What happened at Excell Auto Group and CNC Motors is going to keep happening in the dealership world.
Before I’m telling you everything about this, let me pretext a few things:
First – This is going to be a long blog post.
So get ready for a very educational lesson about what happens to dealerships and why they end up going down as these two did.
Second – We’re going to understand the evolution of these mistakes and how they take us from a simple mistake into a significant problem.
If you’ve watched youtube videos about this subject of car dealer fraud…
You must have seen that they portray it like we all perhaps have something to do with it.
And how normal consumers are allowing dealers to get away with it.
Today, you’re gonna find out if this is true or not.
Third – you’re going to learn how YOU as an individual…
Can literally protect yourself from these types of issues (since they become more and more common).
Let’s start by talking a little bit about how I teach people to “hack” exotic cars.
Which is to get in and out of exotic cars without losing money.
One of the main concepts of Exotic Car Hacks is to teach individuals how to have a GOOD and EXCITING experience when it comes to owning an exotic car.
There is nothing worse than owning an exotic car and having such a terrible experience that you never want to do it again.
That’s why part of our platform teaches people not only how to get in and out without losing money…
But it also teaches people how to ensure they have the right support network to repair cars.
They also develop the ability to get low insurance rates and everything else that comes with the car, ensuring they have a good experience for the 12 months of ownership, making them want to do this again and again.
This is something that a lot of dealers don’t care about because they don’t thoroughly check their cars.
ESPECIALLY in hot markets where inventory turns over quickly (more on this later).
They just sell you the car: “Hey, just drive this then go, and YOU figure it out”.
On our platform, we work a little bit different to ensure that you as a consumer, don’t basically fall victim to shady dealership practices.
So let’s take a look at Excel Auto Group and CMC Motors so we can understand what has happened and what that evolution from legit to fraudulent really looked like.
You might have noticed that we have done small collaborations with Excel Auto Group from ~2014-2019.
I bought and sold many cars through them.
Until I started to notice this specific financial pattern (about 2 years ago or so).
And I was unfortunately compelled to sever that relationship COMPLETELY.
I saw the writing on the wall and knew the same scenario as CNC was coming – it just was too risky for us as an organization to continue being involved.
So we walked away.
Let’s look at what happens over time because this is the topic of discussion today, something that again, people aren’t talking about.
They’re talking about the scams and everything…
But they’re not talking about this word, which is the entire problem itself.
It’s called – The Float.
What is the float?
Well, the float is the exact reason dealership’s go under.
It’s the amount of time between a transaction and the finances of that transaction take place.
To make it simple for you to understand, here’s an example:
Let’s say you buy a car from a dealership on May 7th.
And the cost of the car is $300,000.
Now, there are two ways you’re going to give them $300K.
Either you’re going to wire them the money.
Or you’re going to get a loan for the car and finance the car.
(Both are good angles)
The time between when you pick up the car to the time you (or your bank) receive a title is about 30 days.
This is why you get what you call “A 30-day temp tag”.
That is what is supposed to occur in a normal dealership transaction.
But because sometimes these things take longer, some dealerships issue two temp tags – giving you a total of 60 days.
These two temp tags are gone directly through the system used by the DMVs.
A third temp tag would have to be handwritten and we would have a very good justifiable reason why the transaction was not able to be completed within the 60 days.
But – the only way a dealer would get caught for these third temp tags would have to be some level of audit…
Or something happening from a DMV level to look at the dealership and go “Why are you issuing so many temp tags?”
So if a dealer issued too many temp tags (that are the third ones)…
They would end up on a list of dealerships that are most likely to be audited because there’s a lot of red flags.
So dealers understand that they have 60 days as a hard stop to get a title to a buyer.
Now, here is where the problem really starts.
Let’s assume there is now a maximum of 60 days between the time you purchase your car and the time that the dealer has to send you title and registration because you’re technically legally driving a car with a temp tag and temporary registration.
