On today’s show, we’re so pleased to welcome back Peter Welch, President and CEO of NADA, to the CBT Network. In this segment, Jim and Peter discuss his latest article “Clicks, Bricks and Trust; Why The Dealership Matters To Every Generation,” as well as industry trends, disruptors, and uncertainty surrounding tariffs.
[Previously recorded 11/26/19]
Jim Fitzpatrick: Hello everyone, I’m Jim Fitzpatrick, thanks so much for joining me on this special edition of CBT News. Today we’re so happy to have with us Mr. Peter Welch, who as you know, is the president and CEO of the National Auto Dealers Association. Thanks so much, Mr. Welch, for joining us today.
Peter Welch: Great. Good to see you, Jim.
Jim Fitzpatrick: Great. So you wrote an article recently in Current Automotive News, that I hold in my hand here, and I’d love to talk to you about that today. “Clicks, Bricks and Trust; Why The Dealership Matters To Every Generation.” Talk to me about the motivation behind that article.
Peter Welch: Well, every once in a while we want to remind the rest of the world about how crucial our dealer network is to the automotive segment of the United States, and a lot of people take it for granted. We’ve got some 280 million vehicles on the road, with the exception of about 500,000 that Tesla sold, all of our members sold all the rest of them, and of course serviced them. And we continue to offer a very unique buying experience. I like to refer to it as omnichannel marketing. So a lot of people have pure brick and mortar, others have eCommerce platforms, but every dealer I know has a combination of the two, and as we have learned, our customers may behave differently given the same customer on a different day. One day they may want to shop online, one day they may want to come into the store, to test the vehicle, to see what the fabric looked like, to listen to the engine roar, or increasingly how the EV plugs in, or whatever. So fortunately, our members are able to provide all of those experiences.
Jim Fitzpatrick: Sure, sure. There have been some disruptors, as you know, in the marketplace. I don’t know how much disruption they’re causing, but they’re referred to as disruptors, such as Carvana and Vroom, that will deliver a vehicle right to a consumers front door, simply after they’ve purchased the vehicle on an app. What’s your take on that, and do you think that dealers today need to have a component with inside their dealership structure that delivers cars to consumers homes?
Peter Welch: Well Jim, I spent most of my career in California, and I’ve traveled round the country here in my current position. I don’t see dealers being very different. 20 years ago dealers delivered cars to customers at their homes, their country clubs, their places of business. This is not a new phenomenon. Every dealership in the country will deliver a car, if the customer wants them to do it and it’s convenient to do. One of the, I think misnomers is, is unfortunately you can’t really buy a car 100% online. There are still state and federal requirement and signatures.
Peter Welch: So even when your members drive out to someone’s house, they still have to take a packet with them to get signatures, and odometer statements, although that’s changing, and a myriad of other state laws. So hopefully we’ll evolve to the point where 100% of it can be done online, but as I indicated in the article that we penned, still people want to test-drive vehicles. Some 83% of those in the recent Harris poll indicated that they would not buy a car without test driving it first, this is nothing new to our members. 84% of them said it’s just too big of a purchase to do without at least seeing the car before they commit to it. So, some things don’t really change.
Jim Fitzpatrick: Sure, sure. So you mention in your article that autonomous vehicles has been all the rage, or was all the rage, and it threatened the auto industry as we know it today. Talk to us a little bit about that.
Peter Welch: Autonomy is coming, but it’s an evolutionary process, not a revolutionary process. The vehicles that we’re selling today have advanced systems on them. I might add, advanced systems that are reducing injuries, that are preventing accidents and saving lives today, and they’re very popular. The so-called level five, where you can read a comic book in the backseat while you’re driving across the country is probably decades away when you look at the technology. Not just the technology that’s needed to develop those vehicles, but then the whole regulatory scheme, the motor vehicle safety standards that need to be adopted before we have total implementation of it.
Peter Welch: So, I think it’s exciting that it’s coming and it’s going to be for the benefit of consumers, but again, I think the adoption of our typical customers is going to be slow. The other thing is, they’re enormously expensive at this time. The test vehicles are hundreds of thousands of dollars, and I know that that cost, of course, will come down, but we’re not going to see that for quite some time.
Jim Fitzpatrick: Right. Rideshare companies, a few years back people were, “Uh-oh, everybody’s going crazy, people aren’t going to want to buy cars because of these rideshare companies.” You talk about that in the article and where that stands today. Talk to us about that.
Peter Welch: Well look, I’d like to try to put some things in perspective. So, I read a recent study by a big research group, and we traveled about 3.2 trillion miles last year, this is personal miles traveled. 96% of that was done in personal transportation vehicles. The other 4% covers everything else, which includes public transportation, taxis, vanpools, rental cars, and of course ride sharing. And ride-sharing was only 8% of that 4%, or overall it was only 0.4%, and keep in mind, we have a big country here.
Peter Welch: There is only rideshare options in 24 markets, which of course are the urbanized markets, and everybody likes them, I take rideshare when appropriate. We’ve also done studies and research on it, and what our research has found is people aren’t using rideshare as a replacement for cars, they’re doing it in addition to vehicles. And the most telling statistic I think is that the number of vehicles per household has actually gone up the last three years. So, it’s a wonderful option. The other observation I’ll make is, our members sell all the Lyft and Uber cars, and we service all the Lyft and Uber cars, so it’s actually been good for business.
