April 12, 2021 • 36 mins
Some people love car shopping… Others dread it. But like any industry, technological advancements have changed the landscape. When trading in an old vehicle, it used to be hard to really know what a good price might be. But for years now, you could look up comparable cars on the market, controlling for trim level, mileage, condition, and more. Some online services tell you what the dealer’s costs might be for a new car to help you negotiate with more confidence. But many people just don’t like to negotiate, and at the same time they certainly don’t want to feel like they are leaving money on the table. I had a very interesting conversation with Chris Pfaff, the CEO of Pfaff Automotive Partners who operate almost 20 locations in most major cities in Canada, selling a wide variety of cars, from McLaren and Pagani, to Porsche, Toyota, Volkswagen, and more. His company launched what they called The Future Retail Model of buying cars in late 2019. No haggling. Their best price is offered first. Take it or leave it. And it’s been very successful. Chris explains the reason for the new model, whether his competitors like it or not, how his sales team reacted, and provides some thoughtful insights into the world of buying and selling cars.
I need to point out that this interview was originally recorded BEFORE COVID-19, back in January of 2020. I had delayed publishing the podcast as it was originally scheduled for March 2020, but large parts of the country were being locked down at the time. Anything not Coronavirus related was just not on people’s minds. Well, we’re hopefully starting to see light at the end of the tunnel. And perhaps more people will be in the market for a vehicle in the near future, so now seems like a better time to release this episode.
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Chris Pfaff (00:00):
When you say it's a new way, way of selling cars, it
(00:02):
isn't it isn't. It's just we cutout a lot of the time waste
about eventually we have a bestprice and a consumer has the
best price that they're gonnapay. We just shorten that time
and give that to you right away.
Preet Banerjee (00:29):
Some people love car shopping, others dread it.
But like any industry,technological advancements have
changed the landscape. Someonline services tell you what
the dealer's costs might be fora new car to help you negotiate
with more confidence. But manypeople just don't like to
negotiate. And at the same time,they certainly don't want to
(00:52):
feel like they're leaving moneyon the table. At a very
interesting conversation withChris Pfaff, the CEO of faff
automotive partners, his companylaunched what they called the
future retail model of buyingcars in late 2019. No haggling,
their best price is offeredFirst, take it or leave it. And
(01:14):
it's been very successful. Chrisexplains the reasons for the new
model, whether his competitorslike it or not, how his sales
team reacted and provide somethoughtful insights into the
world of buying and sellingcars.
I need to point out that thisinterview was originally
recorded before COVID-19 back inJanuary of 2020. I had delayed
(01:39):
publishing the podcast as it wasoriginally scheduled for March
2020. But large parts of thecountry were being locked down
at the time and anything notCoronavirus related was just not
on people's radar. Well, we'rehopefully starting to see light
at the end of the tunnel. Andperhaps more people will be in
the market for a vehicle in thenear future. So now it seems
(02:00):
like a better time to releasethis episode.
This is mostly money. And I'myour host Preet Banerjee. And on
the show today I have ChrisPfaff who is the president and
CEO of faff automotive partners.
And we're going to talk moreabout buying cars, specifically
(02:21):
about a new model of sellingcars that fap is brought to the
marketplace, how dealershipsmake money, and more. Chris,
welcome to the show.
Chris Pfaff (02:31):
Thank you very much.
Preet Banerjee (02:32):
I'd like to start with you telling the
listeners a little bit aboutPfaff automotive, by way of
background, most of thelisteners know that I'm a
gearhead. And when I see thename fap and I see it all over
the place, especially atracetracks, you sponsor race
cars. You've got a number ofdifferent dealerships, but
(02:53):
perhaps you can tell theuninitiated a little bit about
faff automotive, all thebackground.
Chris Pfaff (03:00):
I was born into the into the business my father had
one store in Newmarket, Ontario,Volkswagen Audi, Porsche, and at
an early age. I always loved towork there as soon as I could
probably around the age of 11 onSaturdays, washing cars. And
because of the brand Porsche Ithink we got involved early on
and go into MMA sport as a kid.
And I remember seeing the I myfirst memories of the iconic
(03:23):
cannamd cars and Roger Penske,his team, and Mark Donahue and
so forth, Jackie Stewart. And itwas just amazing experience. So
very passionate about cars.
That's that's my I'm very, I'm avery simplistic life. It's all
about cars. So it's been veryeasy that we have passion, you
(03:44):
tend to love what you do, andyou have a lot of fun at it.
Preet Banerjee (03:47):
And how many dealerships are in the faff
group, because it's nationwide,like coast to coast. We
Chris Pfaff (03:53):
are primarily Southern Ontario based, but we
are located now in all otherthree other major cities
Calgary, Vancouver and Montreal.
But 18 rooftops. And so thegrowing business for sure.
Preet Banerjee (04:08):
And the Motorsports involvement. Was
that something that started withbecause your father initially
started the business wasn't
Chris Pfaff (04:15):
my father initially started the business back in
1964. Yes. Wow.
Preet Banerjee (04:19):
Wow. Yeah, that's a long time. And then the
Motorsports involvement. Was itfrom the get go? Was it since
you got into it? How did thatall start? It was
Chris Pfaff (04:25):
sort of later 70s when when I think the Volkswagen
Canada group was doing somesponsorship at masport. That's
started light. And then itreally became more involved in
the mid 80s. When Porsche did aone make series in Canada and
Scott Goodyear race for us. Wewon that championship in 1988.
And that's sort of when itstarted. And listen, we've been
(04:46):
out of it for four years inbetween as well. So we did a lot
of it, including myself drivinga bit in the early 90s. In the
Firestone firehawk series, and Ithink from about mid 90s, we got
out of it until early 2000s. Andthen we've been back It in
varying forms ever since andnever more serious in the last
few years in the emsa seriesDaytona 24 hours just got back
(05:06):
from that a few weeks ago. Andwe're looking forward to Sebring
now coming up in March.
Preet Banerjee (05:11):
Well, you know, I love seeing it. I love seeing
the faff name. And I follow alot of the drivers, as well. So
as a gearhead, you know, thankyou so much for the involvement
in motorsports. Now, let's,let's talk about carbon, because
that's the whole reason that I'mhere. So your PR agency reached
out and I never respond to PRagencies. And they reached out
and they said, Hey, our clientis Pfaff automotive, and they
(05:33):
want to talk about this newmodel of selling. And as I said,
normally, I don't respond to PRpitches at all, I just sort of
send them to junk. But what wasinteresting about this one was
the fact name. And also a friendof mine that I went to racing
school with is one of yourgeneral manager, General
Manager. And there you go. SoChris green. And I remember, I
think he had just gotten hisdriver's license when we are at
(05:54):
the racing school, and I was afew years older. And so yeah,
those two things put together Ithought, okay, let's, let's,
let's entertain this thisinterview. And so the pitch was,
you have this new way of sellingcars. And so I want to get into
first, the whole caricature thathas been built up by popular
(06:20):
culture when it comes to carsales, right? Because when you
look in a movie, a book, TVshow, or whatever, they always
refer to the car salesperson assome kind of evil. Never do will
person always trying to takeadvantage of people. Why did
that become a thing? Wherethere's some bad actors long
time ago? were small shops that,you know, do nefarious things?
(06:42):
Why is that that becomes such abad thing where you know that
Chris Pfaff (06:46):
I've been a car salesman all my life, I still
consider myself as a carsalesman, number one, and one of
the least trusted businesses orbusiness professionals that you
can have. So I've been livingwith being painted with that
brush my whole life, right. Soobviously not something that you
like to be painted with. I don'tknow. I mean, I think some of it
(07:06):
the industry, we deserve it, Ithink I think we deserve it. The
great thing is with technology,consumer transparency, the
consumers having control of somuch information is that that
needs to go away now. And Ithink that's exactly what's
happening. So when you say it'sa new way, way of selling cars,
it isn't it isn't. It's just wecut out a lot of the time waste
(07:28):
about eventually we have a bestprice and a consumer has the
best price that they're going topay, we just shorten that time
and give that to you right away.
And that gives you the truly thebest price we want to sell the
car for.
Preet Banerjee (07:39):
So before we get into the specifics of what this
new model is this talk aboutwhat the frustrations are of car
buyers in general. So again,you've been in the business
basically your entire life, whatare the things that people tend
to have hang ups about or thethings that frustrate the most
with the process?
Chris Pfaff (07:58):
two things one is they didn't a lot of people, not
all but a lot of people but 80%don't like to negotiate. They
don't like the process. They'reuncomfortable with that process.
That's number one. Number two,which surprised me a little bit
initially was they didn't likethe time it took to buy a car,
they wanted to do it a lotfaster. So those are the two
main things that they reallydidn't like about the process.