Well, here’s what occurs:
The issue isn’t where your money came from, but rather where the car’s money came from.
There’s a couple of ways this car could have gotten there.
- It could have been consigned
- It could have been bought outright by dealer funds
- And… it could have been a floorplan (lines of credit offered to auto dealers to buy inventory).
When people sell a car to a dealership (either outright or trading in on something else)
Typically they have some type of loan on the car.
That’s why you give them a leeway of 30 days to basically pay off that loan and make the credit (aka making the payment as agreed on the contract) and basically take ownership of the title.
But you are doing the transaction that day – meaning that you may not get paid either until it’s a consignment or even until the car is sold.
If it’s bought, they might have a floorplan where they’re able to get a credit company to pay for that car, so they’re able to send the title there instead of keeping it in the house.
Now, this gets a little complicated because there are so many ways a car can be bought (Don’t worry, I’ll simplify it and make it easy to understand).
Sometimes dealers buy cars from each other and don’t really pay each other until WEEKS later.
So there is still a gap there.
The problems occur in the gap between these transactions because what happens is this:
When you buy a car from a consumer (or even when a consign car sold), it might have a loan on it.
And while you will pay the owner the difference between their loan and the car sale (if it’s there)…
You typically won’t pay the loan for 30 or 60 days.
This is where The Float begins to get really weird.
I’ll give you a good example.
Let’s say a consigned car carries a $200K loan and $100K in equity.
That $300k can technically be made whole by paying the owner $100k of the equity and then paying off the owner’s loan.
Therefore giving the dealer title transacting on this title.
That’s what you’d call a perfect transaction.
But here’s where the problem happens:
The $300k used to purchase the car is absolutely used to pay the equity to the owner.
The reason is because the owner won’t really submit or forward the title to the dealership to transact on it because the loan owns the rest, but the person won’t really relinquish their car without some kind of payment.
So usually the person will get this payment first and will say:
“OK, well, you made me sign papers that you’re going to pay off my loan and you gave me the $100K equity in my car”.
That is a typical scenario that is supposed to play out.
BUT the dealer goes “Well, wait a minute, I don’t have to technically get this new guy title for a total of 60 days.”
If they can move a car on an average of 15 days, that technically means three cycles, right?
For 45 days they could use that $200K that they owe to your bank, and they could technically just start flipping other cars (because they don’t have enough money for inventory).
So instead of paying off your bank and doing a 1-to-1 transaction and then closing the transaction…
They’re going to take that money and they’re going to buy another car now, sell it, get the money again, then buy another car, sell it, get the money again, etc.”
Here’s where this problem intensifies and magnifies.
With every other purchase the dealer makes, they’re putting their dealership yet in another similar situation.
So it’s creating this loop where at some point where they’ll have $800k in debt because of all these cars they have to pay off.
They’re basically buying everything on credit terms with someone’s money that should have been closed WAY earlier (up to 60 days ago on their transaction).
Remember, at this stage, they still don’t have a title because the title is with the bank holding the $200k.
So technically they still can’t provide the original purchaser of this car a title because the money is now stuck in another car.
And let’s say they sold the car in between, and did a 1-to-1 transaction.
But if they get greedy and all they keep doing is recycling that $200k just to keep going over and over between other consignment deals…
Well, all of this creates a HUGE backlog of debt.
So they are forced to use new money to pay off old debt.
Meaning they have to sell car number two (or four, or six) with someone else’s $200k+ to start covering the old debt.
But – it gets WAY worse than this.
This is just the beginning of the scam.
What ends up occurring is now they have all this money…
And at some point the second car they sold covers the first transaction so they can wipe off that guy from their “pending” list, pay off his debt and move forward.
But remember – they built another $600k in debt from that original purchase by flipping three more cars.
Now they just took in another $200K, so they’ve got to put the second guy through the same 60-day loop so they can keep fueling the new cars that they’re getting in.
The gist of the problem is that basically they are floating money that they shouldn’t be floating, because it was NEVER connected to their cash or their credit.
