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Art of appraising cars, How much money auto wholesalers make, Cars to avoid

Full transcript from Ep. 11 of the CDG Podcast feat. Chad Cunningham.
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Timestamps

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01:49
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- Chad's background
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05:48
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- How wholesaling works
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13:31
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- Achieving consistent profitability
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17:17
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- The "vibe" factor at auctions
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23:47
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- Becoming a top-performing wholesaler
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29:14
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- How Chad appraises cars
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35:45
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- Which cars to stay away from
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40:38
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- Navigating trade-in offers & used car prices
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45:45
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- Wholesale Car Club
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56:45
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- CDG face reveal?
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59:52
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- Wrapping up
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Transcript

check-file
This transcript has been edited for brevity and clarity

Chad’s background

CDG: Chad Cunningham on the pod. Chad, welcome. I want to get started with how you got into wholesaling? What's your background? I think lots of people are interested to know. You do this at a large scale nowadays. So, tell us how you got started.
Chad: I did grow up in the business a little bit. My dad had a used car lot. It was like a buy-here-pay-here, so we did a lot of cheap cars and then it kind of turned into a cheap cash lot. Like we keep $5,000-$10,000 cars. He sold it when I went off to college. I always tell people basically, so I wouldn't do it, I'm pretty sure it was like, I want to remove this option so there's no danger. My parents didn't want me to get in the car business.
CDG: Why is that? Tell me more about that.
Chad: You know, I mean, the car business is tough, like it's a grind. I think in their mind it was kind of like, "Oh, you should go be an accountant" or "you're going to be a pharmacist at one point," something like that, you know, get out of this crazy car world. It's tough. It's hard, it's long hours, but I love it. That's what I wanted to do, and that's what I was good at. So, in the summers during college, I started working in a new car store, and then I started full-time afterwards. I was a GM at a Chrysler-Jeep-Dodge-Ram. I worked all the way through. I was like the ultimate, "Hey, this job's open. I'll do that." I was a new-car used-car manager or finance manager. I really did everything but service, which I didn't like. I worked a service line a couple of days and I was like, "This isn't for me." That's the one job I didn't really do. But, GM over a store. I wanted to be GM over the biggest Toyota store in the area. We were doing like 500 new Toyotas. Really, it was when I started talking about having kids, it was kind of like, okay, well, how's this going to work? I'm working six days a week and 12 hours a day. I ended up just going to auction randomly with my dad, he was still kind of working a little bit. And I ran into the guy in town that ran a big wholesale company, Steve Brewster, and he was asking what I was doing. He had this new idea and said, "You'd be perfect. If you want to do something else, we should talk. So I ended up going in for an interview. I love my other job. I've never interviewed for a job. I have a job. I ended up going back and telling the other guys, "This isn't working. This is not for me." I left and I called Steve and set up an interview. The funny story I tell everybody about, I went in a suit and they're all wearing hoodies, t-shirts, and shorts. I was like, "What is this?" They were a pretty big wholesale company even then. Steve, the CFO, they're all just like, I mean, they literally look like they could have been playing basketball or something and I'm in a full suit. That's how much I knew about how the wholesale world operated, I guess.
CDG: No suits in the car business.
Chad: Yeah. Well, there was for me in retail back then. Everybody was decked out. But, right away I just really liked it. I was fairly successful in retail. I was running big stores. You think you understand wholesale and within two weeks it was like, whoa, this is like a whole world that I didn't even know existed. One, I really enjoyed just the way it works. And two, it's like, "Man, there is a way to make a living in a car business that isn't retail," and I didn't really know that existed either. So I was kind of hooked immediately and now I'm like a wholesale lifer, I guess. It's a different world, but I love it. I know you were talking to Jake about it, like the car business is like the stock market. Wholesale trade is like the ultimate car stock market. That's how I feel. It's always changing. It's always on the move, so it works for my brain. I love it.