(08:20):
And there was also theunderlying, am I getting the
same deal as the guy next to me?
Right, right, who's doing a dealat the same time. And, and quite
honestly, that was not the casethat there could be variances,
same car, just different pricedifferent consumers. Maybe one
had a better negotiating skill.
And that really isn't right. Sothat's that's what we tried to
(08:41):
get away from.
Preet Banerjee (08:42):
Okay, so let's now talk about what this this
new model is that you'veintroduced, because I saw the
placards everywhere that sort oflisted the bullet points of what
is this this model? So why don'tyou explain in your own words,
what is this model?
Chris Pfaff (08:54):
So what we're trying to say to you is when you
come in we price the cars, wedon't price you the customer, so
all the cars, everyone has thesame price to buy that same car.
And the cars are priced. They'repre discounted based on what our
final best selling prices. So ifwe give you the price, and you
say you're going to go shop andgo elsewhere, we say you know
(09:15):
Godspeed, go do that. Andhopefully, I'm sure you're going
to find that we're verycompetitive because we need to
be to stay in business, right.
So we give you the best price upfront. We don't have any
administration fees. That's beenanother way of building back
profit for dealers over theyears. So we've taken away the
fee so the price we give you isthe true price. We also have a
three day money back guaranteeso you can't make the wrong
(09:37):
purchase. So you can bring backthe car after three days and get
a full refund, not just anexchange. So what if you drive
down to Tijuana and back? Thereis a couple of a limit and a 300
kilometer. We asked you torespect that you might be by 300
kilometers you'll never hearanything right? Right purchase.
Also your trade value becausethere was a Also some misnomer
(09:59):
about the best trade value. Evenif you don't buy from us, we're
still giving you that tradedvalue that we've put on your
car. So you know that we trulyare giving you the right
transparent up front price onyour trade,
Preet Banerjee (10:11):
right? Because that would be a point of
negotiation where you can playwith what the value is of that
trade in, but you're willing tosay no, this is what it is
whether or not you actually sellus your old car.
Chris Pfaff (10:20):
Exactly. And in today's day and age on
consumers, again, they can getfully confident with what their
trades worth with auto trader,the cars are priced actually, as
to competitiveness, so you canreally see what your car is
worth. And makes it easier forthe consumer as well. And quite
frankly, for us to really proveto a consumer, we're giving you
the right price.
Preet Banerjee (10:39):
Now something that you said earlier was that
you price the car, not thecustomer. So this reminds me of
back in a man this would havebeen like 20 years ago, the TV
show The Cosby Show, there'sthis episode where Dr. Huxtable
was going to buy a car. He wastaking his son Theo, and he
said, Nope, we're gonna go tothe dealership, don't dress
nicely, right? Don't let themknow that we're dead. I'm a
(10:59):
physician or whatever. So he'splaying this role going in
trying to look like he's down onhis luck trying to buy this car.
And then one of his patientswalks by in the dealership, he's
like Dr. Huxtable in the carsales like, oh, you're a doctor,
are you? And then that changedthe the nature of that
conversation. So was that usedto be the case where you see
someone walk in you say, Okay,well, this guy looks like they
(11:21):
can afford more. So I don't needto negotiate that hard.
Chris Pfaff (11:24):
I don't know if it was a narrow necessarily based
on that stereotype. In fact, itwas the reverse stereotyping
that we found, when I had peoplecomplained to me was people that
just came into a store dresseddown and the salesman didn't
take them seriously, becausethey weren't dressed down. So
that's sort of the stereotypethat I recall. But you know,
that was 2030 years ago, when Igot in the business. I think
(11:47):
people realize it's a, it's amuch more casual day and age,
you don't get dressed up to goand buy a car, right? So I try
to instill it fast that we takeeverybody seriously. And even
when we have kids coming in,they influenced their parents
decision so much I don't have Ihave two young kids, and they
influenced me a lot. So whenthose those kids come in at
McLaren, and Chris and his teamare very good at that. We're not
(12:09):
even looking for that. So we'relooking for a new fan. And
usually there's good karma thatcomes along with treating
customers that way.
Preet Banerjee (12:17):
Okay, so with this new model, let's break down
a couple of the variables. Soyou mentioned best price first.
So that applies to new and usedcars.
Chris Pfaff (12:25):
Yeah, that's correct.
Preet Banerjee (12:26):
Now, when it comes to new cars, what is how
does it work when you have sortof like the MSRP, versus what
you would actually buy the carfor at a dealership? Where does
the wiggle room come from interms of the the differences in
prices for a brand new car?
Chris Pfaff (12:41):
Yeah, simply supply and demand is one initial one.
But so if you have a car likePorsche GT three that are always
pre sold, it's at lowest price.
But if you have cars that are instock, and there's more supply,
really than demand, and it'schanges, and that's mostly the
case most of the time, so thenit becomes a factor of how long
is the carbon in stock, color,if it's an unpopular color, if
(13:04):
it's an unpopular options, sosometimes with the
manufacturers, we need to takeallocation of vehicles that
aren't really the best selling.
So those cars would immediatelyget discounted more so than a
car that has the most popularoptions. And so those are the
factors that we go into. pricingon new cars uses a different
(13:25):
story. It's very easy, becauseagain, we've got Auto V auto
reports, which is giving youpricing of cars and every
community, how many are on themarket and stuff. So both the
consumers have access to thatinformation. And we as dealers
do. So when we price cars, we'repricing those us cars to the
market price.
Preet Banerjee (13:51):
The conversation with Chris Pfaff from faff auto
comm continues in just a minute.
But first a few thank yous tolisteners who have comments on
Apple podcasts. jld today, thankyou for your kind words. And
Sonia Katherine was a big fan ofthe episode with Melissa Lila,
the author of happy go money,which is episode number 69. If
you haven't listened to italready, if you want to check
(14:14):
that out, we had some fun withwords on that episode. And thank
you to everyone who leavesratings and comments on Apple
podcasts. I appreciate them. AndI do read them all. And now back
to the conversation with Chrisvalve from Bath auto.
(14:40):
And I think it's probably goodto break down and I am not an
expert in this by any means butthe relationship between the
manufacturers and the dealersbecause you know this the the
location we're at here is FAFouttie. But you're not owned by
Audi, right. Audi is themanufacturer. You're the
dealership you have arelationship with that
manufacturer, you With the nameon, on the signs of whatnot. But
(15:04):
do the manufacturers offer somekind of incentives to help move
product? Like how did how doesthat work? They don't just say,
here's the price of the car, goahead and sell them and take a
cut. I know there's
Chris Pfaff (15:15):
a lot of incentives that happen all the time. So
every month there are they'reoffering subvented, financing
subvented lease rates or couldbe cash back. So there's always
usually with most models,there's almost I would say,
80 90% of the time, there'ssomething going on, for sure.
And again, those are fairly easyto see on our websites. So
(15:35):
consumer can see there's 1.9%financing this month on an Audi
a4, for example, they can seeit, and is that that those sort
of like discounted financingrates are those provided by the
manufacturers are they providedby a separate financial
intermediary of themanufacturers who owns those
financial companies. So thesubvention so the manufacturers,
most of them have their owncaptive finance company. So for
(15:57):
example, Audi financial servicesor Volkswagen, financial
services, and, but the payingdown of the rates to get them
below market is actually the carcompanies. So Audi will pay to
Audi financial monies to get therates down below market rate?
Preet Banerjee (16:14):
And are there any dealer groups who have
gotten together and say, let'sset up our own financial
services? And we'll get somekind of subsidization from
manufacturers ourselves? Or arethose financial services owned
by the manufacturer? It's
Chris Pfaff (16:26):
owned by the manufacturers, there are some
some dealer backed financialgroups that do some of that, but
to very little extent.
Preet Banerjee (16:35):
Okay, the next sort of feature in your your new
model is the lack ofnegotiating. And so walk me
through that, are there somepeople who are disappointed by
the fact that there is nonegotiate? Cuz I know that a lot
of Canadians, they tend to notnegotiate very hard compared to
(16:56):
other countries around theworld, but there's some people
who really look forward to it.
So tell me what what has beenthe reception of this idea? Do
people feel like there'ssomething too good to be true
about?
Chris Pfaff (17:07):
So I take exception to the term lack of negotiation?
We have negotiated upfront,we've given you the absolute
best ration to waste your time.
But having said that, you know,again, our studies say there's
about 20% that do like tonegotiate, right? So for sure,
we've had people walk in andthey say, we find you
unflexible, and I don't want todo business with you guys. And
(17:29):
so that so we lose thatbusiness, but we gain a lot
more. That's that sort of thatrelief of breath and go Thank
God, finally, we're into a newage of doing business. So yeah,
we lose some that do you want tonegotiate and want to go go go
hard on the on the deal? Andmaybe that's not for us anymore?
