Here to talk to us more about July’s earnings is Karl Brauer, executive publisher for Autotrader and Kelley Blue Book. Karl is no stranger to CBT and in this segment, he shares with us, his insight about this month’s winners, losers, and what dealers can expect as we settle into the second half of the year.
Click here to see Karl’s insight into last month’s totals.
Jim: Hi everyone, Jim Fitzpatrick. Thanks so much for joining us on another edition of CBT News. We are so happy to have with us today Mr. Karl Brauer, who is the executive publisher of KBB and Autotrader. Thanks very much for joining us, Karl.
Karl: Always great being on with you, Jim. Got another crazy month to get through.
Jim: Yeah, that’s for sure. So talk to us about July. How’s it shaken out?
Karl: Well, what’s interesting about July first and foremost is that we’re only getting 40… we’re losing 45% of the reporting, because we don’t have any of the big three now. So we’ve gotten into this kind of new era where we’re going to have to do the monthly reporting without the big three and we’ll only get them at the quarter.
Jim: Yeah, wow. This should be interesting.
Karl: Yeah, yeah. It makes it a lot tougher to put the numbers together and come up with anything concrete, but when you look at the numbers for July, based on what we have, they were actually relatively good, Jim. We were generally up. You know, you had a couple of big winners like Hyundai and Subaru that were up between, you know, Subaru’s like almost 8%, Hyundai was up 12% and that was the 12th month in a row that Hyundai’s been up.
Karl: Yeah. They’re really on a streak.
Karl: Of course Subaru’s on like a 92-month streak but that’s just like a forgotten… You don’t even mention it anymore. It’s like, oh yeah, Subaru’s up.
Jim: I know, I know. We take it for granted. Yeah.
Karl: We don’t even talk about it cause it’s been going on for like six or seven years, whatever. But most of the imports were actually up too. The big players, Honda, Toyota, Volkswagen was up… I’m looking over at my notes here. Yeah. The big players were really up, and then, of course, most of the European luxury brands were up too, BMW, I believe Mercedes was up. I know that Jaguar and Land Rover were up. So-
Jim: Good month overall.
Karl: Yeah. The numbers we had were relatively good, but we’re missing 45%. Now, some people will have various levels of guesstimation on the domestics even on the months they don’t report, and my little birds suggested that they generally did okay too if not very similar to the rest of the market as is often the case, meaning they didn’t hit any home runs but they were not down either.
Jim: Sure, sure. Talk to us about some of the effects of lower interest rates. I mean we’re now talking about it… I know it was just lowered so we’re probably going to feel the effects here in August, not July. But did rates play a role in car sales in July?
Karl: Apparently they’ve been dropping for the last few months and this is before the rate cut that you just mentioned. So we’re going to see further drops and I think that’s helping, obviously. Because the big… You’ve got kind of two forces that are fighting each other right now, right. We keep having new car pricing go up and some would say at a rate that’s not sustainable and it’s already at a level that isn’t realistic for a lot of buyers. I mean, I think the number I saw that we put out was something like $37,000, so that’s getting to be an awfully expensive new car. But when you can get creative, whether it’s loan duration, like 84 months, or loan rate because the Fed is dropping the rates again, you can still kind of, you know, play games as the consumer and the dealer and the manufacturer selling the cars to keep those monthly numbers, those monthly payment numbers, digestible. It still doesn’t seem longterm sustainable, the increase in these prices.
Karl: The other thing you’ve got to remember too though is that a lot of what’s pushing the numbers up is the truck and SUV sales. They’re just generally more expensive than cars. But you have consumers out there who will still buy a car, and if you took the car average and took out the truck and SUVs, it would be much lower than 37,000 so there’s still ability to buy a new car, but if you want to buy the hot, popular new car that everyone’s buying, the truck and the SUV, you need a fair amount of money to do it.
Jim: Yeah, that’s for sure. And as a result, you see these extended terms that continue to haunt us around, 72 to 84 months. I mean, that’s still got an impact, right?
Karl: Yeah. And then now you’re talking about people who are going to be upside down in equity for, you know, four years. They might finally dig out and be on the upside after four or five years of a seven year or eight year loan, but that’s an awfully long time to not be ahead of the game in terms of your loan balance versus the value of your car.
Karl: Now, don’t forget, the other thing too that’s fascinating with this situation is the used car activity, which is I think at unprecedented levels, not surprisingly. You’re seeing a lot of used car activity, used car retailers out there are probably really enjoying this because we’ve heard rumblings for years, Jim, that we were going to see this massive dip in used car values. Remember that?