How wholesaling works

CDG: Let's dig into that because I'm super curious myself. I've been in retail my whole life, you know. I never made it to the dark side like you. But I think it's one of those things where the grass is always greener. The wholesalers want the retail margins, but they don't want the retail headache. The retailers want the wholesale — I don't want to call it ease — but simplicity, you could say, at least it looks like it from the outside, but we don't want your margins. I want to understand, give us a detailed breakdown of the wholesaling process for people that are listening. What does that actually mean? From the moment you acquire a vehicle or even before that, give us an overview of that process from pre-acquisition to sale of a vehicle.
Chad: Sure. The last two companies I worked for, we were mainly selling at auction. So that's how we're distributing them, like we're large auction sellers.
CDG: Is there a reason for that? Why auction?
Chad: Efficiency. Right now, we're selling 1300 to 1500 cars a week, which is really a day. We're selling them all on Wednesday. At an auction, we can do all that in 4 hours efficiently. It's quick. It's efficient. Like if I was trying to hand sell 1400 cars to dealers, it would it would be almost — I mean, I'm not saying it's impossible, but it's a totally different set up. The auction is very efficient on the sell side.
CDG: Break down that process to us.
Chad: On the buy side, you basically have three tranches. You're buying from consumers, you're buying from dealers, and you're buying at auctions. Within the auctions, you've got all the different lanes and sellers and dealers and fleet and repos and everything else. So you're sourcing the cars on the front side and all three of those transactions are very different in what time it takes and everything else. So, you've got to buy the car, and then you've got to pay for the car, you've got to transport the car. So, you're going to buy it, you're going to do the paperwork, whatever is involved. You're going to pay for it. You're either going to get a title then or they don't have a title, so you're waiting for the title. If you're making a payoff, you're paying off the lienholder, then following up on the title. So, on the front side, you got to pay for it. Make sure you have a title coming, and then you've got to transport it to the auction, get the car checked in, get it inspected, get it marked for [reconditioning], do whatever recon it needs, make sure it has pictures, make sure it has good pictures. Check the condition reports because you have all these guys running these different condition reports and some of them go both ways. Some of them it's like, "Why'd they miss this tailgate torn off the truck?" and sometimes it's like, "Why do I have a 23 Ferrari with 100 miles that they marked as a full repaint?" It can be anything on both sides. So, make sure they're inspected. Make sure all that's good. Make sure your picture is good. Then, you've got to prep for the sale or get the run list together and mark what you have titles for, don't have titles for — all that good stuff. Then you've got to sell them.
CDG: Then all that gets sold on one day a week on a Wednesday. 1500 cars.
Chad: Correct. Yeah, about 4 hours. So basically, we log in at 9:30 and it's going to run to about 1:30. Six lanes, four hours, and they pretty much all get sold. We sell 98% year round. So if we run 1400, 1500, we're going to sell 1450, we're going to sell about all of them.
CDG: How many cars do you expect to profit on? lose on? What's the ratios here?
Chad: It varies. We tracked it harder at Wholesale, Inc. and we didn't sell as high a percentage.
CDG: Wholesale, Inc. being the previous company you worked at, right?
Chad: Previous company, yeah. We actually tracked that hard. That was a metric we really watched and we ran probably a higher percentage there of wins because our sales percentage was lower. It's a little different model, but we would try to win 80% of the time. Sometimes a year we could win 85-90 and some buyers won 90 all the time, some buyers won 70 all the time. There's different buying philosophies among the buyers. But, if we ran 80-ish, 75 to 80 was a good number. We don't track it at GiveMeTheVin because we sell them differently. It's kind of, our model is like selling them. So it's almost like we don't want to see anything that slows them down from selling them. But I would say the numbers are the same. I run mine — it's maybe a little over 75%. So you're winning 75, 25.
CDG: And what's considered winning? Like, making a dollar of profit?
Chad: Anything, yeah, a green number. A hundred bucks. I mean, just as far as profit, like a green number versus a red number. I mean, I don't really consider $100 winning, but that's a profit versus not.
CDG: That's a green number. Yes. What's the biggest win you've ever had at auction, like profit wise?
Chad: I mean, we've done 100 a few times. I mean, that's rare. But on some of the expensive cars, I mean, we've made 100, 105, 110.
CDG: Just to be clear for anyone listening, $100,000 on 1 car.
Chad: Yeah, yeah. Like 100,000, 105, 110.
CDG: What type of car would that have been?
Chad: We had a Ford GT do really well last year or two years ago. Had a Ferrari. We had a long wheelbase [Rolls Royce] Phantom one time that just really ran off from what we thought. We normally like exotic stuff.
CDG: Where did you source those cars?
Chad: They were pretty much all consumer buys, I'd say. As far as biggest winners — I mean, there's good and bad with consumer cars, but most of the time, for a car to really run off that far, it's going to have to be like a totally marketed car previously. So it's normally like a 1 to 2 owner, a consumer car that nobody's ever seen before. It's like the first time you bring it to market.
CDG: That's wild. Now let's flip the table. What are some of the biggest losses you've taken?
Chad: Oh, I've had some. I don't know if I ever lost 100 on one car, but I've lost 50 a couple times.
CDG: Oh, man.
Chad: The one that really sticks out is when the 18 GT2 RS came out, the Porsches. We were selling those and we were making like 30, 40, 50 a pop pretty frequently. We were really doing what they were selling 250-300 over. And then we kept two "for retail." We did some retail wholesaling too. For my part, I was like, I don't know, let's not do this. This is risky. These cars could fall off. Sure enough, the market turned on us quickly and I think we lost $60K on one, $75K on one. This was in like a week. It wasn't like we had them that long. So, that happens, especially the high line bars, the swings. I tell people, one of the most interesting things, if somehow you could show people, when we sell exotics on Wednesday, it's like a cardiac arrest on the profit line. I mean, they would be up 5, down 10, up 15, down 4. When you sell them like that, they just fly all over. Even week to week, month to month, it can be that way. They can really move when you're selling them that aggressively the way we are. The profits can go both ways really fast.

Achieving consistent profitability

CDG: How do you make money in this business consistently, or how do you have any predictability? Especially, we've had such a dynamic market, to say the least. 2021, we were rising, and I'm sure you made a boatload of money then because everything you held, the longer you held it, the more money you made, in theory. And then in '22 we had more so declining market, or more than usual.
Chad: Went the other way, yeah. Straight down.
CDG: And so given what you just said, how do you manage through that on a consistent basis? That's what I want to know.
Chad: Yeah. I mean, the wholesale business is hard like you talked about on the fronts. I think a lot of people on the outside will look at wholesalers like, "Oh, you are the guys at the auction in the shorts and t-shirts like, 'Yeah, that looks easy. I want to do that.'" It is complicated, but it is also the sum. For me, on a sell day, I look at it as a day, as a week, as a month, as a quarter as a year. I very rarely am down to like car-to-car, because there's always variance in the car-to-car. My team sells a couple hundred cars this Wednesday. If the profit number is really good, I'm not just drilling the crap out of a couple single cars because sometimes you can figure out why something happened. But sometimes it's like, "Oh, it wasn't the right day, or the car before it ran off. Yeah, that second car kind of dipped, but part of it might have been because the car before it just took off to the moon. Sometimes it takes everybody a minute to collect themselves. So it's hard to do it that way, even month to month. Like, you know some of the stuff is going to happen in the car business. You know some of the seasonality. You know what's supposed to happen. But, wholesale cars is kind of like the stock market. It doesn't always happen the way we think it's going to happen. So, you're just kind of riding it out. My philosophy, I was always taught is you buy all the time, you're fine. When you catch the market on the upside, great, you have cars. You're kind of always averaging yourself in. That's the way I look at it. There's going to be some wins and losses. But if we do our job, and me and my team do a good job buying, the wins are going to beat the losses because typically the market does move up more than down. You've seen the Manheim chart, it looks like this [trending up], not this [trending down]. So if you just kind of stay in it and know what you're doing, it typically does move up. There is sometimes like 2022. It's rare for the market to move straight down for a year and yeah, like it wasn't as good as 2021, but it was still a good year.
CDG: Yeah.
Chad: I think there's still ways to make money when the market's technically coming down. So it's just kind of staying in it all the time. In that way, it's not different from retail either. It's like, you really got to be in business all the time. You're always buying and selling.
CDG: You got to play the long game.
Chad: One thing we did good this year is, coming into the end of the year, the market had fallen the whole year coming into the end of 2022, and I feel like it was like a pretty negative buy overall. And there was a lot of people that were like, "Oh, it's just going to keep falling through the floor." We were kind of the opposite. It's like, "Okay, well, it's fallen some way up here." This has never happened in Manheim recorded history.

