BRIAN FINKELMEYER (SR. DIRECTOR ENTERPRISE INSIGHTS, COX AUTOMOTIVE) AND PATRICK JANES (AVP, VAUTO INVENTORY SOLUTIONS) ARE EXPERTS IN THEIR FIELDS, THEY'RE FUN TO TALK TO, AND THEY WANT YOU TO THRIVE IN BUSINESS. This is the Automotive Ecosystem on ATI.
ATI Auto Business
Auto Retail Party Crashers with Brian of Cox Auto. ATI AE show 353
BRIAN FINKELMEYER (SR. DIRECTOR ENTERPRISE INSIGHTS, COX AUTOMOTIVE) AND PATRICK JANES (AVP, VAUTO INVENTORY SOLUTIONS) ARE EXPERTS IN THEIR FIELDS, THEY'RE FUN TO TALK TO, AND THEY WANT YOU TO THRIVE IN BUSINESS. This is the Automotive Ecosystem on ATI.
- Duration:
- 57m
- Broadcast on:
- 06 Jul 2024
- Audio Format:
- mp3
With rising new vehicle inventories, consumer affordability challenges and a sharp decline in off-least turn-ins, the auto-retail industry is dealing with some real serious party crashes. Brian Finkelmeyer of Cox Automotive is here to share why dealers still have much to celebrate in the coming months ahead, so say hello in the live chat, make new friends, and learn from the best on ATI auto-business. What's up, EcoSystem? Welcome back to ATI auto-business. Automotive ecosystem where everyone learns more about the automotive industry. Let's get started with top industry news and headlines that include central dispatch tech transformation, CDK cyber-attack damages update, auto-retail industry party crashes, Brian Finkelmeyer with Cox Automotive is here with us at the quarter hour and then in his panel, he's bringing in his friend Patrick James, also with Cox Automotive. This is show 353 in a row on a Tuesday. We're live, so thank you so much for joining us for Brian Finkelmeyer's return. He was here about six months ago, but recently he was at Virginia Automobile Dealers Association's annual convention talking about industry party crashes. That's right, Brian Finkelmeyer, senior director, enterprise insights and advisory at Cox Automotive, and he is here with Assistant Vice President Otto Patrick James, AVP of B Auto Inventory Solutions. Yeah, I'm excited to have these guys on the show tonight. Cox Automotive is here and I've also got Cox Automotive news. So as I like to say, get to know your ecosystem, OEM Dealers, auction logistics, remarketing and recon compliance and tech. We cover week by week here on ATI. Last Tuesday night, Andrew Camita, director of remarketing with RPM, was live at Canada's used car week, a Cherokee Media Group event. And then I put a video short out on LinkedIn. Lots of people saw that and RPM was sharing that. So that was really cool stuff. If you haven't seen it, check it out. Last Thursday on industry logistics keys to hauling cars for dealerships, very important tips and information to cover there. And I made a short out of some of the news on that show about how this will be in August to remember. And I'm going to tell you why. Oh, there's a screenshot. Central dispatch is in the news. Let's go ahead and get right to it. Delivering auto ecosystem news every Tuesday night here on ATI. It's only three minutes after right on time. My check one, two, three central dispatch completes first phase of transformation. This news came out last Wednesday. Cox automotive announced the completion of the first phase in central dispatches transformation with the launch of central dispatch enterprise customizable package of NN capabilities designed for large automotive shippers and brokers enterprise solution for shippers and brokers. Key capabilities are a proven private marketplace exclusive space with specialized tools within central dispatches platform to manage dispatches and interact directly with their curated network of carriers, which is a big deal. If you're a large shipper or broker, you want to have that network where you, you know, you have preferred carrier network and a portal within that to assign dispatches because you're busy, along with early access to the all new central dispatch carrier mobile app. Whoa, whoa, whoa, whoa, central dispatch carrier mobile app. It's actually what I that short was about. That is huge. That is such big news. If I had a boom button, I would hit it. I don't have a boom button. There's have a little bell. All new central dispatch carrier mobile app app enables transporters to manage and complete the entire transaction from any from any mobile device, including creating EBOLs doing pre and post delivery inspections and more. Hey, pop quiz. Did you know that up until now? Actually, I think even still right now, there is no central dispatch mobile app for doing a vehicle inspection and bill of lading. Did you know that? That's why this is such big news. Yeah, there's other car hauling mobile apps, BOLs, vehicle inspections. Actually, there's many. So this is a really big deal to large brokers already signed on radio logistics, nexus out of transport. Nexus out of transport suite of APIs that enables seamless connectivity between the different apps clients already use. These APIs foster secure data exchange between central dispatch and other core technologies, shippers, brokers, and carriers used today. By the way, you know what, I'm just going to say this. You could say there's 10 20. It actually doesn't I don't think it matters the test market because they're all going to be using it. Dude, it's going to be hundreds of big shippers, brokers, and carriers. It will be. It will. And we will talk about it on Thursdays on industrial