That money wasn’t intended to be for new cars. It was to pay off another person’s loan.
The point here that I’m trying to make is that new money is basically used to cover old money.
That reminds you of a…
Ponzi scheme!
Right?
That’s what it is – a simple Ponzi scheme.
So as long as they can keep all these Ponzi schemes within a 60 day range – they’re really good and they’re getting free financing for more inventory.
This is usually doable for a couple of reasons.
In the last two years, the car market was really exciting.
The average time a car sat on the lot was three days (if you were a good dealer) because the market was so hot.
(That’s why I mentioned above that they aren’t really checking cars over anymore – they don’t stay in inventory long enough)
Now, previous to COVID, it was anywhere from 60 to 90 days.
This is why the exotic car industry and the luxury car industry have seen such a boost.
You’re now turning cars over in three days instead of 60 to 90 days.
So, that money is coming back – $300k every three days.
But remember – you’re getting 60-day floats, right?
Now the spread and the debt are increasing significantly.
But what occurs is these Ponzi schemes work until that goes away.
Once we no longer have three days and we’re back to 60 or 90 days, all of these other debts come due, and there is no new debt to cover all the other debt.
This is the gist of how dealerships start to get in real trouble.
Basically, using the “float” to make their money and fuel their lifestyle in between these two things.
And when their float is too bad, they just sell a car and try to recuperate as much money as they can.
Here, it gets even more criminal.
When you floorplan a car, you have to submit a title.
So you submit a title to the floor planning company who then funds you for that specific car.
Their intent is basically that this car cannot be sold, obviously, without a title.
But here’s the problem:
These float opportunities always exist.
When you go buy a car from a dealership and the dealer finances you, there’s a bank behind the transaction.
Let’s say you are buying a $300k car.
The bank the dealer uses pays $300K and has 30 days to receive the title.
Here’s another float being created again: the bank paid $300K TODAY to the dealer fund your car.
They won’t be made whole by the actual dealership for 30 days with a title.
But they already gave $300K and you drove away with your car.
What happens if this car was financed elsewhere, perhaps because it was consigned or floorplanned?
The dealer does not have to pay this off instantly.
It’s going to use that same methodology to float again.
So the financing here is creating a 30 – 60 day float. (0-30 to get title from original lien holder, 30-60 to submit title to new lender)
And where the financing happens (or the consignment) is where things change.
So here is where this model starts to get completely out of control (this becomes literally criminal).
The bank has basically paid $300k for your car and they are waiting for their title.
But meanwhile, the other bank doesn’t get paid for 30 days for the car that could have a loan on it.
So, at the 30 days, the dealer sends a check out (which takes an extra six days to clear and six days to get there) for the amount of the original finance company (so he has a record of sending it on time).
He then sent it to the new bank to show them they were waiting for the first bank to pay off the car…
And that they finally got their stuff and they’re waiting on a title so the bank gives them another 30 days.
That’s how they basically create a 60-day float again.
It’s a problem within a problem.
Doesn’t this remind you of the mortgage crisis in 2008?
It was just this crap over and over again.
Now – let’s do something much crazier that gets even more criminal (I really like this one).
Let’s assume the car is owned in cash.
So this is a cash car, which means the title for this car is available TODAY.
Here’s where the dealer can do something super criminal.
What he would do is get the title to the car, and instead of sending it to the bank, he’s going to send it to the floorplan company.
The floorplan company is going to give them $300K.
You see what’s happening now?
The bank already paid $300k and it’s supposed to receive this title…
But the dealer goes “Well, I got 60 days.
So what I’m going to do is also sell this car to the floorplan company to get an extra $300K in funding.
Now I’m taking $600K out to fund the $300K car.”
They ran the deep scam.
What they’re doing is they’re sending the title to a floorplan company to get $300K because they know they have 60 days before they have to record a lien on the title to the financing bank of the end-user.
And they know they have 30 days to get the title back from the floorplan company.