The “vibe” factor at auctions

CDG: I think we need to put an emphasis here on something, though. I don't think people realize — I can't believe I'm about to say this — but, I don't think people realize just how much vibes impact sales at vehicle auctions. Do you agree with that?
Chad: Oh yeah, it's huge. Yeah. Auctions are so momentum based, it's wild. It's a market where people watch other people.
CDG: It's very emotional.
Chad: It's the big players, too. It's like CarMax. When people start seeing CarMax banging away, automatically some of the other big guys are like "Hey. If, CarMax is buying. It's time to buy" and then AutoNation buying, and then the sonnet guys are like "Hey. These AutoNations guys," you know, and then the guy down the street buying. It is a follow the leader mentality and that's what happened. One, the inventory was short. I don't think people thought about the used car shortage enough. All of a sudden, there's no cars and all of a sudden people are buying. I think it's coming in the spring, and the dealers were like, Oh crap. We got to get in on it. It was like wildfire. It was like, boom, the biggest Manheim increase month out of nowhere. It was literally out of nowhere as far as a lot of people were concerned. But we were a little early. We felt it. It felt like it was coming, so we were really aggressive. Had a great start to the year, so that worked out good.
CDG: Yeah. Look, I think that it's just understated how much emotions do impact pricing in the car business. And to your point, while we think that everything has become algorithmic and Carvana has their computers buying cars and whatnot — the reality is that there are still humans controlling much of this behind the scenes. In many cases, they're on the front lines. And you're right that it does really impact buying decisions. I think a good buyer is a disciplined buyer, at least from my experience of retail, having bought lots of cars in the past. It was always about being disciplined, knowing when to stop and not to chase that bid to the point where you're making a mistake. I do want to go back to one question, specifically. Go back to the economics of wholesale. How much profit are you expecting to make on average on a car today when you wholesale a car?
Chad: So, normal cars — and normal cars to me is anything under 80 grand — it can be a $20,000 Tacoma to an 80,000 Tahoe, and those still vary a little bit because you expect to make a little more margin on the more expensive cars, but also not always. We will buy an $80,000 Tahoe to make $500, just like we will a $8,000 Tacoma. I mean, you want to make, a thousand is a great number. You know, like it can be a little better than that sometimes. I think it is in a way, wholesale margins are both more and less than people think. I mean, that was straight up one of the main reasons. The thing that drew people in when we sold Wholesale Inc. I can still remember sitting in the meeting. They can see our numbers, but they also had the Manheim arbitrage numbers that we didn't really have any part of. They're like, Wait, you're advancing these cars $2,000? like just auction to auction? Most people don't think that's possible.
CDG: What does that mean?
Chad: Like if we were paying an average of $22,000 for a car at one Manheim auction, we were selling at the other auction for 24,000.
CDG: How?
Chad: Just knowing the arbitrage, knowing what we could buy and sell. Some of it's regionally, some of it's just seller, and some of it is just knowing that market. Knowing what you can buy here and then move it to here and sell it.
CDG: Would you say it's like a function of regional arbitrage and then your brand being a consistent, loyal seller on a weekly basis.
Chad: It's a bit of both. It's like you're knowing what to buy. So, in my mind, it's always, we're trying to get them cheaper. Cheaper is not even really the right word. It's just knowing the right stuff to buy in certain markets and from certain sellers. And then it's basically bringing them and selling them. And we're getting a little premium, but it's really not the sell side. To me, GMTV (GiveMeTheVin) doesn't make money now because we sell them more than anybody else. Hell, a lot of people would tell you we sell them cheaper than anybody else because we sell them so aggressively. It's just doing a good job on the sourcing buy side. That to me is like the trick in the wholesale. You've got to be a really good buyer, sourcer of cars. Retail is like that. The profit is made on the buy. If you buy the car right, your job's essentially done. And if you buy it wrong, you're essentially screwed right away.
CDG: And how many days do you keep a car on hand?
Chad: GiveMeTheVin, It's not long. Ten, 14 days on average. We're selling most of them within ten days. We're moving them very quickly, like 10 to 14 days. [At] Wholesale, Inc., we kept them a little longer, but still not that long. Our average day would be like 20 ish. We'd have a retail component. Our retail was mixed in there. It was a smaller component and we did not sell as high as a percentage. So, more of those cars are getting carried as a no-sale. Right now, it's 10 to 14 days. I mean, there's some old ones in there. There's arbs and recon cars.
CDG: It seems like the bottom line is your average margin on a car is 1%.
Chad: Yeah, as a percentage, it's not great. That was always kind of the same thing. One of the things when RumbleON on bought us, it was like they were so big on the margin number. They're wanting to run these 8 to 10% margins on wholesale. It's like, we can't do that. I can't make $3,000 every time on a Yeah, $30,000 car. Like it's just not always going to be that way.