Jim Fitzpatrick: Dealers still get a bad rap in a lot of customer surveys, where customers will say buying a car just isn’t a pleasurable experience for the most part. What can dealers learn from that, and what changes do you think we need to make in the industry for that to be more of an enjoyable experience for the consumer?
Peter Welch: Well, first of all, I’ve read all the surveys, I’ve looked at the experience. I think today it is an enjoyable experience to go to the vast majority of our dealers. The problem is, is with the average age of a car at 11.8 years, a lot of people haven’t been to a dealership in several years.
Jim Fitzpatrick: That’s a very unique way … that’s a good point.
Peter Welch: Yeah, they haven’t seen the radical changes that have taken, whether it’s eCommerce, whether it’s customer satisfaction, whether it’s the facilities, whether it’s the product specialists that are out there explaining and taking care of it, or our finance professionals who are helping them get qualified. So it’s like Congress. When you do a poll people say, “Well, I don’t like Congress.” But, well do you like your congressman? And they go, “Yeah, we love our congressman.” Well, it’s the same kind of way with the dealership. Car dealers are bad on the whole, but boy, the last time I bought a car at the dealership I went to, I had a great experience.
Jim Fitzpatrick: That’s right, that’s right, for sure. So, switching gears a little bit, there was an article last year from an expert in the auto industry, or I should say an analyst of the auto industry, that said his prediction that in 25 years about 80% of the vehicles sold will be sold by about 25 different consolidators out there. Do you think that that’s a possibility, or is the industry just too strong and made up of the independent dealers out there?
Peter Welch: Well, I suppose anything is possible, but I’ll say we have eight publicly-traded dealerships that are great numbers, they have large numbers of stores, and they control a good amount of the throughput, between 10% and 12%, but that’s remained steady for eight or ten years, those numbers as far as the throughput numbers. The nice thing about dealers is they’re in every community, but there’s one thing that’s consistent; the capital requirements to maintain the types of facilities that our customers want to come and experience, the purchasing experience. Now, this phenomena that we’re going to go down to, I’ve read the same reports you have, “We’re only going to have 2000 dealers left.” Etc., etc., etc. I don’t believe that. The country is just too big and the vehicle fleet is just too big.
Jim Fitzpatrick: Sure, for sure. Switching gears a little bit here again, can you give us an update on the tariff situation? I know that as we end the year here, all eyes are upon DC to say, where do we stand on that, and are things going to get better with regard to tariffs?
Peter Welch: Well, a lot of people are getting tariff fatigue because it’s gone on so long. We started about 18 months ago with the aluminum and steel tariffs, and then the President announced the 232 investigation into auto and auto parts. The President has a lot of support for the general proposition that we negotiated to add tariff agreements some 40 years ago, where it was a different world and we negotiated, for instance, China as a third world developing country and needed assistance, and how they’re a mega superpower.
Peter Welch: So, there’s a lot of support for that. Having said that, the imposition of even a 10% or a 5% tariff that would trickle down to the hood of a car is going to be the death knell for a number of our members, and for our consumers relative to it. The good news is that I feel pretty confidence that USMCA is eventually going to go. They have not yet sent up the implementing legislation, we were optimistic it might get sent up as early as the week after Thanksgiving. There were some more hiccups yesterday and some of the labor issues, I think they’ll work through those. They’ve already announced an agreement with Korea, we’ve got an agreement in principle with Japan, which leaves the EU, which of course is Germany at this point. But they’ll continue to work through it, and the good news is, for our members, is that no tariffs have been imposed yet, and we remain [inaudible] optimistic that the President will do the right thing, that he’ll negotiate new trade treaties without the imposition of automotive tariffs.
Jim Fitzpatrick: Sure. Before I let you go, do you think we’ll see 17 million new vehicles sold in 2019?
Peter Welch: Well, our forecast was 16.8, we’re trending above that, and it’ll all depend on the Christmas season. I like to be an optimist, and I like to think, “Yeah, we’re going to beat 17.” But we’ll know shortly, is all I can say.
Jim Fitzpatrick: Sure, sure.
Peter Welch: Forecast for next year.
Jim Fitzpatrick: That’s right, that’s right. The industry’s been on fire for the last five or six years, that’s for sure, and it seems like we’re getting so used to 17 million cars now, right?
Peter Welch: Well, to use the term that I think Mike Jackson coined, “We’re on a plateau, but it’s a pretty nice high even plateau.”
Jim Fitzpatrick: Yes, that’s for sure. Talk to us a little bit about the NADA show coming up February 14th through the 16th.
Peter Welch: Well, it’s going to be bigger and better than ever. We’re of course back in Las Vegas, we go there every other year. The pre-registrations are far outstripping last year in San Francisco, and they’re actually ahead of where we were in Vegas two years ago. The exposition floor space has totally sold out, probably about six weeks ago. We’re expecting a big crowd and we plan to deliver some great presentations, and entertainment, and buying opportunity for our dealer members.
Jim Fitzpatrick: I know you will, you do it every year, so thank you for that. Mr Peter Welch, president and CEO of the NADA, I want to thank you so much for joining us on CBT News, we very much appreciate it.
Peter Welch: Sure, thanks so much, Jim. Have a great weekend.
Jim Fitzpatrick: Thank you. See you at NADA.
Thank you for watching the official news source of the retail automotive industry. This has been a JBF Business Media production.