The Barbarians at the Gate: Do You Hear Them Knocking?

Barbarians at the Gate

My 94 year-old grandmother grew up in London during the 1930’s. She climbed out of her cellar one morning, only to discover that the back of her childhood home completely gone. The result of a V1 rocket explosion. That same day, she climbed over the rubble of what used to be the former grocery store, and still made it to school on time that same day. She recently told me, “there simply was no other choice but to keep pressing on”. When the war was over, she made the TransAtlantic journey to the U.S. with my grandfather to Chicago.

When I spoke with her recently, I asked her about WWII, and what it was like to experience something like that. She told me that everyone knew that there was an imminent threat from the Germans, and that everyone waited far too long to take action. The Allies obviously won, but that victory came at a tremendous cost.?

There are so many parallels between Germany invading European countries at the beginning of World War II, and the current disruption of the retail & wholesale used car market.?

Let’s begin with revisiting how it was even possible that France was completely caught off-guard by the German blitzkrieg invasion on the Eastern Front?

Churchill publicly warned in 1936 that if immediate action was not taken, the German Luftwaffe would more than double by the end of 1937. This would put the British Royal Air Force at a significant disadvantage. Churchill's predictions about German military power (particularly air power) proved to be correct.?

Churchill later said that 1934 and 1935 that those years should have been "The Locust Years". Indicating that those years should have been spent developing infrastructure, and preparing to potentially face Germany. In retrospect, those years were wastefully spent.

In 1937, Prime Minister Neville Chamberlain began to seek a peace accord with Germany. Not to avoid war, but to limit spending on arms. Chamberlain felt that Great Britain did not have enough military budget resources to spend at that time. He even proposed giving some of the British colonies to Germany, rather than standing their ground.??

In March of 1938, Hitler invaded and occupied Austria. At that time, Churchill responded, "Either we submit, like Austria, or else to take effective measures while time still remains to ward off this potential danger."

The British Parliament dismissed the German threat. The Germans were not directly affecting Great Britain’s “immediate market”. They also agreed that France would deter any potential German aggression. France just stopped Germany in their tracks in World War I.?

To verify that Germany was not a threat to Great Britain, Neville Chamberlain traveled to Munich for a meeting with Hitler in 1938. Upon his return, he announced to the British people that the British people should “sleep well tonight, you have nothing to worry about”. In less than six months following that meeting, Hitler invaded & occupied Czechoslovakia, Holland, Norway, Denmark & Poland. Hitler’s Germany never filed a formal declaration of war. The French assumed they would not be able to attack without a “formal declaration”...or so they thought.?

On the northeastern border of France in 1940, there was a 250 kilometer traffic jam of over three million German soldiers. They were waiting patiently at the Belgian border. France never suspected a possible invasion from the east, due to a false sense of security from the Maginot line trench. The Germans lost the trench warfare battle in World War I, as a result, the French failed to have their guard up. This false sense of security would cost a very high price shortly thereafter.?

Hitler called for an unconventional, innovative strategy that no one would expect. The strategy was so outside the box that even the highest ranking German Officials were skeptical of it. The plan was to invade through the harsh terrain of the Ardennes forest, the only unprotected stretch of land on the eastern front.

The French were in a comfort zone. They were the victors of World War I, and their success left them blind to the imminent danger that was soon to follow. It is very easy to revert to a comfort zone when we are winning.?

Nazi Germany invaded & began occupying Poland. When the Polish Prime Minister first heard news of the invasion, he did not call Neville Chamberlain. He called Winston Churchill. When Churchill informed Mr. Chamberlain of the news, Chamberlain responded that they should still seek to negotiate for peace with Hitler...AGAIN.

The auto industry is currently enjoying the best of times right now. When times are good, is the time when it’s easiest to let our guard down. It’s so easy to justify that action is not necessary. Why take action when we’re winning? It’s not directly affecting us immediately, so why do we need to deal with this now? We moved forward 5 years of innovation in the first 5 months after the beginning of COVID. When consumers began to visit showrooms again, that level of innovation began to slow.

There is a good reason as to why Carvana’s market cap is so high. Wall Street analysts are looking at the amount of upside that there is, if auto dealerships fail to take action with digital transformation. Wall Street is almost counting on it in their valuations.?

To protect our businesses, we MUST sell the client in the way that the client wants to BUY, instead of sticking with processes that make it easier for the way we want to SELL. We need to evolve to a point where we are able to SEAMLESSLY integrate the showroom experience wherever the client left off online.

The right time to overhaul dealership culture to connect the digital showroom to the analog showroom is immediate. We need to understand how Carmax acquired 384,000+ units in Q3 of 2021 alone. We need to identify the way they are generating significant profit with unusually high appraisal values. Rather than using confirmation biases to dismiss the appraisal values as insanity. All of this doesn’t seem like an immediate threat, because they are not beating us on the “sales” front, they are beating us on the used car acquisition front.?

We are currently in the Golden Era of retail auto sales. It’s never been as good as it is right now. And that is also when we’re most likely to let our guard down. Many dealerships have a leadership version of Chamberlain in their midst. Many are listing their wholesale inventory on Carvana’s website. Many are playing defense, when they should be playing offense.

Digital transformation may seem as daunting as boiling the ocean. It’s not about having a “trade-in widget” on your website. It’s about committing to buy customer’s trades, whether or not they buy from us. It is about having a process that is so simple, fast and easy that it just WORKS. Your smartphone did not come with an owners manual, it’s designed to be simple. So it just WORKS. This philosophy must be embedded in the cultural fabric of the entire organization.

We need to prepare for more than Carvana & Vroom. There’s also Tesla, Lucid & Rivian. They will be followed with Apple & Google introducing autonomous vehicles not many years from now.?

Right now are the “Locust Years” for the retail auto industry. It's the time for innovation and fortifying our infrastructure for the impending barbarians at our gate. When this bull market inevitably begins to fade, we will need to be prepared to go on offense against these competitors. It will require massive grit, determination and a culture that will thrive in the face of adversity. When we have that, I wish them good luck. They will need it.