Becoming a top-performing wholesaler

CDG: So, I think the magic question is how do you negotiate those Manheim fees, those auction fees? You don't have to answer that one if you don't want to.
Chad: I mean, the thing with Manheim and auctions, like I tell people, I don't think it's that hard to figure out. You just do a lot of business and then it's like anything else. To me, you think of Manheim like a vendor. Any vendor you have, you're basically trying to do more business with them and negotiate whatever deal you can. Manheim's the same way. The more business you do, the more you might be able negotiate a little bit. I will say, I don't think things are ever the way that people think. Manheim is still pretty similar. We're the number one Manheim seller and everyone thinks like, we just don't get charged.
CDG: Whoa. One second. What do you mean by that?
Chad: What? The number one Manheim seller?
CDG: You're the number one Manheim seller in.. the world?
Chad: Yeah. Wholesale.
CDG: Shut up.
Chad: Single location. Yeah.
CDG: Wow.
Chad: Well, anyway, it doesn't matter. It can be, like, nationwide. Yeah, Nobody else is selling 1500 cars a week.
CDG: What's Hollenshead selling?
Chad: He sells like, four or 500 a week.
CDG: Wow, That's impressive. I didn't know you're number one.
Chad: Yeah, we moved up there, I guess, two or three years ago.
CDG: Wow.
Chad: I mean, Hollenshead was who I grew up watching. Like, I was hooked on wholesale, but I will say, like, that was like a huge hook and Bob was super helpful for me. Why he spent so much time answering my questions on the phone, I don't know, but God bless him. He was super helpful. But like, going up there when they were running like six, seven, 800 cars and watching them hammer every car and sell those high dollar cars, that was a huge motivation for me. My whole platform at Wholesale Inc. was like, let's be Hollenshead. That was like the one goal was like, I want to be like Hollenshead. They've been number one for 20 years. Somebody's got to beat them. We can do it.
CDG: Yeah. And for the audience listening, Bobby Hollenshead is one of the largest auto wholesalers in the world. Used to be the largest, based on what you just said. That's super impressive and congrats on that. I want to talk more about when you spoke about specific cars in this business. I'm super interested. Are there any specific cars you focus on? or any specific types of acquisitions channels? For example, do you like to chase sourcing from consumers more than other places because it's more profitable? Are there specific segments of cars that are typically you can make more money on them? How do you think through that, or do you just acquire anything that comes to you? You put a number on it no matter what car it is.
Chad: Yeah, I mean, we will number anything. So it's like, same thing. We'll take any car. In our mind, there are better or worse cars to buy but we'll still number them all. It's just what you're going to be more aggressive on as far as sourcing the cars. There's good and bad, every situation. Consumer cars are great in a way, but they take more time and they take more effort. Just dealing with direct consumers can be up there. It's like reverse retail. That's one thing. I'm sure a lot of retailers would be like, hey, some some customers are great. Some of them make us want to jump off the building. And when you're buying cars from consumers, it's the same thing. A bunch of them are awesome, but some of them it's like, Oh my gosh, we did everything we were supposed to do. We've got everything set up and now, we're trying to get this car picked up and he guy's just been terrible to the transporter or whatever. There's always problems. And of course you don't have a ton of capital because you got to make all the payoffs and everything. I mean, consumer buying is like insanely capital intensive because of the payoffs. Unless you're not going to do payoffs. That's one thing. In the dealership world, a lot of people are like, we should just buy more consumer cars. Have fun with that. It's pretty tough. It can be easy with your local customers, but getting past that, it can be pretty complicated. I love dealer cars. To me, like buying dealer cars is like my retail fix. It's like I get to talk to all the retail stores. I'm involved in deals. It's kind of like getting to go sit in the tower for a day get my fix of retail life. A lot of stores that sell us cars also buy from us on Wednesday. So it's like this constant cycle. I mean, dealer cars are great too. The auction cars I haven't done in a while. We do have guys that buy from auction like I just haven't done it in a while. The auction thing is just a rare grind of, you know, I'm going to show up at Manheim P.A. today. They're going to have 10,000 cars. I'm going to bid on 400 of them and hope I get 15 or 20 or whatever the number is. To me, it was always just like a volume game. I'm going to bid on as many cars as possible and I'm just trying to catch the ones that like fall through the bottom.