And it's and it's not for themeither. So
Preet Banerjee (17:50):
right? And I guess in the end, because a lot
of people would say, Alright,well, you've done the
negotiation upfront, you'rebuilding a certain profit
margin. But all models only workif everyone kind of wins. And I
get the customer in the long runis not satisfied the model not
working, that model is going tofail. So you need there's
(18:10):
there's a balance for bothsides, where you need something
that's going to work for you andsomething that worked for the
customer. How long is this thismodel been in place?
Chris Pfaff (18:17):
So interesting. So we're, you know, it's pretty new
in Canada, but we're not theonly ones doing it in the
States. This
Preet Banerjee (18:22):
is not new. It's been around for it's
Chris Pfaff (18:24):
been around for years and years. And it
surprised me that we were sayinga lot of the reason for doing
this is because of thetransparency and technology. And
we need to prepare very shortly,probably by the end of the year,
that we'll be able to sell carsonline from start to finish. So
consumer could go online, buythe car, have we would deliver
arrange financing, and we woulddeliver to your house, you never
(18:45):
even have to come into thedealership. And right now
Google's telling us that's abouta take rate of about 15 to 20%.
us. So you need to have oneprice to do that properly,
because there's no negotiatingright on online. So that was one
of the reasons we did it. But Istumbled upon a BMW dealer in
Denver, Colorado that's beendoing this since 1993,
Preet Banerjee (19:08):
Ashley Schaefer, BMW, that's an inside joke if
you have if you don't want touse bounding down.
Chris Pfaff (19:15):
But they've been doing it and I'm almost envious
because because I've been doingthis now. We've been into this
for about 18 months and peopleask me, are you regretting? And
I said, No, I wish I'd done thissooner. And I didn't need to
have technology driving it forus to do it. It was just a it's
I think it's a nicer way ofdoing business. And as I said,
they've been doing it for yearsin a hyper competitive BMW
(19:37):
market in Denver. Very, verysuccessful market share very,
very successful customersatisfaction scores.
Preet Banerjee (19:43):
Okay, you also have eliminated what are called
pre loaded and administrationfee. So what are those or were
those
Chris Pfaff (19:52):
are really just additional profit and may mean
there were there's dock fees andso forth, which are really just
profit. There's also other feesthough, that are Genuine like
there's some Ministry ofTransport fees that are that are
necessary that are still cominginto the equation. But all the
fees that really aren't fullyjustifiable now have just been
(20:12):
removed.
Preet Banerjee (20:13):
So okay, so one of the things that you know,
people always talk about ourPDI, right, product delivery
inspection I think it standsfor, and there would be a charge
of I forget what the joke like500 700 bucks something like
that. What would that havecaught? Would that just have
like a way to seek profit or isthat just, you know, opening up
the truck and make sure that themats are there,
Chris Pfaff (20:32):
no, actually pre delivery inspection or real
fees. So a lot of these carscome a lot of miles away. So the
manufacturers insist that we doanother checkout on the vehicle.
So that can be depending on themodel of car, two to four hours
that you're actually goingthrough the vehicle again, and
also the cars come withshipping, wax, etc, on the
vehicle. So when you'redetailing the car, there's quite
an involvement in taking off theprotective materials, and
(20:54):
getting the car ready fordelivery. So two to four hours.
What does that that entail, likeother than what you wants a full
inspection of all the functionsof the car, sometimes it's
removing shipping blocks thatraise the height of the car, so
they don't get damaged. So youdo stuff like that. There's lots
of different things, again,depending on the model of the
car,
Preet Banerjee (21:13):
okay. Next, we have the written offer to buy
used cars. So as you indicatedbefore you will provide to
someone if they have a potentialtrade in vehicle, you'll put in
writing, this is what we wouldpay you for that car or discount
the price of the car that you'reabout to buy. And I think the
perception was that there wasroom to play there. So if
(21:36):
someone said, Well, this is whatit would be worth, they could
play with that number to make itlook like a better deal on the
on the car that they're selling.
But you don't require that theyactually sell you the car. Is
that correct? Great. All right.
And was that the whole impetusbehind that? Like, what, what is
unique about this? Well, what
Chris Pfaff (21:55):
we're always saying is that a lot of times in
historical sales, they willinstead of giving you a discount
a cash discount, they'll giveyou less discount, but they'll
give you more money on yourtrade. So they'll just pay one
pocket to the other, right? Sowe're just saying here's the
best price on the new car,whether or not you trade your
car in and then on your usedcar, whether or not you buy from
(22:17):
us we're going to give you thesame money. So you know if we're
going to end up not selling yousomething but buying the car, we
need to be giving you the fairmarket value.
Preet Banerjee (22:25):
Right. So that definitely sounds more
transparent.
Chris Pfaff (22:27):
never been a better time to buy a used car for a
consumer and we're really seeingsuch a growth in the business
not just because of the normalmarketplace. But because of
consumer laws are so much lawprotecting consumers when
they're buying a used car toknow the history. And also the
pricing is so transparent tothem. So I'm convinced we're
getting people that made me inthe past wouldn't buy a used car
(22:48):
because they were worried aboutpaying too much or worried about
the history or now buyingpremium cars.
Preet Banerjee (22:53):
Yeah, wasn't their thing. And none of this is
Ontario specific or Quebecspecific. But if he picked up
you know, you go to a smallerused car lot a car that was
previously registered in Quebec,if it was totaled, it was hard
to actually track that damage,right? Absolutely. Is that gone
now? Okay, so
Chris Pfaff (23:10):
Canada wide, even the US have a flood damage cars,
we've had cars come up from thestates that were imported with
flood damage. You can nowbasically North America get
history in the cars. So okay, so
Preet Banerjee (23:21):
this is a big operation, as you said, 18, roof
tops New And Used sales. But forsort of like the individual lots
where I would imagine, you know,we have a fly by night
operation. Maybe they're notaround for a long time. And
that's where these sorts ofnefarious things would pop up.
What kind of car buyer do toprotect themselves? Like, is
(23:41):
there some kind of associationthat a dealership has to
register with to say, Oh, yeah,we follow these standards. What
would you suggest?
Chris Pfaff (23:49):
Well on vixia, Ontario motor vehicle, governing
body, which is authorized by theprovincial government, and the
dealer is actually selfregulated, but there's a lot of
stringent encumbrances put uponthem to make sure that they're
transparent with consumers. Sothat's the body you can go to if
you ever have an issue, buying anew or used vehicle, and they
(24:13):
will protect you for sure.
Preet Banerjee (24:15):
We talked about the money back guarantee and
exchange guarantee. Sobasically, you got three days
and up to 300 kilometers. And soif you change your mind, you can
just bring it back no questionsasked.
Chris Pfaff (24:24):
Because there's some exceptions to that. And the
only exception is is veryspecifically specially ordered
vehicle, like a McLaren 650 SYes. in purple with a pink
interior Ray, that we reallycouldn't take back. So there's
stuff like that exception, butby and large, yeah, most cars,
it's not a problem.
Preet Banerjee (24:40):
What is the most expensive vehicle you've ever
sold? Because you've sold a lotof cars. Yeah, I mean, and you
you carry a wide range, right?
Chris Pfaff (24:50):
I'd say just under $2 million US dollars we've
sold. Actually, I shouldn't saythat. We've actually got
polygons that are a little bitmore than that. So So we've had
a few of them. I don't knowDoesn't have 15 of them in the
last couple of years that havebeen over a million dollars.
Now,
Preet Banerjee (25:06):
let's talk about compensation of salespeople. So
the old model, I would haveassumed that there was some some
commission, which would bepartly based on how well you
could, you know, negotiate withthe customer. So, for the
salespeople who are now, youknow, the negotiation is done
upfront, and you've got yourbest price first, how does that
(25:28):
change their compensation?
Chris Pfaff (25:30):
Well, they're no longer on commission. So on the
gross profit of the deal, wejust pay them on a percentage of
the selling price of the car. Sonow, the differences I don't
care really what car I saw you,I really want to say what cars
best. So for example,demonstrators, there wouldn't be
a lot of commission in thatbecause the cars are discounted
in US demonstrators. So theywould typically want to walk you
(25:51):
to a new car where I could makemore money, right? But maybe the
demo was exactly what would workfor you. And you were happy to
take the discount with somemiles on it. So now, there's
zero impetus for the salesman towant to do that. So they really
are going to get you the bestcar for what you're looking for.
