View from the top: Rusty West breaks down the latest industry trends to watch

There are numerous factors influencing the retail automotive landscape right now, like the effects of COVID-19, the war in Ukraine, and semiconductor shortages. Today on Inside Automotive, we’re joined in the studio by Rusty West, the President and CEO of Market Scan, to give us his perspective on the industry and share market predictions.

West reports his firm obtains a lot of data and has connections to various industries, which allows his team to conduct extensive analyses of the marketplace. He summarizes the auto industry with the statement “it’s crazy right now,” but says it may be starting to slow down.

West says many consumers used stimulus money for down payments but are “in over their heads” now, which may cause an influx of repossessions. This, of course, would reduce the strain of low inventory as many used vehicles would be returning to dealers’ lots.

Regarding bank involvement in the current status of high car prices and payments, he feels like “the lending institutions were kind of put in a competitive position” and would have lost business if they hadn’t made the decisions the marketplace has been seeing lately.

Speaking about the current profits dealerships are bringing in, West warns dealers that “there are a lot of risks” with it. He reports many companies are being created to help restructure loans, which could lead to undesirable chargebacks for dealers.

When it comes to the war in Ukraine, West notes that much of the supply of certain metals needed for semiconductor chips comes from Russia and a significant portion of wire harnesses comes from Ukraine. He believes this will remain a problem for a long time, likely even into 2024.

New rules proposed by the Federal Trade Commission (FTC) have created a “big disconnect” between what the FTC will require and “what is actually realistic” for car dealers. He refers to potential disclosure regulations as “daunting” and suggests that many dealers likely won’t be able to fully stay in compliance with the proposed regulations.

On the topic of electric vehicles, West believes the goals that have been announced by states like California and New York will be “missed” because there are “too many moving pieces.” These, he says, include the lack of feasible infrastructure throughout much of the country and an insufficient power grid that cannot provide enough energy (even in the present).

West calls Ford’s recent announcement that dealers will have to heavily invest in order to sell EVs a “very bold move” but says it could partially be due to dealers’ recent pricing behaviors. He also notes there is a huge question surrounding what OEMs will choose to do with vehicles that have been sitting on the lots waiting for parts.

West’s advice to dealers is to “continue selling vehicles the way they have been selling them,” attempt to predict what consumers will want in the near future, and “prepare to meet” these needs. He also advises dealers to “pay attention to what the risks are,” especially when it comes to chargebacks.

West predicts 2023 will be “unbelievably challenging,” especially the second half of the year when new inventory is expected to ramp up, meaning used car values will drop. He predicts negative equities similar to those seen in the mid-1990s and that leasing activity may increase.

Lastly, West reports credit scores are dropping across the board due to the current auto and real estate markets, but ultimately says 2023 will bring some good opportunities for dealers despite challenges.

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