How Chad appraises cars

CDG: How do you appraise cars that you buy? How do you do that?
Chad: So we use Accutrade. We're looking at Accutrade. We look at Carfax. We look at J.D. Power. I check retail comps a lot more than I used to. When I grew up, it was just book buying. I was told buy by the book, like we use black book. Look at Black book. MMR doesn't matter. Retail doesn't matter. Whatever. Just look at Black Book. That's it. But I do think it's got harder, like over time, like I try to look at everything. I do a bunch of classic stuff too. So then it's like you got to check BAT.
CDG: Bring a trailer. Yeah.
Chad: Yeah. I've got a little auction. What is it called? Hammer Price. Where you can look through all the Sotheby's and Barrett-Jackson or whatever. So there's a lot more to look at. You got to look at a lot of stuff.
CDG: Would you say this business is, or at least the valuation appraisal part, is not extremely process-driven and experience does really matter? Or would you say that's not really true? It is process driven. Experience adds a touch. How do you think through that? Because you're one of one in a sense. You're the largest wholesaler in the world, but scaling this thing and thinking about how to systematize it. My brain always thinks about these things. It just seems like a very tough task given the fact that someone is spending big dollars on every single purchase acquisition. And it just doesn't seem like there's a kind of one-stop method to value a car from a wholesale perspective.
Chad: It's both. It is hard. I think that's one thing everybody's gotta learn is just, you can't buy cars from a machine only. Everybody's tried it. It just doesn't work. There's just too much nuance in a car. Trying to teach the machine the difference in cars is just really hard, but you do need the machines to do volume. So, the combination of the tech and the pricing tools and everything else, but you do need to follow it up with humans. CarMax is a great example. To me, CarMax is like the ultimate car buyers. They're big retail buyers. They're big wholesale buyers, but it's still based on humans. They're taking a bunch of technology and they're basically putting a human behind it. And to me, that's kind of how it works. That's what we do at GiveMeTheVin and what I do personally with my team. We have the lead generation, we have the websites, we have the pricing tools, we're giving numbers on the spot a lot of times, but there's always humans behind it, following up on it, making sure the numbers are correct in kind of negotiating out the differences or whatever. So, it's tough to scale, because you do have to do both. You're going to need good technology and you're going to need good pricing tools, but you're also going to need a lot of real buyers, because up to this point - short of A.I. really taking off or something - no computers have been able to buy cars profitably. Everybody that tries that pretty much fails miserably. It's kind of like the Zillow home-buying thing. It's just like, it's just losses.
CDG: So how do you explain Carvana then? I mean, we could dispute their margins and whatnot, but they obviously have a very big chunk of their purchases made by computers. How do you explain that?
Chad: They're doing the same thing, though. They have a buying room full of a ton of buyers that are behind the scenes. I would say just from dealing with people from Carvana, like, I don't work there, so I'm not like getting in their business, but from an outsider's perspective, they've put more human touch on that over time, not less, because when they just turn the machines loose, full speed, they did lose a lot of money. So, over time they have had to put more human touch on it. And even still, that's probably the one place they have room to grow that could really help them. To me, they get a lot for a car. They do a lot of things really good. They actually do get a lot for a car. They get a lot of the financing and they get a lot of product. They're pretty good on the sell side. If they could get the acquisitions a little more honed in, they could probably do pretty well. But, they just go so far in each direction, like when during COVID they just crank it all the way up and then all of a sudden - [miming explosion]. The market turns, they had too many cars and everything else. And then they pull back too far. But it's hard. It's very hard. I do get what they're trying to do. To me, in my lifetime, the two craziest things I've seen are Tesla and Carvana. What they're trying to do, if you were to sit us down 10 years or 15 years ago to be like, "Hey, this new electric company is going to start out of the ground, like, from nowhere. They're not gonna be Ford, they're not gonna be GM." Then we're gonna get to where Tesla is now. I would've been like, "It's not going to happen." And, the same thing with Carvana. If you would've been like, "Hey, there's going to be this online company. They're going to start from absolutely nothing. And in five years they're going to sell 500,000-"
CDG: Well... sort of nothing.
Chad: I know they got the drive time thing, whatever. But, you know what I mean? Like, what they done is wild, but the sourcing thing.. I think there are more humans involved than I think maybe some would realize. I do think they realized they have to do that because if they just turn their machines on full speed, they will go even more broke than they have been before.

Which cars to stay away from

CDG: Well, speaking of Tesla and Carvana and just consumers in general, I'm really curious to know: You've bought and sold tens of thousands of cars. What cars would you tell consumers to stay away from, or are there specific cars that you just you always lose money on? And it's not necessarily because of the value, but it's just because the car is a piece of shit? Like what comes to mind when I say that?
Chad: I mean, I do generally think cars are pretty decent overall these days. I think the build quality today on the average car versus 20 years ago is not even close. When I first started buying cars, I mean, there was a lot of cars that were total trash. And now, most cars are pretty good. Like they're really decent. You're basically just trying to dodge the depreciation holes. Right now, high-dollar BMW 7 series is always the first car that pops in my mind, because the first-year, 7 series, it's always been a depreciation monster. Oh, it's 120,000 MSRP and right off the bat it's worth 80? Right now, the worst ones are just all these high-dollar EVs. I mean, that's the one right now.
CDG: Really?
Chad: I tell people, it's like, "Man, you buy one of these high dollar EVs, you better like it. You better want to own it." Because if you go to sell it pretty quick, the depreciation numbers are like nothing I've honestly seen. We're selling these '23 Mercedes EQSs that sticker for like 120 or 130 and MMR is like 65, 70. Like they're literally selling for half off.
CDG: Yeah. Just to explain that. So you're saying pretty much, manufacturer price is like 130 and the current auction market price that you're actually getting for that car is like half of what the car sells for brand new. And it's a 2023. Wow.
Chad: Correct. And maybe it's a little higher on some of them. But I mean, you're talking like 30 to 40% depreciation and some of those Audi e-trons are the same way. You look up and it's like, we'll be running a '22, '23 and we're trying to get 65, 70k. And I'll pull a sticker when it's on the block that says 135 and it's like, "Oh my gosh!"
CDG: Wow.
Chad: Those cars are just.. it just doesn't seem like there's demand yet. And they're building a bunch of them. There's quite a few on the ground. So those have been pretty scary short term. And I'm generally pro-Tesla. I'm an Elon, Tesla guy. And they've been good pieces. I've done really good with Teslas over the years. Things did get really scary when they jacked the MSRPs way up and they backed them away off. I mean there was some wild Tesla numbers coming through for a minute.
CDG: Tell me about that. I'm really curious, did you have any Tesla on hand when that happened?
Chad: Oh yeah. We were rolling along with the Teslas. We do well with Teslas. I buy a lot of them. GiveMeTheVin buys a lot of them. We were selling 50 to 100 Teslas a week. When that whole thing happened, even as quick as we move them, there's two weeks to three weeks turn. So we probably had 300 of them bought up when they did one of those big price cuts. That was one of the worst loss in a couple of weeks that we've had on a segment. There was probably a week we sold 100 Teslas, and I bet we lost on 98 of them.
CDG: Wow.
Chad: Like it was just like a straight beatdown. But that was just so unprecedented. I mean, they were ripping those prices down like 10, 15, 20%. But then, when they ripped those numbers down, I mean, we were getting people, they'd have a '22 Model S Plaid with a 168 window. They used to sticker for 100 and now all of a sudden it's worth 90. They ripped the price way down. Everybody was scared to death of them. That was pretty wild. Some of the stuff with EVs have been like, I've never seen this before. This is a really wild stuff.
CDG: Yeah, it was definitely a wild swing. And I think it's going to be interesting to see if car manufacturers take more control and try to introduce more of this direct to consumer stuff specifically with EVs. I think that's at least the idea.
Chad: Yeah, they will.