Preet Banerjee (26:08):
So with 18 different dealerships, you've
got a lot of salespeople, andyou've probably got some hot
shots, and then you know, themassive middle, I'm assuming
they're probably okay with thatchange. But what about the ones
who are like, you know, making alot of money because they knew
exactly like, they're just, youknow, they're selling all day
long, and they knew where theywere gonna get their commission
(26:29):
from, do risk losing those salespeople,
Chris Pfaff (26:32):
there's a lot of risk. And we've actually lost
some some of our good people,but a lot less than what we
expected. The good ones, theyhad the easiest, because they
really, they've got such greatcustomer relations and a lot of
repeat business, there's alreadythat trust in place. So they
were sort of working this modelanyways. It was I would say it
(26:52):
was some of the middle ofsalespeople, the ones that sold
strictly based on price thatreally had the hardest time
because they felt they neededto, to only sell to you based on
what price they could offer you.
And those are the ones that haveeither had to transform and
realize selling is not onlyabout price, selling a car is
about a lot of different thingsfor different people. So either
some of those have left forsure, or some have actually
(27:14):
changed their styles. And themost interesting thing was the
young ones. They are the newersalespeople that a lot of the
millennials, young millennialsdon't like to negotiate. So they
would struggle for six monthstill we train them on how to
negotiate. Now there's nonegotiation and they start
selling 1520 cars a month rightout of the gates, we've seen a
(27:35):
lot of great success with that.
Preet Banerjee (27:37):
That's interesting. Now, there are
associations for dealers. Sowe've got Canada, the Canadian
Automobile Dealers Association.
So when you show up to thesemeetings Now, with this new
model, you have all the otherdealer saying, Chris, what are
you doing? Why can't you just gowith the status quo? Why? Why
are you trying to make us lookbad, like what what's been the
reaction with with otherdealers.
Chris Pfaff (27:59):
So it's funny that it's actually very muted. Oh,
really, in a lot of them face toface. But I am hearing a lot of
background noise and a fewpeople that are closer to me
will tell them so that theindustry is watching and stuff.
So they're watching us closely,some of them have been critical.
It's not working for us andobserving from the bleachers.
But I can tell you, as I saidearlier, the one big thing I
(28:21):
would say I wish I'd done itsooner. I think we've had a lot
of bumps on the road this yearwith execution and how we did
it, we could have done itbetter. But it's been good. And
I quite frankly think it'sinevitable. Nada in the US the
Dealers Association down there,predicted about six months ago
that by 2025. It'll be like thismodel will be normal.
(28:44):
Interesting. Yeah. 100%. Sothat's what they're saying. And
I tend to believe it. So.
Preet Banerjee (28:49):
And I want to actually ask you as well about
some of the trends that we'reseeing in automotive sales and
financing. So, you know,hindsight, obviously, is 2020.
foresight is anything but but Ithink it's fairly safe to say
that we're probably closer tothe end of a credit supercycle
(29:11):
than we are to the beginning.
And we've seen the rise of theso called Super amortized car
loans. You know, back when Iwas, you know, 16 and thinking
about buying cars for the firsttime. It was like a four year
auto loan was pretty standardfive years like whew, that's
long to today. I think theaverage is like seven years for
new car financing. A friend ofmine recently was tweeting about
(29:34):
being at a boat show and theyhave financing on boats that
were like 240 months 20 yearfinancing on a boat, which to my
knowledge is a depreciatingasset. So what are the trends
that you've seen? Is that thatsort of in line with what you're
seeing at your dealerships anddo you see that as a problem?
Chris Pfaff (30:00):
couple of thoughts on that. One is is cars are
better today than ever, and theywill last longer. So if you do
typically stretch out of financenot such a bad thing for
consumer, but for us, I don'tagree with it, we'd like to see
people coming back into themarket more frequently, when we
haven't really seen especiallyat the luxury end, we haven't
(30:20):
really seen a lengthening of thethe terms of the loans. A lot of
our luxury businesses lease. Andthe term still an average is 42
months. And it's been like thatfor a long time now 10 years
plus. So some of the financingsgot a little bit longer, but
again, not we've seen thisalready 15 years ago where guys
were testing it. Some of the themore volume oriented mainline
(30:43):
brands do do it more. But Iwould say no, with even some of
our mainline like Toyota,Volkswagen, it hasn't been
prevalent.
Preet Banerjee (30:51):
The subscription pricing that we've seen some
manufacturers toy width is isthis something that you see
becoming more prevalent? Andwhat impact does that have on
dealers? Because they it soundslike the they're kind of going
around you guys?
Chris Pfaff (31:08):
Well, no, were they, they actually need us to
help assist in executing on it.
We've just piloted now withPorsche for the first time in
Canada, they've been doing itthe US for a couple years. We
just started it. So it's toosoon to tell. In terms of a
model that works for consumers,I don't know how many are going
to find benefit from it. What itis good is that we're finding
that we're getting consumersthat maybe didn't consider that
(31:29):
product before. And were able toeventually convert them into
permanent vehicles. So I don'tknow yet which way this is gonna
go. It's interesting. And I'mglad that we're in a test model
with Porsche on that. But I'mnot so I'm not so certain
there's been a lot of startupsthat have not continued on. So a
lot of this shared drivingservices and so forth, it's
(31:50):
still a really unknown space.
Preet Banerjee (31:53):
And maybe, and sorry, maybe we should break
down with the subscription modelis so my understanding is very
cursory is that essentially youpay an ongoing subscription fee.
But you also have the ability tochange vehicles more often. So
it sounds like a version ofleasing with a bit more
flexibility that you pay apremium for is that basically
(32:13):
what it is,
Chris Pfaff (32:14):
yeah, so you're getting the car all in, you're
not having to pay anymaintenance, you're not having
to pay for insurance. So you'rejust getting one car insurance
to covers insurance to you haveto qualify, right? Yeah. For the
insurance. But yeah, and thenthere's you can switch cars, and
again, varies by time by by thesubscription service, but some
of them you can switch everyweek. And for a guy that's in
(32:36):
and out of cars all the time,that's a pain, I can tell you
know, it's nice to drivedifferent models all the time.
But those cars like and some ofthem you change once a month, or
once every three months. So youcould have a sports car in the
summer and switch to an SUV inthe winter and back again.
Preet Banerjee (32:50):
My last question is about the next generations of
car buyers? Do they look fordifferent things than say my
generation would have? Or theyfocus more on the tech than they
are? what's under the hood?
Chris Pfaff (33:06):
You know, I don't know how to answer that
question. I don't I don't Ihaven't seen any distinct
patterns there know, for sure. Imean, I've younger you get the
easier it is to, you'll see thatyou see consumers using all the
features that are in the cars,right. So you'll see a lot more
of that. But in terms ofdemanding, yeah, they are
looking at that you make sureyour technology is competitive
(33:27):
with other brands, but most ofthem are most of them have Apple
CarPlay, etc. So I see moreusage, but I don't necessarily
see that they're focusing moreon it.
Preet Banerjee (33:38):
What about things like, you know, mileage,
with people becoming more andmore environmentally
environmentally? conscientious?
are they paying more attentionto that? Is it basically the
same? Like do you notice anychanging like drastically
changing tastes? Or is it just amatter of, you know, that gets
reflected in what themanufacturers put out? Because
they respond to Oh, no, we're,
Chris Pfaff (33:59):
you know, we live we live by the consumer, not
what the manufacturer puts out,for sure, especially today.
Tesla is such an interestingstory because I predicted their
demise 18 months ago, I was youknow, I'm here to say I was very
wrong. You know, NBC last lastyear, they outsold every other
luxury brand in BritishColumbia. Part of that is due to
(34:20):
tax subsidization. But Butstill, nevertheless, a good
Feat. And so, electrification,there are consumers that want
it. We're getting into it nowwith Porsche and Audi in a big
way, and a lot of themanufacturers will follow suit
very shortly. So it's going tobe interesting to see. But there
are certain consumers that wantan environmentally friendly
corner are demanding that forsure.
Preet Banerjee (34:43):
every guest on the podcast gets commercial at
the end of the podcast. Soyou've got a minute, two
minutes, you can say whateveryou want, you can sell whatever
you want. tell people where tofind you. The floor is yours.
Chris Pfaff (34:55):
I don't know what to say that's that's hard to
say. Listen, I can tell you atfive auto. We do it appreciate
when consumers do business withus. And I can tell you, we're
not perfect. We do makemistakes. But I can tell you
that we do care when we do makemistakes, and we're always
trying to get better. So that'ssort of what we're all about. I
always tell our team that wewant to we want to win. We want
to be good at what we do, andthat we also want to have fun
(35:17):
with it. So I appreciate theopportunity to be on the show
today.