Karl: They were telling us all those cars that went on lease-
Jim: Yeah. Four million vehicles were coming back on and what are we going to do with them?
Karl: Precisely. We had that huge rush to leasing over like the mid teens, you know, between like ’14 and ’18, and so it was like, “Oh God, those are going to come back and it’s going to flood the market and they’re going to tank.” Nobody knew except that new cars will be so expensive, all those used cars will be happily welcomed by car shoppers who can’t afford new.
Karl: And CPO, of course, is another great way to go if you’re looking for that new car peace of mind and still to save money. So CPO sales and new sales in general way up, but new car sales really surprisingly given the price and some of the other factors going on, still not doing terrible. Again, July was a generally up month. So still lots of money to be made in this industry if you’re a retailer and right now I think most of them should be pretty pleased. There’s still these questions about, again, sustainability and longterm, but last month currently as we sit here today, not bad.
Jim: Yeah, not bad at all, and surprisingly or maybe not surprisingly, used vehicle sales are stronger than used SUV and trucks, right? I mean used vehicles are still a big part of the used vehicle market, right? Not so much on the new car side, but when it comes to the used car side, they still hold their own.
Karl: Well, I think on the used car side you’re just naturally talking about a more price-sensitive, value-seeking consumer. So surprise, surprise, they’re not wound up on trucks and SUVs, they’re looking for the best deal and a lot of the best deals on the used side sit lower to the ground and have only four doors.
Jim: What about Tesla? What’s going on with Tesla?
Karl: Well, you know, Tesla just keeps trying to crank up their sales numbers and again, they had a big hit in one quarter, but now it looked like… you know, in the first quarter of the year, but then the second quarter was substantially better. I believe they’re still down for the balance the first half of the year, I believe they’re still down. And of course they only produce quarterly sales numbers. So we don’t know how they did in July.
Karl: We have all these crazy stories about now people who work there currently or previously and supposedly encouraged to just move the cars quicker, even if it meant using tape to assemble some elements of the car.
Jim: Oh boy.
Karl: Don’t know if that’s true or not. But there are certainly those reports from people who theoretically should know. You know what’s interesting in my mind though, is that I feel like Tesla has… And really when you say Tesla, you’re talking Elon Musk, generally overall, a little quieter in the last six months than the previous.
Jim: He has. Yeah. I agree.
Karl: I think he’s realizing this, Jim, he’s realizing, I’m not helping. I used to be able to make the stock go up by saying things.
Jim: That’s right.
Karl: I think there might’ve been a one too many boy who cried wolf’s going on here, so I’m going to not say things anymore and just try to hit the numbers, let the numbers speak for me, which is what most automakers have done for the last 100 years, but I think he’s maybe grown up a little and becoming a big adult automaker and he’s going to let the numbers be the important thing, which they should be.
Jim: Yes, I agree. I agree. So let’s talk about August. What’s your forecast? What’s on deck for August?
Karl: August is always a big car month. I mean at Kelley Blue Book, it’s one of our biggest traffic months on the site. You’ve got a lot of people transitioning. Maybe they’re going back to school, maybe they’re going to start their job after a big summer vacation, so August is a big sales month. Then you’ve got Labor Day sales too that always come in to help things out.
Karl: So I expect with the Fed rate cut that we just hit plus August, we could see a good month. I would be surprised personally if we didn’t see a similar or better story than we saw in July, meaning from all the reporting we’ll get, we’ll still be missing the big three, but the reporting we get, I’m expecting to be at or above previous year levels and I would think the numbers could be higher than they were a year earlier.
Jim: Sure. So if you’re an automobile dealer listening to us today, it’s a good time to be an automobile dealer, right?
Karl: It is, and take advantage of these factors that do come together in the next month. You know, take advantage of the waning now of the summer, the getting out of the ’19s and into the ’20 model years, the lower Fed rates, and just the increased willingness of people to make a purchase, because August is a big purchase month. It’s oftentimes, you know, again, a life cycle or a lifestyle change in where people were to where people are going, starting new jobs, going back to school. Car purchase is very common in August.
Jim: Yeah, absolutely. Well Karl Brauer, executive publisher at KBB and Autotrader. Thank you so much once again for joining us. We appreciate it.
Karl: Absolutely. Never a dull moment. Always like talking to you, Jim, and rapping about the industry.
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