In years past, a common criticism the auto industry has faced is that it’s stuck in the past or slow to innovate. However, industry professionals on the showroom floor every day know this simply isn’t true. Here to walk us through some of the defining auto retail trends for 2019 and exciting new developments to watch for in 2020 is Steve Finlay, Editor at WardsAuto Magazine.
Jim Fitzpatrick: Hi everyone. Jim Fitzpatrick with CBT News. Thanks so much for joining me today. Actually, today on this very special edition of CBT News because I’ve got my good friend, Mr. Steve Finlay, who’s the editor of WardsAuto. I know that you know this face and you know that brand because they have been around the business a very long period of time. Not you Steve, because that would make you an old guy, which you’re not. Welcome into the show Steve. It’s so good to see you.
Steve Finlay: I’m only in my 20’s.
Jim Fitzpatrick: There you go.
Steve Finlay: Thanks Jim. It’s great to be here as always.
Jim Fitzpatrick: Sure. What a year 2019 turned out to be. It had some crazy times in it, although again, we finished at 17 million vehicles. This is great news for the industry, as you know. We saw some trends out there. You guys at WardsAuto, you’re kind of the gold standard out there with regard to the editorial content that you push out and you’re an inspiration to all of us that are trying to keep up with you in the industry. Nevertheless you’ve got some writers out there that are following popular trends in 2019. Talk to us about some of the things that had jumped out last year that, that you think, wow this was kind of unique thing that we have to follow into 2020.
Steve Finlay: Well certainly the talk of EVs. There’s still not all that many of them on the market, but there’s a lot of talk about them coming. I think that really is real. You got a lot of auto makers looking at that, participating in that, so we’re going to see the age of EV at some point. I’m not quite sure. Certainly before we see autonomous vehicles. According to some predictions awhile ago, we’d be driving around in autonomous vehicles right about now. That’s not going to happen. It’s just so complicated to turn a car over to the car in any situation. Granted, down the freeway, that’s doable. But you know, side streets, past schools zones, all the imponderables that are out there. Other decisions that a human being makes, from getting from point A to point B, has to be incorporated in that car and they’re finding out it’s a lot harder than it was expected to be. It’s not to say it can’t happen, but it’s not going to happen anytime soon. Whereas EVs probably will.
Jim Fitzpatrick: Sure. We are seeing some applications though out there of autonomous vehicles, right? There’s some pockets of the country that are utilizing cars and Google and Waymo and things of that nature, right?
Steve Finlay: Definitely. They’re doing their testing. What I’m talking about is a mass movement to autonomous vehicles and then what is it, level five, where the vehicle is completely in control and the driver… well there isn’t going to be a driver. And then you wonder, that moves a lot of responsibility in terms of legal liability to the automaker who has created these systems. I’m trying to get my head around what the world of autonomous vehicles will be like. You were saying just before we came on the air about the American’s love affair with automobiles where so much of that love has to do with driving the things, right? So if that’s taken away, there’s going to be a fundamental shift. And it’ll be interesting to see how that plays out, culturally and otherwise.
Jim Fitzpatrick: I agree with you. We haven’t even mentioned the cost of what a level five vehicle would be when it hits the market. Mercedes-Benz will tell you that it’s going to be a great car. It’ll be $300,000 but it’s going to be a great car. So then it takes it even another level to say, okay, you’ve got it, you’ve got the technology, we have the infrastructure. Who can afford one, right?
Steve Finlay: Well, yeah, that takes a lot of people out of the market and then all of a sudden you’re talking about fleets. And so personal ownership would be dramatically reduced. I’m sure dealers would love that, right? So it’s going to fundamentally affect the auto retailing economy too.
Jim Fitzpatrick: Sure. We are seeing-
Steve Finlay: I’m not predicting doom and gloom. I don’t think we’re going to go to heck in a hand basket or anything like that when autonomous vehicles come. But it is going to be different.
Jim Fitzpatrick: In fact, even in the EV market that seems to be at least picking up steam, maybe it goes from 1.5 to 2% of the overall vehicles sold out there. But I think as these auto manufacturers build in better designs and also try to do away with that range anxiety and we get to 350, 400 miles on a charge. And we’re able to charge the car quicker, it’s only 10 minutes, 15 minutes to recharge that battery. More of the infrastructure’s in place at shopping centers and restaurants and movie theaters and everything else as we’re starting to see, at least here in Atlanta. There’s probably not a shopping center out there that doesn’t have a charging station to it. So do you think that we’ll see over the course of the next couple of years, a substantial bump in EVs?
Steve Finlay: Yeah, we will. And because of so many of them being introduced. And then what you just mentioned, the infrastructure issue with the charging. Once that’s established as a network, then a lot of people will look at EVs or have them on their shopping list. I was talking to a tech guy who’s a chief technology officer for one of the suppliers that works on EV parts, and he was saying, there’s three things you have to do with the battery. You got to make it smaller, you got to make it more powerful and you got to make less expensive. That’s the trifecta right there.
Jim Fitzpatrick: Oh, just those three things?