Navigating trade-in offers & used car prices

CDG: Like, what it's going to be like for changing MSRPs and how that's going to impact the used car market. It just seems like it adds another layer of risk and opportunity for dealers, wholesalers and for car prices in general. I think on that note, from your perspective, why do the trade in offers vary so much by, from wholesalers. It seems like, you're the largest wholesaler in the world and I want to believe that you have some of the best appraisers, technology and processes. Obviously you mentioned you use Accutrade as one of your tools, but why do offers and prices vary so much? Does that all come down to emotion at the end of the day, would you say?
Chad: I mean, not to like, not answer it. There's just a lot of reasons for it. And I think it just goes to show how varied the used car market really is. I think people want to feel like, a lot of guys, it's like, "I know what this car is worth." No, you know what it's worth to you. I get that. I know what it's worth to me too, but I've always been very cognizant of I don't really know what this car is worth. I know what I'll pay, but what the car might be worth. Yeah, we might be right. Like they may roll a '22 Tacoma in front of me and you, and we may say, Hey, that was worth, I may say 38. You may say 38.5. We may be right, but somebody else may pay 41.5, or somebody else may hit it at 35.5 and think we've absolutely lost our mind. The fights over used car values blow my mind. Like we could start one today. Like you could start it today and you could say, Hey, what is this car worth? I want all the dealers to weigh in, and you can type in all the info. And I guarantee you in the comments there will be dudes want to murder each other over the arguments about what these cars are.
CDG: I think the play here, and of course, you know I do agree that from the dealer perspective, I agree that yeah, different types of dealers. If you're a Honda dealer and there's a good Honda being traded. Yeah. You may want to hold on to that because you have that market of consumers coming to you anyways. But I think that the play here as far as consumers are concerned, like you said, is, you know, you have a car. Well, yeah, it makes sense to try to sell it to that specific brand's franchise dealer because you're right, they may need that car and from a geographical perspective. Are you seeing that different regions in the country just fetch better dollars for vehicles, period? Or does it just happen to be like, hey, in the south, of course you're going to get more for trucks. In the Northeast, you're going to get better for all wheel drives is the standard stuff like that. Or are there specific pockets where you just say, hey, like Florida market right now I'm just getting more money for my car, so I'm just going to send more cars there?
Chad: Yeah, I mean, it's both. So some of is pockets of inventory. Yeah, four-wheel drive trucks do better up north, two-wheel drives do better down south. Got it. That makes sense. Same for SUVs, like two wheel drives in Texas are great. Two-wheel drives in Minnesota, not so great. There's more to it. It's like, the areas where they lease a lot, and typically right now there's not lease returns, but like one of the examples is an area that leases a lot and gets a lot of lease returns, car trade-ins similar to those lease returns don't get valued very high because the stores already have those coming in.
CDG: They have supply.
Chad: But if you go to an area where they don't lease, those cars are very valuable. And so it's like, if you're trying to trade your 21 C class to a store in New Jersey and they've got a hundred lease returns coming in every month, they don't give a hoot about that car because they've got a gazillion of them coming in. But if you take it to the guy in Oklahoma who maybe doesn't have any in and he does great with C class, it may be more valuable to him. So there's stuff like that. It can be a lot of things. It can really vary, but a lot of it is just what cars are available in certain markets versus not. Like, domestics in Detroit. There's always going to be a gazillion domestics in Detroit and sometimes they're still really strong, but sometimes that market gets a little overfilled and they can get a little soft because there's just too many up there where there may be a huge void in Florida or somewhere like that where they can't get them. Toyotas have always been kind of regional because it's like the Toyota versus Southeast Toyota versus Gulf states versus who's getting the cars where. Toyota's so inventory driven, you can have some pretty wide variation.
CDG: Well, there you have it folks. 1% margins, trade in your car to states that don't do lots of leases, The car business is driven by vibes and we're all just winging it.
Chad: That's it. That's it. Vibes, baby.