Preet Banerjee (35:21):
No, it It's my pleasure. And I'll just point
out that spelling of faff ifyou're looking it up is p F, A f
Chris Pfaff (35:28):
f, you got it back.
Alright, so photo Comm.
Preet Banerjee (35:32):
There you go.
Perfect. Chris, thank you somuch for being guests on the
show.
Chris Pfaff (35:34):
Thank you very much.
Preet Banerjee (35:46):
If you want more personal finance content, or you
have questions for me or topicsuggestions for the podcast, you
can follow me on Twitter orInstagram, same handle in both
cases at Preet Banerjee, I alsohave two YouTube channels, you
can subscribe to my mainchannel, which covers personal
finance and investing topicsthat are global in scope, and a
(36:09):
Canadian specific channel aswell. That's it for this
episode. Thanks for listening.
When you say it's a new way, way of selling cars, it
(00:02):
isn't it isn't. It's just we cutout a lot of the time waste
about eventually we have a bestprice and a consumer has the
best price that they're gonnapay. We just shorten that time
and give that to you right away.
Preet Banerjee (00:29):
Some people love car shopping, others dread it.
But like any industry,technological advancements have
changed the landscape. Someonline services tell you what
the dealer's costs might be fora new car to help you negotiate
with more confidence. But manypeople just don't like to
negotiate. And at the same time,they certainly don't want to
(00:52):
feel like they're leaving moneyon the table. At a very
interesting conversation withChris Pfaff, the CEO of faff
automotive partners, his companylaunched what they called the
future retail model of buyingcars in late 2019. No haggling,
their best price is offeredFirst, take it or leave it. And
(01:14):
it's been very successful. Chrisexplains the reasons for the new
model, whether his competitorslike it or not, how his sales
team reacted and provide somethoughtful insights into the
world of buying and sellingcars.
I need to point out that thisinterview was originally
recorded before COVID-19 back inJanuary of 2020. I had delayed
(01:39):
publishing the podcast as it wasoriginally scheduled for March
2020. But large parts of thecountry were being locked down
at the time and anything notCoronavirus related was just not
on people's radar. Well, we'rehopefully starting to see light
at the end of the tunnel. Andperhaps more people will be in
the market for a vehicle in thenear future. So now it seems
(02:00):
like a better time to releasethis episode.
This is mostly money. And I'myour host Preet Banerjee. And on
the show today I have ChrisPfaff who is the president and
CEO of faff automotive partners.
And we're going to talk moreabout buying cars, specifically
(02:21):
about a new model of sellingcars that fap is brought to the
marketplace, how dealershipsmake money, and more. Chris,
welcome to the show.
Chris Pfaff (02:31):
Thank you very much.
Preet Banerjee (02:32):
I'd like to start with you telling the
listeners a little bit aboutPfaff automotive, by way of
background, most of thelisteners know that I'm a
gearhead. And when I see thename fap and I see it all over
the place, especially atracetracks, you sponsor race
cars. You've got a number ofdifferent dealerships, but
(02:53):
perhaps you can tell theuninitiated a little bit about
faff automotive, all thebackground.
Chris Pfaff (03:00):
I was born into the into the business my father had
one store in Newmarket, Ontario,Volkswagen Audi, Porsche, and at
an early age. I always loved towork there as soon as I could
probably around the age of 11 onSaturdays, washing cars. And
because of the brand Porsche Ithink we got involved early on
and go into MMA sport as a kid.
And I remember seeing the I myfirst memories of the iconic
(03:23):
cannamd cars and Roger Penske,his team, and Mark Donahue and
so forth, Jackie Stewart. And itwas just amazing experience. So
very passionate about cars.
That's that's my I'm very, I'm avery simplistic life. It's all
about cars. So it's been veryeasy that we have passion, you
(03:44):
tend to love what you do, andyou have a lot of fun at it.
Preet Banerjee (03:47):
And how many dealerships are in the faff
group, because it's nationwide,like coast to coast. We
Chris Pfaff (03:53):
are primarily Southern Ontario based, but we
are located now in all otherthree other major cities
Calgary, Vancouver and Montreal.
But 18 rooftops. And so thegrowing business for sure.
Preet Banerjee (04:08):
And the Motorsports involvement. Was
that something that started withbecause your father initially
started the business wasn't
Chris Pfaff (04:15):
my father initially started the business back in
1964. Yes. Wow.
Preet Banerjee (04:19):
Wow. Yeah, that's a long time. And then the
Motorsports involvement. Was itfrom the get go? Was it since
you got into it? How did thatall start? It was
Chris Pfaff (04:25):
sort of later 70s when when I think the Volkswagen
Canada group was doing somesponsorship at masport. That's
started light. And then itreally became more involved in
the mid 80s. When Porsche did aone make series in Canada and
Scott Goodyear race for us. Wewon that championship in 1988.
And that's sort of when itstarted. And listen, we've been
(04:46):
out of it for four years inbetween as well. So we did a lot
of it, including myself drivinga bit in the early 90s. In the
Firestone firehawk series, and Ithink from about mid 90s, we got
out of it until early 2000s. Andthen we've been back It in
varying forms ever since andnever more serious in the last
few years in the emsa seriesDaytona 24 hours just got back
(05:06):
from that a few weeks ago. Andwe're looking forward to Sebring
now coming up in March.
Preet Banerjee (05:11):
Well, you know, I love seeing it. I love seeing
the faff name. And I follow alot of the drivers, as well. So
as a gearhead, you know, thankyou so much for the involvement
in motorsports. Now, let's,let's talk about carbon, because
that's the whole reason that I'mhere. So your PR agency reached
out and I never respond to PRagencies. And they reached out
and they said, Hey, our clientis Pfaff automotive, and they
(05:33):
want to talk about this newmodel of selling. And as I said,
normally, I don't respond to PRpitches at all, I just sort of
send them to junk. But what wasinteresting about this one was
the fact name. And also a friendof mine that I went to racing
school with is one of yourgeneral manager, General
Manager. And there you go. SoChris green. And I remember, I
think he had just gotten hisdriver's license when we are at
(05:54):
the racing school, and I was afew years older. And so yeah,
those two things put together Ithought, okay, let's, let's,
let's entertain this thisinterview. And so the pitch was,
you have this new way of sellingcars. And so I want to get into
first, the whole caricature thathas been built up by popular
(06:20):
culture when it comes to carsales, right? Because when you
look in a movie, a book, TVshow, or whatever, they always
refer to the car salesperson assome kind of evil. Never do will
person always trying to takeadvantage of people. Why did
that become a thing? Wherethere's some bad actors long
time ago? were small shops that,you know, do nefarious things?
(06:42):
Why is that that becomes such abad thing where you know that
Chris Pfaff (06:46):
I've been a car salesman all my life, I still
consider myself as a carsalesman, number one, and one of
the least trusted businesses orbusiness professionals that you
can have. So I've been livingwith being painted with that
brush my whole life, right. Soobviously not something that you
like to be painted with. I don'tknow. I mean, I think some of it
(07:06):
the industry, we deserve it, Ithink I think we deserve it. The
great thing is with technology,consumer transparency, the
consumers having control of somuch information is that that
needs to go away now. And Ithink that's exactly what's
happening. So when you say it'sa new way, way of selling cars,
it isn't it isn't. It's just wecut out a lot of the time waste
(07:28):
about eventually we have a bestprice and a consumer has the
best price that they're going topay, we just shorten that time
and give that to you right away.
And that gives you the truly thebest price we want to sell the
car for.
Preet Banerjee (07:39):
So before we get into the specifics of what this
new model is this talk aboutwhat the frustrations are of car
buyers in general. So again,you've been in the business
basically your entire life, whatare the things that people tend
to have hang ups about or thethings that frustrate the most
with the process?
Chris Pfaff (07:58):
two things one is they didn't a lot of people, not
all but a lot of people but 80%don't like to negotiate. They
don't like the process. They'reuncomfortable with that process.
That's number one. Number two,which surprised me a little bit
initially was they didn't likethe time it took to buy a car,
they wanted to do it a lotfaster. So those are the two
main things that they reallydidn't like about the process.
(08:20):
And there was also theunderlying, am I getting the
same deal as the guy next to me?
Right, right, who's doing a dealat the same time. And, and quite
honestly, that was not the casethat there could be variances,
same car, just different pricedifferent consumers. Maybe one
had a better negotiating skill.
And that really isn't right. Sothat's that's what we tried to
(08:41):
get away from.
Preet Banerjee (08:42):
Okay, so let's now talk about what this this
new model is that you'veintroduced, because I saw the
placards everywhere that sort oflisted the bullet points of what
is this this model? So why don'tyou explain in your own words,
what is this model?
Chris Pfaff (08:54):
So what we're trying to say to you is when you
come in we price the cars, wedon't price you the customer, so
all the cars, everyone has thesame price to buy that same car.