Steve Finlay: When you do do that, you significantly increase the consumer interest in EVs. So that should be interesting to watch. Like you say, right now it’s below 2% of the market. It’s very much an internal combustion engine world. But we’re going to see that change.
Jim Fitzpatrick: And then also, the disruptors out there like Carvana and Vroom where vehicles, and we’ll get into digital retail, and I guess this is a perfect segue, but it seems consumers are interested to say the least about having a vehicle that they purchase on their phone and have it delivered right to their front door, and complete all of the I was going to say paperwork, but complete the transaction because there’s no paperwork, I guess. Complete the transaction online and have the vehicle delivered right to your front door. And if you don’t like it, then you can return it after seven days with a very liberal exchange policy. One hundred and seventy-six thousand people purchased a used car that way through just Carvana alone. What’s your take on that? Do you think that’s a fad? Do you think it’s here to stay? What can dealers learn from that?
Steve Finlay: Oh that’s definitely not a fad. That’s the future and it’s here. And dealers are pretty smart in that. If it works for Carvana, they’re going to adapt a lot of those practices, and they already have. You can do a lot digitally online. Now it’s interesting, I was talking to somebody who was involved in that sort of thing. It’s Roadster in fact. And they were saying that you’d think there’s this linear path to the dealership that you do all this online stuff and then you just go to the dealership to wrap up the deal and drive the car away. And what she was telling me is that people are going back and forth. They might start at the dealership, then go online and start doing their digital search. Usually it’s the other way around.
Steve Finlay: They do digital research, but then they could go to the car dealership then back to do more digital research, then to the car dealership, then pull out their phone while they’re at the dealership and start comparing prices or seeing if the F&I manager is giving them a competitive deal. So that stuff’s going on big time right now and it’s certainly not going to end. It’s going to potentially… I don’t know how many people want to do the entire deal online. I think that’s a very small percentage, but virtually everybody is using the internet to their advantage when they’re buying a car and they should.
Jim Fitzpatrick: Their forecast at Carvana is to hit 2 million vehicles sold in the next five years, which is pretty aggressive. But, if they just did 176,000 last year, then they’re certainly on their way of building that.
Steve Finlay: They’re rocking and rolling. And number like that are going to get dealer’s attention whether franchised or independent. And you’re going to see if it works for Carvana, you’re going to see that adapted elsewhere. I mean you already are really.
Jim Fitzpatrick: Do you think we’ll see the OEMs providing support in this to say we want to get out ahead of this and Toyota wants to make sure that they’re first to market with their online program before Nissan or Subaru or the others or whichever one that runs out there and does it. So do you think we’ll see more of a push from the OEM side as we move forward for dealers to do this? And this is of course in the light of the dealers building these multimillion dollar facilities for people to have a better experience in their stores, right? But do you think we’ll see OEMs getting behind this in a big way and saying yeah-
Steve Finlay: Yeah. Well they already are to a large extent in varying degrees. Hyundai came out recently with that program, which is basically an online, almost A to Z online, and they were careful, and this is important, to get a dealer partnership and buy in with that. Because in the early days it seemed whenever the OEM had an online or digital initiative, dealers were like, whoa, wait a minute. There were people egging them on and saying they’re trying to cut the dealers out. And so dealers were getting a little skittish. But the current programs, the ones we’ve seen of late always include the dealership and reassure the dealership, we are not trying to take you out of the equation and sell cars directly to customers. So that’s very important for OEMs to have that MO when they have digital initiatives.
Jim Fitzpatrick: Let’s switch gears a little bit and talk about affordability. Average vehicle prices now some $37,000. Where is this headed? I mean we talked-
Steve Finlay: Just keeps going up and up.
Jim Fitzpatrick: It’s crazy, right?
Steve Finlay: It’s a major concern. We just did an interview with the Rhett Ricart, who’s the 2020 NADA chairman and he said affordability is the number one issue. Last year we interviewed Charlie Gilchrist.
Jim Fitzpatrick: Gilchrist. Yeah, yeah.
Steve Finlay: Sorry Charlie.
Jim Fitzpatrick: We’ll re-edit that.
Steve Finlay: He said the same thing last year. Cox just did a survey, they surveyed the media, dealers and OEMs on what they think the major issue in the auto industry is and everybody said affordability. It was first on everybody’s list. Affordability is two part. One is yes, cars are more expensive. There’s more technology in them. The safety technology, the sensors that prevent you from crashing into the current front of you. And so that costs money and that’s going to increase the price of the car. But it’s also because people are opting to buy more vehicle, they’re spending more money and they’re buying obviously light trucks, SUVs, CUVs and pickup trucks.
Steve Finlay: The NADA is predicting this year that 75% of the market will be occupied by light trucks, at least 25% for cars. Now, light trucks are more expensive than cars. So to a large extent, that is a consumer decision as to that high, high transaction price. But it is a concern and it potentially could drive people to the used car market. It already has, we’re seeing some great used car deals out there and people are taking advantage of them.