Wholesale Car Club

CDG: This has been a this has been a hell of an episode, but we're not done yet. I do have other questions here, so as I thought about this episode, I was thinking through, How do you maintain an edge? This takes cutthroat to a whole new level when I think about the wholesale business. I was thinking about, what people here may not know, at least my audience may not know is that you have co-founded a Facebook group, and the Facebook group is called Wholesale Car Club. So, shout out to Wholesale Car Club. I've been fascinated by this group because you have built, essentially a marketplace, a two sided marketplace on Facebook in a group with over 100,000 members. It's pretty much like a proprietary lead funnel for you at this point. So tell us a little bit about this group. How did you start this group? What's the purpose of the group? Traffic? I'm super curious to hear it from your perspective, why this group got started and how it's helped you get an edge in this very competitive vehicle acquisition market.
Chad: So the way it started, I actually just wanted to buy a watch. I like cars, watches and shoes. That's I guess my thing. I wanted to buy a watch. I wanted to try to get halfway educated about it. I don't know much about watches or whatever. I don't know how in the world somehow I stumbled upon this watch group on Facebook, and it's basically was just a watch group and it was dealers and consumers together. And I learned a lot about watches. I didn't try to learn it. I wasn't trying to flip them or anything. It was just like, okay, well, here's what I want to buy and here's like more or less what they're worth and you could learn pretty fast. But the most fascinating thing to me is, there's all these dealers interacting with these consumers face to face and it really benefited both sides. The consumers are getting a lot out of it. The dealers were getting a lot out of it. There was really more being shared than I would have expected. There's always a little brush back with that, you know the deal. I guess some hate that kind of like, basically you're letting these secrets out. And I'm always like, there's not any secrets. This is always how it's been. It's out there. Being transparent isn't giving away secrets. That's just part of the business, but it was cool. I ended up buying a watch from Vadim.
CDG: Who's Vadim?
Chad: Vadim, he's the other co founder of the group, so he runs all the motor groups. He's got a bunch of these Facebook groups. And I was like, Hey, we can do this for cars. This would work. People would love this. Dealers could get something out of it. Consumers can get something out of it. I'll help put it together. Basically, I'm not very tech savvy or social media savvy. I know the car business. We can do this. It'll work. And he was like, Cool, let's do it. And honestly, for me, it was just like, this is kind of a give back thing. I can do this. It's going to help dealers, it's going to help consumers. Didn't really know where it would go from that point. I really didn't. I can honestly say, it wasn't like I was brainstorming some way to create a lot more business. It was just like, This makes sense. This will benefit everybody. And if my general rewards, like I help other people, normally it comes back. It works out. So, if I help these other dealers and they'll sell me some cars or whatever, right? So we set it up. It's always been a private group. I think now there's like 140,000 people in there. I can honestly say it would be like five, 600,000 people if it was a public open group. But we've always kept it pretty tight because of the transactional nature. There are a bunch of cars traded in there. So it's like we kind of want to know who's who. It's pretty heavily modded and we try to do a lot of reference checks.
CDG: Do you make any money from the group, or really the way you're making money from this is from buying and selling cars through the group?
Chad: Yeah, I make money from buying and selling cars. I purposely have not taken money from the group just because I've always said like, that's not that's not why I did it and it's not my thing. I make money buying cars. So like, if you want to help me in response and a group, great. Sell some cars and we'll do that. One of the ways we really help a lot of people in the group that I think is good knowledge for consumers or even for dealers, it works out for everybody is: You go trade your your car at a dealer and you feel like you're not getting a fair offer. You can send it to us, we'll number it and we'll buy the car direct from the dealer and your dealer gets to flush out a car. If he didn't give you a good number, he probably doesn't want it. So it's like he's either selling it to me or selling it some other wholesaler. But we number the car, we get the car, we're happy. You get your new car, you're happy. The store gets their new car deal. They're happy. It's like an everybody wins situation. So that's how I make money in the group is just like buying the cars and dealers put deals together, meet some new dealers. Like, that's great. We just started taking any money from the group in the past, like six, eight months. And honestly, it's mainly just to pay the mods because we did get to the point like, I mean, in the group now there's like 140,000 people. It's very active, usually 120,000 active members, which means they're pretty much in there every day while we have a couple hundred percent in the comments or thousands. It's a lot to keep track of, to keep it civil.
CDG: Has anyone offered to buy the group from you?
Chad: Oh yeah. Like all the time. It's a pretty common topic. I mean, anything's for sale. I'm a car guy at heart, but if we would sell it, I'm not selling it for, like.. we'd sell it for a real offer.
CDG: Chad, what's your vision for this Facebook group, Wholesale Car Club? What's your vision for it? Do you have a vision, or is it just like, let it coast, let it bring some leads and let me buy some cars?
Chad: Yeah, I mean, I like where it's headed. Where it goes in the next iteration, I'm not sure. I like that it's got to where it is now. Basically, dealers benefit a lot from it, consumers benefit a lot from it. But I do think it works on both sides. It works for the dealers who get to sell the cars and get the customers. And just like some of the dealers you've had on, some of those dealers are super involved, and some of these guys are high level guys. These are owners, GMs, guys you normally can’t have access to. And they're like, right there in the middle of it answering questions, pitching cars, or working deals. Some dealer brokers, whatever. Like they've made a living out of selling cars in that group, which is awesome. Consumers get a lot of info. They can sell their cars easily. They can buy cars easily. There's just a good feel of like what the real market is. It's very easy to figure out like, this is what this new car is selling for, because you literally see it. You see the offers. To me, that's become a huge market tool is like just going through the group day to day. It’s like, alright, I know what these are bringing and I know what these are bringing. I know what new cars are available. I know what's not. So it's like just growing it that way is cool. And then, I don't know, I don't know where it eventually lands. We've always been hesitant to take it off of Facebook because there is some ingrained advantages of Facebook in that you're seeing all the real people. We don't allow new profiles. There's not a lot of ways or as many ways to trick it where you take it off of that. It almost adds a level of protection. We'd have to figure it out.
CDG: I think you're smart for keeping it on Facebook. Especially the fact that your monetizing through actual car sales because it's tough to get consumers, a customer, anyone to a whole new platform. I thought a lot about this, but I think that keeping it in there – plus, Facebook's free, so you know that's another thing to think through – and it just it keeps things, you know, keeps them in the ecosystem. And it's something that people do, or at least Facebook users check back on a very regular basis, so I do think that's a smart decision you made.
Chad: Yeah. And there's pros and cons, too. There's definitely some stuff. It's like, we run auctions in there and it's like pretty manual, but it does work. Sometimes it's like, Oh, it'd be nice to run the auction. But like I said, there is such an advantage. In a way, it is hard to trick Facebook if you're a real person or not because you can go see the guy's profile and go back years and years and, you know, we don't let the new people in there. It's like, if you go to my Facebook profile, you can learn probably more than I would want you to about myself, but you will realize I'm a real person, and this is what I've done for a long time sort of thing. So there's good and bad too. Yeah, for now, we just kind of keep growing it a little bit and kind of let it take off because it has been really successful and it's just created so much business for everybody. It's weird because it’s like borderline what I've become known for as much as anything. It's like, hey, like, you run the Wholesale Car Club or whatever. I do this or I do that. My wife gets the biggest kick out of traveling. We run into valet people or, you know, it's like almost every trip we go on now somebody’s like “Holy crap! It’s the Facebook Car Club guy!” So it really has taken off in a weird way. I mean, you know. Your thing has become a lot bigger than that. I mean, my list of goals when I started that was not to be that, like I'm not that dude. So, that part of it's kind of weird, but the helping out people and like feeling like that part of it is great because that was the intention and that's been good.

CDG face reveal?

