How Rising Transaction Rates Could Affect Your Dealership’s Bottom Line – Steve Finlay, WardsAuto

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The auto industry ended on another high for 2018, and 2019 is poised to be another strong year as well. While higher interest rates and tariffs present some challenges, there are still plenty of ways to remain profitable. On today’s show, Jim speaks to Steve Finlay, editor at Ward’s magazine to discuss rising transaction rates and other hot topics in automotive retail for 2019.

VIDEO TRANSCRIPT:

Jim Fitzpatrick: Thank you so much, Steve, for joining us on CBT today.

Steve Finlay: Thank you, Jim. Always a pleasure.

Jim Fitzpatrick: I know you’re up to a lot of great articles in your magazine, it’s just a phenomenal publication and I know a lot of dealers rely on each month. So, let’s talk a little bit about some of the topics that dealers are faced with. And at the top of the list, and you know them, you love them and that’s the tariffs. Right? So, what’s happening with that, and from your perspective what kind of an impact do you think that’ll have on our industry?

Steve Finlay: Well, a chilling impact. We’ll see what happens if there’s more tariffs. The ones just affecting steel in North America and economists were saying yesterday that those have cost an average two percent increase in the price of vehicles. So, that’s one tariff. And then we’re looking at potential 25 percent tariffs on imports from Europe. One thing that this industry does not like is instability, and tariffs just create that in the long run. I mean, some people I’m sure are advocates of them but I think history, economic history has proven that they come with some real downsides, and the auto industry is the first to feel those.

Jim Fitzpatrick: Yeah, that’s for sure. Do you see your OEMs kind of shaking in their boots right now as to what impact this will have on their business?

Steve Finlay: I’m not sure they’re shaking in their boots, but they certainly are concerned ,and it’s also important to note that it’s just not on vehicles, it’s on parts.

Jim Fitzpatrick: Right.

Steve Finlay: And when you’re talking about that you’re talking about a global industry and suddenly they’re going to start slapping tariffs on those things. And the ultimate payer of the cost of tariffs is the consumer, so that’s not great. Especially in the age when people are talking about affordability.

Jim Fitzpatrick: Yeah, that is so true. And speaking of vehicle affordability, these cars just keep getting more expensive. I don’t know where we’re going with this. You know, one day we’re going to turn around and a Camry’s going to be $89,000. Talk to us a little bit about that. I know that that’s something that you guys have covered before.

Steve Finlay: Yeah, well the average transaction rates are now about $38,000. That’s a chunk. Now, there’s some elements to that. One is that people are buying more car often, so that’s their choice as consumers to add on, have a higher trim level. You can buy a base pickup truck, full-size pickup truck for about $25,000 or something like that. If you start loading it up, you can get to about $60,000, $50,000. So automakers and dealers are more than happy to have customers as long as they can pay back their loans and don’t get their vehicle repossessed, to buy a lot of vehicles, buy a lot of extras, so consumers really can’t complain about that. But, the other thing is the cost of a vehicle just without the options, and that is going up, primarily because of the technology that’s in today’s vehicles.

And some of it is required, others are there for the march to autonomous vehicles. But it’s advanced technology and it’s not cheap, so it’s not like automakers are gouging customers or dealers are gouging customers. In fact, dealers are the most concerned about affordability than anybody that I’ve talked to in this.

Jim Fitzpatrick: That’s right. Yep, everybody wants to have a nice car. And you gotta get a car to get to work, you need that, right? So that’s the one payment that’s going to get made.

Steve Finlay: Exactly. There’s sort of a callous saying. It’s like, you can sleep in your car but you can’t drive your house to work.

Jim Fitzpatrick: Which is more important?

Steve Finlay: So, that’s why a car payment’s paid first in a lot of households.

Jim Fitzpatrick: Yeah, sure. And with the price of the cars, you might as well sleep in the car because it’s almost the price of the house, right?

Steve Finlay: Wouldn’t be that uncomfortable.

Jim Fitzpatrick: You’d even have a big screen T.V. on the dashboard. It’s crazy. Talk to us about the NADAs is obviously coming up, it’s right around the corner here in the latter part of this month, in January of 2019, and obviously they’ll be installing a new chairman which is Charlie Gilchrist, a great dealer. And I know that you caught up with him recently. Talk to us about that.

Steve Finlay: Yeah. No, he’s a great guy. He’s from Texas, he’s in the Dallas market. Started out as a controller for a truck dealer and decided because he got his CPA in college, and decided he didn’t like accounting that much and long story short, he bought into a dealership that went to work for and then bought the dealership and bought more dealerships. And he’s got quite a nice group in the Fort Worth, Dallas area.

Which is a real good market. So, he represents everything from GM to Ford to Mitsubishi, VW, and he was the one that was telling me about … He called affordability a huge issue for dealers and it’s one that they’re trying to address along with the automakers because they’re I think concerned, the automakers especially that if those prices go up too high, the interest rates go up too high, it’s sending people to the used car lots. Which for dealers, okay go buy a used car, but for an automaker that’s maybe not such a great idea.

Jim Fitzpatrick: Yeah. There’s no question. It seems like we heard a lot about subscription in the last, in 2018, early 2018, the latter part of 2017. It kind of came in with a big roar and I don’t hear as much about the subscription program. It seems as though maybe Cadillac, I think they got out of it or they’re backing out of it. What do you find out there on subscription plans? Is it a viable option that’s going to stick around?

Steve Finlay: Well, yeah. I think it’s a niche. It’s for people, usually with wherewithal, to participate in a program like that. But you know, there is a group of people that would like to swap out vehicles like that. There’s other people who feel, they’ve done all this research, and they go through a lot of effort to getting what they think is their vehicle, the right vehicle. And why would I want to get onto that? I spent all this time trying to get into it. But yeah, some of the subscription programs, the people that, or the companies that offer them are first to admit they’re pretty niche. And then Cadillac, you look in the Dallas area, you know how many people subscribe to that program in Dallas, by Cadillac? Forty-nine people. Forty-nine people [crosstalk 00:07:31]

Jim Fitzpatrick: And that’s the Dallas market. Wow.

Steve Finlay: So, that’s a huge market. You think it would be a little more, but there you go.

Jim Fitzpatrick: And 29 of them are the dealers’ buddies at the country club. Mr. Steve Finlay from Wards Dealer Magazine, thank you so much for joining us on CBT News, it’s always a pleasure, and I’d love to have you back after NADA, and we can talk about some of the fun that’s happened out there.

Steve Finlay: Okay. You got it. Thank you, Jim.

CBT Automotive Network, the number one most watched network in retail automotive. CBT is a part of the JBF Business Media family.

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