more service business.

We're expanding — this is common; this is not just Mike — we're expanding. We're going to build another service department nearby. We're expanding into a market that I was in originally and vacated. I'm going to go back into that other market, where I was, and make it that much more convenient for those people to not have to drive. We're putting our money [into the project]. With Porsche, you don't just get to open a two-car gas station. Porsche would be very proud, and want it to look like a Porsche store. They have a pretty exciting program where we can expand our service departments. We think [fixed operations is] bigger not smaller.

My used-car manager has a used-car service adviser. That's one channel [for revenue]. And then when he sells it, now you've got a built-in guy that now needs some maintenance.

How is the technician shortage impacting Porsche dealers?

There, we are training. There, we do a massive amount of training. And we really like homegrown.

Is that homegrown strategy pretty common?

I think so. We are always looking for new, young trainees. We buy their tools, we buy the toolbox. That's a constant, constant need.