Jim Fitzpatrick: So switching gears again, I appreciate all the time you’re giving me here today. Industry consolidation. We just heard about towards the end of the year, I think it’s closing the first quarter, about a billion dollar deal from Asbury acquiring I think 17 or 18 stores. And that’s a lot of money. I’m sure that got the attention of a lot of dealers and presidents of dealer groups and families out there that said, hmmm, we own 17, 20 dealerships. They’re worth $1 billion? You think we’ll see more family dealership groups sell out to some of the consolidators out there?
Steve Finlay: I do. At prices like that definitely. And that’s basically where things are headed. Fewer owners, not really mass reductions in the number of dealerships or rooftops, but fewer people owning them. The consolidators came in and they were… I remember in the 90s when they started doing it, AutoNation. It was called Republic at the time. And the auto makers were freaked out. They thought they’re going to face this threat. There was a rumor that AutoNation was going to make its own car and sell it at its dealerships. Well that didn’t happen. And auto companies found out that these groups, these large corporations that own dealerships actually do a pretty good job. A lot of them are auto executives, former auto executives. So there was a working relationship there and then the prices…
Steve Finlay: That tapered off for a while. There was a bunch… it was going… This is years ago and a lot of small dealerships, not small but independently owned dealerships were being snapped up by the AutoNations of the world. And then that kind of tapered and now we’re seeing a resurgence of it. And I think that’s the future is that the prices they’re offering or are just, it’s hard to resist some of that, especially if a dealer is in a situation where he or she is nearing retirement and has kids that aren’t necessarily interested in the dealership. It can go both ways. I know second or third generation kids, are better dealers than their parents actually.
Jim Fitzpatrick: What do you think some of the things that we may see or dealers should keep their eye on from your perspective? Because I know you’re out crisscrossing the country and you’ve got a plethora of information there. What are some of the things that’ll come down the pike in 2020 that you feel dealers might want to keep their eye on this or their ear close to the ground?
Steve Finlay: Yeah. Well nothing that we haven’t seen already. Maybe more of it in that customer experience is so important for a variety of reasons. One is in the old days there were better made cars than some other cars. So certain brands had an advantage because their cars, real or perceived, were better. Now it’s very hard to see a badly made vehicle. Everybody in the industry, the domestics, the Asians, the German, make great cars or vehicles. So what I’m getting at is it comes down not to should I buy this car that’s better or not. It’s what dealership experience I’m getting because I know I’m going to get a good car. That’s a given, that’s out of the equation that I might get a bad car if I buy this brand. All brands basically make very good products because of the advancements in manufacturing, engineering and also just the attention they figured out they have to pay to that.
Steve Finlay: So it comes down to what happens in the dealership, how do they treat me? So dealers have always played a big role, but they’re going to play an even bigger role and they realize that in terms of making that purchase a pleasant experience. It’s something that would get people back again.
Jim Fitzpatrick: Yeah, I agree. [crosstalk 00:17:11] There’s no question that’s a huge element. Do you think the election year will have an impact in auto sales?
Steve Finlay: That’s a good question. It very well could directly or indirectly. I think we’re just predicting about 16.8 million sales this year and that’s down from, I think it’s 17.1 this year if you round it up. So it’s down a bit. And that’s basically because of the affordability issue we talked about. Also the economy is not going to be growing as much as we would like. It’s going to grow by like 1.6%. So that could have an affect and then that pent-up demand is finally abated somewhat. But in terms of the economy, the election could affect definitely, and therefore affect car sales. But I don’t think it would be a direct affect.
Jim Fitzpatrick: We’re three years into the Trump administration. He’s thrown some things at us and the car business beginning with tariffs, although he’s also thrown some tax advantages at us and such. Do you think the Trump administration’s been a good thing or a bad thing for our industry?
Steve Finlay: Well, I know a lot of dealers that like Trump and because of the economic positions that he’s taken. I’m going to leave my opinion of him out of it. I will say though that we had the tariff war going on China and they seem to have resolved it. Some people [crosstalk 00:18:52]-
Jim Fitzpatrick: And also the USMCA looks like that’s-
Steve Finlay: What I’m wondering, will that open up the opportunity for the Chinese to finally come to the US market and sell cars. There’s a car company called GAC, G-A-C, that was at NADA last year. The year before they were at the Detroit Auto Show showing cars. And they said we haven’t brought them over yet because of the looming tariff threat. Well that threat seemingly has disappeared or at least abated. And so we may finally see GAC, which is the one that was talking most about coming over here, finally selling cars.
Steve Finlay: Now they might find out this is a very competitive market. It’s a very attractive market because it’s so vibrant but there’s a lot of players in it.
Jim Fitzpatrick: Yeah, there’s no question about it.
Steve Finlay: And appearing as the new kid on the block is going to be hard.
Jim Fitzpatrick: Steve Finlay, editor of WardsAuto, thank you so much for joining us on CBT News. We very much appreciate all the time you’ve given us, and hopefully we can get together out at NADA and compare stories. Maybe you can give me a tip or something as to who’s doing what.
Steve Finlay: I’d like that. Yeah, thanks. It’s always great talking to you, buddy.
Jim Fitzpatrick: Yes, likewise.
CBT Automotive Network, the number one most-watched network in retail automotive. This has been a JBF Business Media Production.