2018 has been a year of continued innovation and big advances in technology, and with these changes comes new demands from consumers. From car buying experiences, to preferences, and car ownership expectations, there’s certainly a lot for dealers to consider in the new year. On today’s show, Jim Fitzpatrick speaks with Matt DeLorenzo, managing editor at Kelley Blue Book to discuss some major innovations the industry saw at December’s L.A. Auto Show as well as the automotive retail trends for 2019.
Jim Fitzpatrick: I recently spoke with Matt DeLorenzo, Managing Editor at Kelley Blue Book, to discuss where auto retail is headed in 2019. Check it out. Welcome to the show, Matt.
Matt DeLorenzo: Great to be here, Jim.
Jim Fitzpatrick: Sure. So, talk to us about some of the things that you saw at the LA Auto Show, or what we can expect coming out of there, I should say.
Matt DeLorenzo: Well, you know, it was a show heavy with a lot of SUVs and trucks. Some of the big introductions, the Jeep Gladiator. Lincoln had the Aviator SUV. Hyundai had a full size SUV in the palisade. So, it’s a real reflection of what’s happening in the marketplace, where trucks are predominating. They’re over two thirds of all sales, and cars have slipped below 30%of market share.
Jim Fitzpatrick: Where is it headed for the luxury lines? Will we see Mercedes Benz, and Lexus, and BMW following suit, and getting into more of the SUV business? Obviously, those companies don’t really have trucks per se, but where’s that headed for the luxury manufacturers?
Matt DeLorenzo: You’re absolutely right, Jim. They are getting into that segment. The LA show was the first auto show that the new BMW X7 appeared at. That’s a full sized three row SUV. Mercedes actually was doing a drive for journalists in the new G Wagon. So, trucks have become a very important part of the portfolios of luxury makers as well.
Jim Fitzpatrick: Sure. What about that wow factor? Were there any showstoppers in terms of niche vehicles, or even concept cars that are pretty cool?
Matt DeLorenzo: Yeah, there were a few. A Audi GT E-Tron was really beautiful. I think the 8 Series convertible that BMW had shows that there’s still a market for a personal luxury car. The other car that we really liked was the new 911. It looks just like the old 911. If you have a trained eye, you’ll notice that the back end’s a little bit bigger. Offers more power. It’s more expensive, but the new 911 is on the way.
Jim Fitzpatrick: So what does this mean? What does all that mean for dealers? Good news for dealers in the showroom in 2019?
Matt DeLorenzo: They’re going to have a lot of, especially if you’re FCA or Lincoln, the Gladiator I think is going to be off to a huge start. It was probably the most anticipated vehicle of the show. It gets Jeep into the midsize truck market, which is also one of those things that recent information is coming out. The midsize truck market has not hurt full size truck sales. So, that’s going to be a net plus for all those Jeep dealers. Lincoln, the Aviator is an absolutely beautiful vehicle. I think it’s going to do really well, and the underpinnings of that vehicle is very important because that’ll be the basis for the next Ford Explorer, so Ford dealers have a lot to look forward to over the next two years.
Matt DeLorenzo: Then, also in the SUV space, Honda dealers will have the new Passport, which is essentially a two row version of the Pilot. It has V6 power, five passenger seating. That’s a huge emerging market. You have the new Chevy Blazer coming out in that segment, and then also VW will be doing a two row version of the Atlas. So, that’s quite a big market. And then also, at Hyundai and Kia, they’re going to have the full size Palisade and Telluride, three row SUVs, so you know, it’s all trucks all the time.
Jim Fitzpatrick: Man, it really is. And you know, the price of these things, they’re not cheap vehicles. These things are, you know, you go into showrooms today and it’s just so commonplace to see vehicles at 60, $70,000 and up.
Matt DeLorenzo: Yes.
Jim Fitzpatrick: I mean, it’s hard pressed to find a nice SUV for 35 grand anymore, isn’t it?
Matt DeLorenzo: These vehicles are really pushing up average transaction prices. Overall, vehicle average transaction prices are over $37,000, and a lot of that is being pushed by the new pickups that are out there. All these new SUVs that tend to be either luxury or high feature-oriented. So, that means big profits for the manufacturers and the dealers.