And the cars are priced. They'repre discounted based on what our
final best selling prices. So ifwe give you the price, and you
say you're going to go shop andgo elsewhere, we say you know
(09:15):
Godspeed, go do that. Andhopefully, I'm sure you're going
to find that we're verycompetitive because we need to
be to stay in business, right.
So we give you the best price upfront. We don't have any
administration fees. That's beenanother way of building back
profit for dealers over theyears. So we've taken away the
fee so the price we give you isthe true price. We also have a
three day money back guaranteeso you can't make the wrong
(09:37):
purchase. So you can bring backthe car after three days and get
a full refund, not just anexchange. So what if you drive
down to Tijuana and back? Thereis a couple of a limit and a 300
kilometer. We asked you torespect that you might be by 300
kilometers you'll never hearanything right? Right purchase.
Also your trade value becausethere was a Also some misnomer
(09:59):
about the best trade value. Evenif you don't buy from us, we're
still giving you that tradedvalue that we've put on your
car. So you know that we trulyare giving you the right
transparent up front price onyour trade,
Preet Banerjee (10:11):
right? Because that would be a point of
negotiation where you can playwith what the value is of that
trade in, but you're willing tosay no, this is what it is
whether or not you actually sellus your old car.
Chris Pfaff (10:20):
Exactly. And in today's day and age on
consumers, again, they can getfully confident with what their
trades worth with auto trader,the cars are priced actually, as
to competitiveness, so you canreally see what your car is
worth. And makes it easier forthe consumer as well. And quite
frankly, for us to really proveto a consumer, we're giving you
the right price.
Preet Banerjee (10:39):
Now something that you said earlier was that
you price the car, not thecustomer. So this reminds me of
back in a man this would havebeen like 20 years ago, the TV
show The Cosby Show, there'sthis episode where Dr. Huxtable
was going to buy a car. He wastaking his son Theo, and he
said, Nope, we're gonna go tothe dealership, don't dress
nicely, right? Don't let themknow that we're dead. I'm a
(10:59):
physician or whatever. So he'splaying this role going in
trying to look like he's down onhis luck trying to buy this car.
And then one of his patientswalks by in the dealership, he's
like Dr. Huxtable in the carsales like, oh, you're a doctor,
are you? And then that changedthe the nature of that
conversation. So was that usedto be the case where you see
someone walk in you say, Okay,well, this guy looks like they
(11:21):
can afford more. So I don't needto negotiate that hard.
Chris Pfaff (11:24):
I don't know if it was a narrow necessarily based
on that stereotype. In fact, itwas the reverse stereotyping
that we found, when I had peoplecomplained to me was people that
just came into a store dresseddown and the salesman didn't
take them seriously, becausethey weren't dressed down. So
that's sort of the stereotypethat I recall. But you know,
that was 2030 years ago, when Igot in the business. I think
(11:47):
people realize it's a, it's amuch more casual day and age,
you don't get dressed up to goand buy a car, right? So I try
to instill it fast that we takeeverybody seriously. And even
when we have kids coming in,they influenced their parents
decision so much I don't have Ihave two young kids, and they
influenced me a lot. So whenthose those kids come in at
McLaren, and Chris and his teamare very good at that. We're not
(12:09):
even looking for that. So we'relooking for a new fan. And
usually there's good karma thatcomes along with treating
customers that way.
Preet Banerjee (12:17):
Okay, so with this new model, let's break down
a couple of the variables. Soyou mentioned best price first.
So that applies to new and usedcars.
Chris Pfaff (12:25):
Yeah, that's correct.
Preet Banerjee (12:26):
Now, when it comes to new cars, what is how
does it work when you have sortof like the MSRP, versus what
you would actually buy the carfor at a dealership? Where does
the wiggle room come from interms of the the differences in
prices for a brand new car?
Chris Pfaff (12:41):
Yeah, simply supply and demand is one initial one.
But so if you have a car likePorsche GT three that are always
pre sold, it's at lowest price.
But if you have cars that are instock, and there's more supply,
really than demand, and it'schanges, and that's mostly the
case most of the time, so thenit becomes a factor of how long
is the carbon in stock, color,if it's an unpopular color, if
(13:04):
it's an unpopular options, sosometimes with the
manufacturers, we need to takeallocation of vehicles that
aren't really the best selling.
So those cars would immediatelyget discounted more so than a
car that has the most popularoptions. And so those are the
factors that we go into. pricingon new cars uses a different
(13:25):
story. It's very easy, becauseagain, we've got Auto V auto
reports, which is giving youpricing of cars and every
community, how many are on themarket and stuff. So both the
consumers have access to thatinformation. And we as dealers
do. So when we price cars, we'repricing those us cars to the
market price.
Preet Banerjee (13:51):
The conversation with Chris Pfaff from faff auto
comm continues in just a minute.
But first a few thank yous tolisteners who have comments on
Apple podcasts. jld today, thankyou for your kind words. And
Sonia Katherine was a big fan ofthe episode with Melissa Lila,
the author of happy go money,which is episode number 69. If
you haven't listened to italready, if you want to check
(14:14):
that out, we had some fun withwords on that episode. And thank
you to everyone who leavesratings and comments on Apple
podcasts. I appreciate them. AndI do read them all. And now back
to the conversation with Chrisvalve from Bath auto.
(14:40):
And I think it's probably goodto break down and I am not an
expert in this by any means butthe relationship between the
manufacturers and the dealersbecause you know this the the
location we're at here is FAFouttie. But you're not owned by
Audi, right. Audi is themanufacturer. You're the
dealership you have arelationship with that
manufacturer, you With the nameon, on the signs of whatnot. But
(15:04):
do the manufacturers offer somekind of incentives to help move
product? Like how did how doesthat work? They don't just say,
here's the price of the car, goahead and sell them and take a
cut. I know there's
Chris Pfaff (15:15):
a lot of incentives that happen all the time. So
every month there are they'reoffering subvented, financing
subvented lease rates or couldbe cash back. So there's always
usually with most models,there's almost I would say,
80 90% of the time, there'ssomething going on, for sure.
And again, those are fairly easyto see on our websites. So
(15:35):
consumer can see there's 1.9%financing this month on an Audi
a4, for example, they can seeit, and is that that those sort
of like discounted financingrates are those provided by the
manufacturers are they providedby a separate financial
intermediary of themanufacturers who owns those
financial companies. So thesubvention so the manufacturers,
most of them have their owncaptive finance company. So for
(15:57):
example, Audi financial servicesor Volkswagen, financial
services, and, but the payingdown of the rates to get them
below market is actually the carcompanies. So Audi will pay to
Audi financial monies to get therates down below market rate?
Preet Banerjee (16:14):
And are there any dealer groups who have
gotten together and say, let'sset up our own financial
services? And we'll get somekind of subsidization from
manufacturers ourselves? Or arethose financial services owned
by the manufacturer? It's
Chris Pfaff (16:26):
owned by the manufacturers, there are some
some dealer backed financialgroups that do some of that, but
to very little extent.
Preet Banerjee (16:35):
Okay, the next sort of feature in your your new
model is the lack ofnegotiating. And so walk me
through that, are there somepeople who are disappointed by
the fact that there is nonegotiate? Cuz I know that a lot
of Canadians, they tend to notnegotiate very hard compared to
(16:56):
other countries around theworld, but there's some people
who really look forward to it.
So tell me what what has beenthe reception of this idea? Do
people feel like there'ssomething too good to be true
about?
Chris Pfaff (17:07):
So I take exception to the term lack of negotiation?
We have negotiated upfront,we've given you the absolute
best ration to waste your time.
But having said that, you know,again, our studies say there's
about 20% that do like tonegotiate, right? So for sure,
we've had people walk in andthey say, we find you
unflexible, and I don't want todo business with you guys. And
(17:29):
so that so we lose thatbusiness, but we gain a lot
more. That's that sort of thatrelief of breath and go Thank
God, finally, we're into a newage of doing business. So yeah,
we lose some that do you want tonegotiate and want to go go go
hard on the on the deal? Andmaybe that's not for us anymore?
And it's and it's not for themeither. So
Preet Banerjee (17:50):
right? And I guess in the end, because a lot
of people would say, Alright,well, you've done the
negotiation upfront, you'rebuilding a certain profit
margin. But all models only workif everyone kind of wins. And I
get the customer in the long runis not satisfied the model not
working, that model is going tofail. So you need there's
(18:10):
there's a balance for bothsides, where you need something
that's going to work for you andsomething that worked for the
customer. How long is this thismodel been in place?