CDG: You guys have been very successful. I think for me, I never imagined that CDG would be as large a brand as it is today, at least online, you could say. There's something fun – maybe fun isn’t the right word about being anonymous, because you're right. I do have hundreds of thousands of followers and I don't know if I want that, for someone to see me.
[Laughter]
Chad: Yeah, yeah.
CDG: You know, maybe it's cool the first couple of times. But I think, also coming out with this podcast, I didn't really care, or like I was anticipating a big flood of text messages and DMs saying, Oh, it's you. I was like, Yeah, it's me. So like, the people that know me know.
Chad: Know you, right. Yeah, yeah. They know your voice and stuff.
CDG: And I'm cool with that, but yeah. We'll get to the point where I do a full reveal and yeah, it'll be a fun day. But for now it's, you know, we're rolling with the punches and we're having a good time doing it.
Chad: Yeah, I think it's more with the anonymous.
CDG: Well, at this point, everyone in the industry that needs to know who I am knows who I am. I'll tell you that.
Chad: Yeah, once you started doing the podcast and stuff, it’s a matter of time.
CDG: Which I'm cool with. And the funny thing is, there was a Twitter spaces, like a live podcast with Jim Farley, CEO of Ford and Elon Musk. And so I clicked to join it the other day. And then Elon brought me up a speaker. I requested it. It was really funny because I guess Jim Farley thought I was a guy named Mike. I forget the guy's last name, Mike something, and he's like, Is that you? And they're going back and forth and Jim Farley to Elon, he's like, is that Mike? And Elons like, I don't know, is it Mike? And everyone starts laughing and I'm like, Hey, guys. I was like, I'm just casually having a conversation with Musk and Jim Farley. I'm like, Hey, guys, I'm not Mike, but I have a mic. Yeah, yeah. So funny little story from another day. I'm definitely not Mike for everyone listening.
Chad: It's been interesting. I've been asked a bunch because I'll reference some of your posts or whatnot and like some of it's online, some of it's offline. It's like, Do you know who that is? And I'm like, Yeah, I do actually. I'm a good secret keeper because I found out pretty early and I didn't smoke it anywhere. So it is like interesting because I've had a ton of people that are like, Oh, it's so-and-so. And I'm like, No, it's not. And they're like, How do you know? I'm like, Because I know who it is. I know for a fact it's not him because one, I know who he is and two, I know the other guy and it's not him. But yeah, it's funny. They think they just put a name with it, like, oh, it's this person.
CDG: Yep.
Chad: And they've been convinced, probably like Jim Farley. He thought you were Mike this whole time. And that's how he reads into it. Whoever Mike is, so shout-out to Mike.

Wrapping up

CDG: Well, dude, this has been awesome. Just, learned a lot. Lots of really interesting stories. And I got to say, your level of knowledge and depth in the wholesale business is pretty fascinating. So I think people will love it. In terms of where people can learn more about you, how to sell you a car, plug it in and tell us everything we need to know.
Chad: Yeah, I appreciate it. So, yeah, if you're selling a car, wholesalechad.com or wholesalechad@gmail.com. I've had the WholesaleChad thing for a while now, so that's the easiest way to find me.
CDG: That is very meme worthy. You could make you could make a hell of a meme out of that.
Chad: Yeah, I need to get with you and you can help me out with that. But yeah, wholesalechad.com or wholesalechad@gmail.com. Now, I've got a whole buying team that helps me with that. So it's like, you know, there's plenty of people working it. I mean we, we run like a quick sale hour in the Wholesale Car Club where we'll get like sometimes a thousand appraisals. We can handle a lot of appraisals, stores sell to us, consumers sell to us. We’ll buy anything. So that part's easy. Other than that, I am on Instagram @wholesalechad and on Facebook under my real name, Chad Cunningham. So if you want to follow me on social, even on Twitter months ago, it was always such a different platform. Twitter for me is like my morning paper. Yeah, like I get up and I like read just to kind of see what's going on. But I've never been active. So like, you find me on there, it's probably like in tweets when I was in college or something. That's the best way to find me, is I am active on social. I'm one of the more easy, probably transparent guys on there as far as that goes. Join the Facebook group. We’re in there, CDGs in there. So there's a lot of good car guys in there that share a ton of knowledge. It's like a lesser version of your Twitter account. I guess it's a lot of the same stuff, like if you want to really see get like some real info and some real knowledge of kind of what goes on in the business and watch car people interact with non-car people, which to me is like where you really learn stuff, like the real interactions. And that's what's crazy about today's time. Like I tell young people coming up all the time and it's like you have so much more exposure to like talk and these people now, like where I was coming up, it would have been like, call them on the phone. I mean, I even know you get there, you know, it's like, get in the yellow pages and try to call them so thats really cool. We now today, like we can chat, we can have these combos, we can post them for people and it's cool. Today, cool thing you're doing and like, I'm glad people are getting to see and hear. I think the transparency is good for the car business. I love the car business. I think sometimes it gets a bad name for trying to be like a little old school and I think the new school transparency is good for everybody long term. If you just kind of embrace that part, there's plenty of business to go around. There's plenty of cars to go around and nobody is trying to hurt anybody. I mean, buying a car should be fun. Selling your car wholesale should be fun. I mean, I've helped friends buy cars before and I'm just like, this should not be that hard. I like to make it fun. I mean, that's my thing is like it's really easy and that's cool. We'll see where it goes from here.
CDG: We'll dude, this was great. Thanks so much for coming on. I really had a blast. And I'm excited for this episode to go live. I think people will love it. You shared a lot of gems. Hey, by the way, I did sell my car to WholesaleChad. True story.
Chad: Oh, yeah, that's right. I need to add that to my profile. CDG sold me his car. He could’ve sold it to anybody, but he sold it to us!
CDG: So I think that's the ultimate endorsement. Not paid, by the way, not sponsored, but it's the truth. It was just so easy. I just hit up Chad like, Yo, Chad, I need to sell my car. He's like, Yeah, no problem. And just like, boom, boom, boom. We got it done, so, super easy. And yeah, highly recommended. This was great. Chad, thanks for coming on, man. We’ll talk soon.
Chad: Thank you. Have a good one.
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