Jim Fitzpatrick: Sure. You think we’ll still continue to see financing terms at 72, 84, and above in terms of-
Matt DeLorenzo: Yeah. You know, it’s interesting you bring that up because I just read a piece the other day that said 84 months seems to be about where a lot of people are beginning to draw the line. And, part of that problem is that the previous owners may be underwater in their car, and a lot of the lending institutions, they’re saying, “I don’t want to finance your last car and this car as well.” So, I think we’re going to see a little bit of a slowdown in that.
Matt DeLorenzo: I don’t see the rising transaction price as a big obstacle, because we’ve been at 17 million vehicles for four years in a row now, but affordability may become more of an issue, and we may see more activity at the lower end of the scale. There’ve been a bunch of new, smaller, compact SUVs out there like the Hyundai Kona, the KIX, those types of vehicles. I think that’ll fill the need and address some of these affordability issues as we go forward.
Jim Fitzpatrick: Yeah. It really is amazing how this industry is just rolling along, and knocking out the prices of these vehicles, and consumers are just sucking them up, you know? As fast as they make them, they’re rolling off the showrooms. You know?
Matt DeLorenzo: I think there’s still a lot of high net individuals out there, and leasing that is propelling a lot of these more expensive vehicles. I think you’re going to see, the people who actually want to buy to own, they’re going to be coming in buying CPO and those types of cars. I think, again, that’s another huge opportunity for dealers in that a CPO vehicle coming in offers the warranty and that sort of reassurance, and it comes in at a price that’s more affordable. Those buyers will tend to finance and own those cars as opposed to leasing them.
Jim Fitzpatrick: That’s right. And now we’ve got, in addition to leasing, we’ve got subscription models out there offered by some of the OEMs, and third party providers of subscription-based models.
Matt DeLorenzo: That’s right.
Jim Fitzpatrick: Talk to us about that and the impact that that will have in the auto industry.
Matt DeLorenzo: I think if the manufacturers can’t do it, I think you’ll see a lot of dealers do these flex drives where they have a bunch of different franchises offering a subscription program to where they’re able to swap people between brands. And I think, given there’s still is some consumer loyalty, but I think people are interested in trying out other cars as well. So again, I think that’s another big opportunity that we’ll see dealers space that dealers will be playing in.
Jim Fitzpatrick: Yeah. It really is amazing. It’s an exciting time, to say the least, to be in the retail automotive arena today, isn’t it?
Matt DeLorenzo: That’s for sure. I mean, things are going on now that you wouldn’t believe three or four years ago.
Jim Fitzpatrick: Sure, sure. What role will interest rates play? We hear a lot about interest rates going up, and obviously they are ,and that’s got to concern, I’m sure, with the auto industry, and those that are in it?
Matt DeLorenzo: Yeah.
Jim Fitzpatrick: What does that look like in 2019?
Matt DeLorenzo: Well, I think there’s two impacts that it’s having. One is that it is raising the monthly payments of people, not significantly, but enough, you know?
Jim Fitzpatrick: Right.
Matt DeLorenzo: Maybe 20, 30, $40 a month. We’ve gone up over a percent in the last year and a half. The other thing that it’s doing is it’s putting a lot of pressures on the manufacturers. You’re not seeing as many of the 0% financing deals as you used to. I think you’re going to see now the rates at 0.9%, 1.9%. Those will be more prevalent than the 0% rates.
Jim Fitzpatrick: Right. Right. And used cars will still continue to roll along as it has been?
Matt DeLorenzo: Yeah. If there’s more of them on the market, and the price is … You know, the prices haven’t dropped a lot. The Manheim Index that we follow last year was showing actually an increase in used car prices, and that’s a function of two things. Average transaction prices have been rising, so these cars are worth more going out the door and coming back, so you’re going to see a little bit of a bump in used vehicle prices. I don’t know if that’s going to moderate during the next year, but I think a lot of people are beginning to look at CPO vehicles as a really good value out there.
Jim Fitzpatrick: Yeah. I would agree with you. Well, Matt DeLorenzo with Kelley Blue Book, thank you so much for joining us on CBT News.
Matt DeLorenzo: Thanks Jim.
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