So they’ll basically do that to double up their gain and use that money to then buy more cars.
This gets even MORE confusing…
And even MORE f^cked up…
When you keep adding consignees and people whose money is actually tied in these cars.
What occurs is The Float becomes the issue because of how out of hand it gets and how criminal it gets…
Based on duplicate titles being issued to floor plans (or getting a duplicate title without the owner’s consent) only to send it into the floorplan and use them as bait.
There’s hundreds of reasons why The Float becomes a problem for Excell and for CNC Motors, which has led them to go down the toilet on their inability to control their float.
So – What are the signs you can look for when a dealer is being really bad with floats?
How can you protect yourself?
There are a couple of signs that become very apparent with floats.
An average payoff takes ten days.
A dealer uses a ten-day payoff on your sheet whenever buying a car from you.
So you own a loan, you sell the car to this dealership and they have to pay off your loan.
They take a ten-day payoff from the bank, assign that payoff to the sheet and go “That is the payoff, and the rest is yours”.
Then usually, you receive the difference from the bank (not from the dealer).
If a bank has not received your payoff in ten days…
That’s your first red flag.
If you go to a bigger dealer (like a well-funded AutoNation or something like that)…
That always occurs usually in three to four days.
Now, here’s the worst red flag you have to watch out for.
If the dealer says “We only send checks for payoffs”.
We’re in 2022. Every single one accepts wire transfers.
So if you can send a wire out to pay off a car, why do you need to check?
The second red flag It’s about the time checks take.
They enhance the flow. Get it?
So what else happens?
Well, it keeps getting worse.
Here’s the problem: dealer claims pay off (no proof).
Pay off is over ten days late (Your bank hasn’t received it).
They have nothing pending in their queue.
You go to the dealer and you say “I’m sorry, what occurred? I’m still making payments here. I’m about to be late.”
Dealer – “Well, I paid off your car three days ago.”
You – “Great. Could you send me a copy of the check?
Or a screenshot of the wire so that I may ask my lender?”
Now, one of the biggest tricks in the industry is dealers that send checks because they’re trying to make their floats longer…
Will actually send out next-day-air envelopes without checks in them to these banks so that they can give you a tracking number saying the check went out…
When in reality, there’s nothing in the envelope.
The tracking gets there, but it’s an empty pouch..
So what does this do?
Well, then the dealership can blame its team for forgetting to put a check and buy themselves an extra ten days to do it…
Because they showed their “intent” was “honest” because they sent the envelope to the bank.
So the point is all they’re doing again is coming back to this word – float.
They’re floating money, and they’re floating much more of it than they can afford to pay back.
Here is the final sign you should be looking for.
If things are going bad for the two individuals and the dealerships start to bring in private investors from the street?
This is the biggest red flag that you need to start looking out for.
Every single one of these boutique dealerships might have investors behind it.
But when you’re a key investor, you cannot do that and will not do that.
There are two reasons for this.
One – they don’t know the kind of shit you’re running to.
Two – You don’t want them to know.
So when you go “on the streets” you basically open up regular people the opportunity to buy into your inventory and help you.
But all you’re doing is remember you’re playing catch up because you’re like 30 million in debt, but you don’t have any more money.
Even so, they don’t do it on purpose.
This is the part that you have to understand.
They’re falling victim to their own trap.
They’re falling victim to their own inability to manage their float.
They’re not intentionally attempting to rip you off.
They’re making bad decisions along the way.
They’re not downsizing their team, their cost of operations, buying fewer cars.
Instead, they’re doing more.
And so they’re using more float to create more revenue, to create more profit only at some point to realize the float is completely out of hand.
And the issue with the float is that it’s basically investor money that no one wanted to invest.
The Float and the timing between each of these sectors and their requirements are so wide…
That it creates this opportunity to basically double and triple dip (no pun intended).
But anyway, the main thing that I’m trying to explain to you here is to understand that these are two flags that basically exist for every single one of these dealerships that’s perhaps too small or too big.