Chris Pfaff (18:17):
So interesting. So we're, you know, it's pretty new
in Canada, but we're not theonly ones doing it in the
States. This
Preet Banerjee (18:22):
is not new. It's been around for it's
Chris Pfaff (18:24):
been around for years and years. And it
surprised me that we were sayinga lot of the reason for doing
this is because of thetransparency and technology. And
we need to prepare very shortly,probably by the end of the year,
that we'll be able to sell carsonline from start to finish. So
consumer could go online, buythe car, have we would deliver
arrange financing, and we woulddeliver to your house, you never
(18:45):
even have to come into thedealership. And right now
Google's telling us that's abouta take rate of about 15 to 20%.
us. So you need to have oneprice to do that properly,
because there's no negotiatingright on online. So that was one
of the reasons we did it. But Istumbled upon a BMW dealer in
Denver, Colorado that's beendoing this since 1993,
Preet Banerjee (19:08):
Ashley Schaefer, BMW, that's an inside joke if
you have if you don't want touse bounding down.
Chris Pfaff (19:15):
But they've been doing it and I'm almost envious
because because I've been doingthis now. We've been into this
for about 18 months and peopleask me, are you regretting? And
I said, No, I wish I'd done thissooner. And I didn't need to
have technology driving it forus to do it. It was just a it's
I think it's a nicer way ofdoing business. And as I said,
they've been doing it for yearsin a hyper competitive BMW
(19:37):
market in Denver. Very, verysuccessful market share very,
very successful customersatisfaction scores.
Preet Banerjee (19:43):
Okay, you also have eliminated what are called
pre loaded and administrationfee. So what are those or were
those
Chris Pfaff (19:52):
are really just additional profit and may mean
there were there's dock fees andso forth, which are really just
profit. There's also other feesthough, that are Genuine like
there's some Ministry ofTransport fees that are that are
necessary that are still cominginto the equation. But all the
fees that really aren't fullyjustifiable now have just been
(20:12):
removed.
Preet Banerjee (20:13):
So okay, so one of the things that you know,
people always talk about ourPDI, right, product delivery
inspection I think it standsfor, and there would be a charge
of I forget what the joke like500 700 bucks something like
that. What would that havecaught? Would that just have
like a way to seek profit or isthat just, you know, opening up
the truck and make sure that themats are there,
Chris Pfaff (20:32):
no, actually pre delivery inspection or real
fees. So a lot of these carscome a lot of miles away. So the
manufacturers insist that we doanother checkout on the vehicle.
So that can be depending on themodel of car, two to four hours
that you're actually goingthrough the vehicle again, and
also the cars come withshipping, wax, etc, on the
vehicle. So when you'redetailing the car, there's quite
an involvement in taking off theprotective materials, and
(20:54):
getting the car ready fordelivery. So two to four hours.
What does that that entail, likeother than what you wants a full
inspection of all the functionsof the car, sometimes it's
removing shipping blocks thatraise the height of the car, so
they don't get damaged. So youdo stuff like that. There's lots
of different things, again,depending on the model of the
car,
Preet Banerjee (21:13):
okay. Next, we have the written offer to buy
used cars. So as you indicatedbefore you will provide to
someone if they have a potentialtrade in vehicle, you'll put in
writing, this is what we wouldpay you for that car or discount
the price of the car that you'reabout to buy. And I think the
perception was that there wasroom to play there. So if
(21:36):
someone said, Well, this is whatit would be worth, they could
play with that number to make itlook like a better deal on the
on the car that they're selling.
But you don't require that theyactually sell you the car. Is
that correct? Great. All right.
And was that the whole impetusbehind that? Like, what, what is
unique about this? Well, what
Chris Pfaff (21:55):
we're always saying is that a lot of times in
historical sales, they willinstead of giving you a discount
a cash discount, they'll giveyou less discount, but they'll
give you more money on yourtrade. So they'll just pay one
pocket to the other, right? Sowe're just saying here's the
best price on the new car,whether or not you trade your
car in and then on your usedcar, whether or not you buy from
(22:17):
us we're going to give you thesame money. So you know if we're
going to end up not selling yousomething but buying the car, we
need to be giving you the fairmarket value.
Preet Banerjee (22:25):
Right. So that definitely sounds more
transparent.
Chris Pfaff (22:27):
never been a better time to buy a used car for a
consumer and we're really seeingsuch a growth in the business
not just because of the normalmarketplace. But because of
consumer laws are so much lawprotecting consumers when
they're buying a used car toknow the history. And also the
pricing is so transparent tothem. So I'm convinced we're
getting people that made me inthe past wouldn't buy a used car
(22:48):
because they were worried aboutpaying too much or worried about
the history or now buyingpremium cars.
Preet Banerjee (22:53):
Yeah, wasn't their thing. And none of this is
Ontario specific or Quebecspecific. But if he picked up
you know, you go to a smallerused car lot a car that was
previously registered in Quebec,if it was totaled, it was hard
to actually track that damage,right? Absolutely. Is that gone
now? Okay, so
Chris Pfaff (23:10):
Canada wide, even the US have a flood damage cars,
we've had cars come up from thestates that were imported with
flood damage. You can nowbasically North America get
history in the cars. So okay, so
Preet Banerjee (23:21):
this is a big operation, as you said, 18, roof
tops New And Used sales. But forsort of like the individual lots
where I would imagine, you know,we have a fly by night
operation. Maybe they're notaround for a long time. And
that's where these sorts ofnefarious things would pop up.
What kind of car buyer do toprotect themselves? Like, is
(23:41):
there some kind of associationthat a dealership has to
register with to say, Oh, yeah,we follow these standards. What
would you suggest?
Chris Pfaff (23:49):
Well on vixia, Ontario motor vehicle, governing
body, which is authorized by theprovincial government, and the
dealer is actually selfregulated, but there's a lot of
stringent encumbrances put uponthem to make sure that they're
transparent with consumers. Sothat's the body you can go to if
you ever have an issue, buying anew or used vehicle, and they
(24:13):
will protect you for sure.
Preet Banerjee (24:15):
We talked about the money back guarantee and
exchange guarantee. Sobasically, you got three days
and up to 300 kilometers. And soif you change your mind, you can
just bring it back no questionsasked.
Chris Pfaff (24:24):
Because there's some exceptions to that. And the
only exception is is veryspecifically specially ordered
vehicle, like a McLaren 650 SYes. in purple with a pink
interior Ray, that we reallycouldn't take back. So there's
stuff like that exception, butby and large, yeah, most cars,
it's not a problem.
Preet Banerjee (24:40):
What is the most expensive vehicle you've ever
sold? Because you've sold a lotof cars. Yeah, I mean, and you
you carry a wide range, right?
Chris Pfaff (24:50):
I'd say just under $2 million US dollars we've
sold. Actually, I shouldn't saythat. We've actually got
polygons that are a little bitmore than that. So So we've had
a few of them. I don't knowDoesn't have 15 of them in the
last couple of years that havebeen over a million dollars.
Now,
Preet Banerjee (25:06):
let's talk about compensation of salespeople. So
the old model, I would haveassumed that there was some some
commission, which would bepartly based on how well you
could, you know, negotiate withthe customer. So, for the
salespeople who are now, youknow, the negotiation is done
upfront, and you've got yourbest price first, how does that
(25:28):
change their compensation?
Chris Pfaff (25:30):
Well, they're no longer on commission. So on the
gross profit of the deal, wejust pay them on a percentage of
the selling price of the car. Sonow, the differences I don't
care really what car I saw you,I really want to say what cars
best. So for example,demonstrators, there wouldn't be
a lot of commission in thatbecause the cars are discounted
in US demonstrators. So theywould typically want to walk you
(25:51):
to a new car where I could makemore money, right? But maybe the
demo was exactly what would workfor you. And you were happy to
take the discount with somemiles on it. So now, there's
zero impetus for the salesman towant to do that. So they really
are going to get you the bestcar for what you're looking for.
Preet Banerjee (26:08):
So with 18 different dealerships, you've
got a lot of salespeople, andyou've probably got some hot
shots, and then you know, themassive middle, I'm assuming
they're probably okay with thatchange. But what about the ones
who are like, you know, making alot of money because they knew
exactly like, they're just, youknow, they're selling all day
long, and they knew where theywere gonna get their commission
(26:29):
from, do risk losing those salespeople,
Chris Pfaff (26:32):
there's a lot of risk. And we've actually lost
some some of our good people,but a lot less than what we
expected. The good ones, theyhad the easiest, because they
really, they've got such greatcustomer relations and a lot of
repeat business, there's alreadythat trust in place. So they
were sort of working this modelanyways. It was I would say it
(26:52):
was some of the middle ofsalespeople, the ones that sold
strictly based on price thatreally had the hardest time
because they felt they neededto, to only sell to you based on
what price they could offer you.
And those are the ones that haveeither had to transform and
realize selling is not onlyabout price, selling a car is
about a lot of different thingsfor different people. So either
some of those have left forsure, or some have actually
(27:14):
changed their styles. And themost interesting thing was the
young ones. They are the newersalespeople that a lot of the
millennials, young millennialsdon't like to negotiate. So they
would struggle for six monthstill we train them on how to
negotiate. Now there's nonegotiation and they start
selling 1520 cars a month rightout of the gates, we've seen a
(27:35):
lot of great success with that.
Preet Banerjee (27:37):
That's interesting. Now, there are
associations for dealers. Sowe've got Canada, the Canadian
Automobile Dealers Association.
So when you show up to thesemeetings Now, with this new
model, you have all the otherdealer saying, Chris, what are
you doing? Why can't you just gowith the status quo? Why? Why
are you trying to make us lookbad, like what what's been the
reaction with with otherdealers.
Chris Pfaff (27:59):
So it's funny that it's actually very muted. Oh,
really, in a lot of them face toface. But I am hearing a lot of
background noise and a fewpeople that are closer to me
will tell them so that theindustry is watching and stuff.
So they're watching us closely,some of them have been critical.
It's not working for us andobserving from the bleachers.
But I can tell you, as I saidearlier, the one big thing I
(28:21):
would say I wish I'd done itsooner. I think we've had a lot
of bumps on the road this yearwith execution and how we did
it, we could have done itbetter. But it's been good. And
I quite frankly think it'sinevitable. Nada in the US the
Dealers Association down there,predicted about six months ago
that by 2025. It'll be like thismodel will be normal.
(28:44):
Interesting. Yeah. 100%. Sothat's what they're saying. And
I tend to believe it. So.
Preet Banerjee (28:49):
And I want to actually ask you as well about
some of the trends that we'reseeing in automotive sales and
financing. So, you know,hindsight, obviously, is 2020.
foresight is anything but but Ithink it's fairly safe to say
that we're probably closer tothe end of a credit supercycle
(29:11):
than we are to the beginning.
And we've seen the rise of theso called Super amortized car
loans. You know, back when Iwas, you know, 16 and thinking
about buying cars for the firsttime. It was like a four year
auto loan was pretty standardfive years like whew, that's
long to today. I think theaverage is like seven years for
new car financing. A friend ofmine recently was tweeting about
(29:34):
being at a boat show and theyhave financing on boats that
were like 240 months 20 yearfinancing on a boat, which to my
knowledge is a depreciatingasset. So what are the trends
that you've seen? Is that thatsort of in line with what you're
seeing at your dealerships anddo you see that as a problem?
Chris Pfaff (30:00):
couple of thoughts on that. One is is cars are
better today than ever, and theywill last longer. So if you do
typically stretch out of financenot such a bad thing for
consumer, but for us, I don'tagree with it, we'd like to see
people coming back into themarket more frequently, when we
haven't really seen especiallyat the luxury end, we haven't
(30:20):
really seen a lengthening of thethe terms of the loans. A lot of
our luxury businesses lease. Andthe term still an average is 42
months. And it's been like thatfor a long time now 10 years
plus. So some of the financingsgot a little bit longer, but
again, not we've seen thisalready 15 years ago where guys
were testing it. Some of the themore volume oriented mainline
(30:43):
brands do do it more. But Iwould say no, with even some of
our mainline like Toyota,Volkswagen, it hasn't been
prevalent.
Preet Banerjee (30:51):
The subscription pricing that we've seen some
manufacturers toy width is isthis something that you see
becoming more prevalent? Andwhat impact does that have on
dealers? Because they it soundslike the they're kind of going
around you guys?
Chris Pfaff (31:08):
Well, no, were they, they actually need us to
help assist in executing on it.
We've just piloted now withPorsche for the first time in
Canada, they've been doing itthe US for a couple years. We
just started it. So it's toosoon to tell. In terms of a
model that works for consumers,I don't know how many are going
to find benefit from it. What itis good is that we're finding
that we're getting consumersthat maybe didn't consider that
(31:29):
product before. And were able toeventually convert them into
permanent vehicles. So I don'tknow yet which way this is gonna
go. It's interesting. And I'mglad that we're in a test model
with Porsche on that. But I'mnot so I'm not so certain
there's been a lot of startupsthat have not continued on. So a
lot of this shared drivingservices and so forth, it's
(31:50):
still a really unknown space.
Preet Banerjee (31:53):
And maybe, and sorry, maybe we should break
down with the subscription modelis so my understanding is very
cursory is that essentially youpay an ongoing subscription fee.
But you also have the ability tochange vehicles more often. So
it sounds like a version ofleasing with a bit more
flexibility that you pay apremium for is that basically
(32:13):
what it is,
Chris Pfaff (32:14):
yeah, so you're getting the car all in, you're
not having to pay anymaintenance, you're not having
to pay for insurance. So you'rejust getting one car insurance
to covers insurance to you haveto qualify, right? Yeah. For the
insurance. But yeah, and thenthere's you can switch cars, and
again, varies by time by by thesubscription service, but some
of them you can switch everyweek. And for a guy that's in
(32:36):
and out of cars all the time,that's a pain, I can tell you
know, it's nice to drivedifferent models all the time.
But those cars like and some ofthem you change once a month, or
once every three months. So youcould have a sports car in the
summer and switch to an SUV inthe winter and back again.
Preet Banerjee (32:50):
My last question is about the next generations of
car buyers? Do they look fordifferent things than say my
generation would have? Or theyfocus more on the tech than they
are? what's under the hood?
Chris Pfaff (33:06):
You know, I don't know how to answer that
question. I don't I don't Ihaven't seen any distinct
patterns there know, for sure. Imean, I've younger you get the
easier it is to, you'll see thatyou see consumers using all the
features that are in the cars,right. So you'll see a lot more
of that. But in terms ofdemanding, yeah, they are
looking at that you make sureyour technology is competitive
(33:27):
with other brands, but most ofthem are most of them have Apple
CarPlay, etc. So I see moreusage, but I don't necessarily
see that they're focusing moreon it.
Preet Banerjee (33:38):
What about things like, you know, mileage,
with people becoming more andmore environmentally
environmentally? conscientious?
are they paying more attentionto that? Is it basically the
same? Like do you notice anychanging like drastically
changing tastes? Or is it just amatter of, you know, that gets
reflected in what themanufacturers put out? Because
they respond to Oh, no, we're,
Chris Pfaff (33:59):
you know, we live we live by the consumer, not
what the manufacturer puts out,for sure, especially today.
Tesla is such an interestingstory because I predicted their
demise 18 months ago, I was youknow, I'm here to say I was very
wrong. You know, NBC last lastyear, they outsold every other
luxury brand in BritishColumbia. Part of that is due to
(34:20):
tax subsidization. But Butstill, nevertheless, a good
Feat. And so, electrification,there are consumers that want
it. We're getting into it nowwith Porsche and Audi in a big
way, and a lot of themanufacturers will follow suit
very shortly. So it's going tobe interesting to see. But there
are certain consumers that wantan environmentally friendly
corner are demanding that forsure.
Preet Banerjee (34:43):
every guest on the podcast gets commercial at
the end of the podcast. Soyou've got a minute, two
minutes, you can say whateveryou want, you can sell whatever
you want. tell people where tofind you. The floor is yours.
Chris Pfaff (34:55):
I don't know what to say that's that's hard to
say. Listen, I can tell you atfive auto. We do it appreciate
when consumers do business withus. And I can tell you, we're
not perfect. We do makemistakes. But I can tell you
that we do care when we do makemistakes, and we're always
trying to get better. So that'ssort of what we're all about. I
always tell our team that wewant to we want to win. We want
to be good at what we do, andthat we also want to have fun
(35:17):
with it. So I appreciate theopportunity to be on the show
today.
Preet Banerjee (35:21):
No, it It's my pleasure. And I'll just point
out that spelling of faff ifyou're looking it up is p F, A f
Chris Pfaff (35:28):
f, you got it back.
Alright, so photo Comm.
Preet Banerjee (35:32):
There you go.
Perfect. Chris, thank you somuch for being guests on the
show.
Chris Pfaff (35:34):
Thank you very much.
Preet Banerjee (35:46):
If you want more personal finance content, or you
have questions for me or topicsuggestions for the podcast, you
can follow me on Twitter orInstagram, same handle in both
cases at Preet Banerjee, I alsohave two YouTube channels, you
can subscribe to my mainchannel, which covers personal
finance and investing topicsthat are global in scope, and a
(36:09):
Canadian specific channel aswell. That's it for this
episode. Thanks for listening.
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