And when they get worse like that, they start to trigger these flags that prevent you from getting on so you don’t get caught left holding the bag.
And this is the important part – A lot of these signs were present, and we warned our community internally about the senses of the world and the excesses of the world over the last two years.
But outside of our community, we obviously have no way of knowing everything and telling the world what’s going on.
That said, there are a few basic things you can do to protect yourself when purchasing a car.
Here two some of the ways:
- Get a title copy
- Make sure it’s not a duplicate.
What does that mean?
Get a copy of a title given to you so you can have the title as soon as you pay for the car.
But ensure that it’s not just a black and white copy, but an actual copy (like a photo that someone took of the title that is in their hands).
That will tell you that the title hasn’t already been copied and then sent off to a floor plan.
If it is sent off to a floorplan, at least you’ll know what your expectations should be.
The other part that matters is to make sure it’s not a duplicate title.
Because often, if there’s a scam going on between titles and ownership of the car, ensure that the title is actually in the dealership name.
You see, one of the tricks dealers use is to reassign titles on a continuous basis because they don’t go to the DMV every time they buy a car to convert a title in their name.
Now, with smaller boutique dealerships, it does make sense when you’re unsure to ask them for a copy of a title in the dealership name, NOT reassigned.
This will prove that they have full ownership of that title and aren’t just floating an old copy of a title around to give you fake peace of mind.
This is a very basic trick that allows you to take 90% of the problem away.
The other thing to understand is that most dealers are not scam artists.
The scam comes when they steal from you or attempt to defraud you (not just when they charge you a lot of money for a car).
It’s important to understand the difference, and it’s also important to understand that some level of trust goes in.
As Rob Ferretti stated in his video on the same topic, one of the best things to do is to check reviews.
If reviews that are on the dealership are talking about people not getting titles, not getting their payoffs done, on time, then you have a very big red flag in front of you.
Make sure you check those reviews and you can check those reviews and they matter in terms of having negatives.
Remember, this isn’t about “Does the dealership have good reviews?” (most people don’t leave good reviews).
It’s about looking at “Does this dealership have bad reviews?” and what do those say.
You don’t look for ANY bad review (for example I once saw a bad review from a guy who couldn’t get a bj in the car).
You’re looking for what is the actual concept here that they’re reviewing.
That’s a very important thing to check, and even double-check.
But the copy of the title is what’s going to really give you that peace of mind and understanding of how it works.
And finally, this is the other thing that matters:
The source of the car.
A lot of times dealerships will lie that the car they’re selling you is owned by them and not consigned.
Honest dealers will not lie.
Many times when you call an honest dealer and ask them “Is the car consigned or do you own it?”
They will tell you the car is consigned and they have a separate owner.
And you can ask further questions like “Does it have a payoff?” to have a clear expectation of the time frame it will take for you to physically pick up this car.
You also need to have a realistic time frame on when you’re going to actually get a title.
These are two ways you can protect yourself from this entire concept of floats and how they impact dealerships everywhere.
Now, as far as we’re concerned, we’re very sorry to hear about Excell Auto Group.
A lot of the people who worked there were incredibly cool people (some of them not as cool), but most of them were good people who unfortunately got caught in a really bad scheme.
And reality, you just have to understand that what happened to CNC Motors and Excell is the owner’s fault 1000%.
There is nothing around that.
It’s also part of a really broken system that has no accountability around where titles are.
Title fraud is one of the easiest things to establish in the dealership business and one of the easiest things for someone to get greedy with and play with in order to find more money that they can use for themselves.
One of the things I recommend in general is learning more about the industry and understanding more by actually becoming an Exotic Car Hacks member to protect yourself…
Not just around these things, but stay up to date with industry news and the best dealers to use when transacting on your exotic.
Hope you found it educational and it made sense to you.
If you want to become part of the Exotic Car Hacks community (with over 18,000 active members), click here.