logistics. For example, in case you don't know, industrial logistics on ATI, thank you very much, has been running for a very long time. It was previously called dispatching live. And on there, I have been talking about auto transport load boards and compiling these list of load boards. This is where the average carrier goes to stay loaded to fill in the empty spots. You see number one, right? Central dispatch. And then, you know, I've got the list through 10 and I've been working so hard at this. I thought, you know what, are there 20? There could be 20 load boards that carriers look at. And actually, I got to 18 and then I started to run into some, you know, hems and hos. I think there are 20, though. And I'll be working on it. And then we need we need where they need to go and then how long the new carrier needs to wait. So we're working on that here on ATI. And don't forget, this will be in August to remember. All right. CDK Global, most core dealership management system functionality has been restored following the cyber attack. Okay. So right, remember, we got that weird news, June 19th, what cyber attack, then we found out last week, black suit, cyber crime, cyber crime gang blamed. And that there's a ransom. Okay, so we know that. All right, we've known that Jay, that was a week ago. All right. Well, hey, next day, whoa, last Thursday, last Wednesday, CDK is back. Somebody's like, what, wait, it's back already. I know this already sounds like old news, right? So fast, the cycle moves. CDK says this a second small group of dealers are back on its DMS. This was last Wednesday. And then, right, remember, 15,000 dealership customers were affected. Oh, wait a minute. This could be news. This could cost dealers a billion dollars. Wow. Anderson economic economic group said affected dealers could be out about $600 million after two weeks could lose roughly a billion. If the DMS shut down last till July 4th holiday weekend, right, you can't go in, you can't go into the weekend, including vehicle sales, growing floor plan, interest in IT, staffing, administration costs, the firm put the losses for impacted dealerships at 284 million for the first four days. Wow. What is that 70 million a day? If the outage lasts until June 29th, it would cost $321 million. It would cost affected dealerships. Another $339 million have shut down went till after July 4th. It's a hammer blow for $50,000 and a wake-up call for the economy. So luckily, okay, I think this is Friday, CDK, restore DMS for group one and some other dealerships. But now there's talk of lawsuits. CDK's oncoming outages could cost dealers affected by the, okay, a billion dollars got it. Yep. All six of the major publicly traded franchise dealer groups have disclosed their exposure to the CDK disruption. Five of the six asbury auto nation group one, lithium sonic, you CDK is their primary DMS. Oh my gosh. Cyber attacks have delayed some dealership acquisitions. Who know? Oh, you can't mess with dealership acquisitions. Separate lawsuits brought by an asbury automotive employee and consumer who leads to vehicle from a dealership. Three other suits pending. I think I read there was now up to like six CDK substantially all dealer connections are live. Okay, that's today. We're ahead of anticipated schedule. All dealer connections are live. So did CDK pay the ransom? CDK has not disclosed whether or not it has paid the group behind the ransom attack. All right. Well, CDK gets sued. CDK global has been slapped with at least eight federal lawsuits. Oh God. So Ted Smith of the Florida Automotive Biller Dealers Association went on CBT News to call for CDK accountability. Let's see here. Takeaways. Ted Smith emphasizes the critical need for CDK to provide detailed info about the extent of the data breach. Dealers should be aware of the severity of the attack, potential exposure of customer data, overall impact. Smith urges dealers to contact CDA and their insurers immediately to understand the scope of damage. See that word damage. I don't know if you know this. It's the word damages. There's a reason that one show was called damages because it's damages. See, when you could prove damages, you have a lawsuit. Lawsuits are built on damages and there it is. Understand the scope of the damage. There it is. Primary concern for dealers is the potential loss of consumer trust due to the data breach. Customers are contacting dealerships because they worry about the security of their personal information. Legal complexities, including potential claims under cyber policies and the necessity for clear communication with state authorities like the Florida Attorney General. Accountability lies with CDK, not the individual dealers. And in fact, I saw this dealers will catch a break of CDK cyber attacks trigger reporting. This is above my pay grade, but I still read it. CDK Global will handle a key federal reporting requirement for its dealer customers if it determines the June 19 cyber security attacks involved the theft of customer data. The FTC's amended safeguards rule now requires impart car dealerships and other non-banking financial institutions have to notify the FTC no more than 30 days after discovering a security breach when there was access to uncrip unencrypted information for at least 500 customers. Oh man, well, we're gonna have plenty of news. We will have more CDK lawsuit updates. That'll be the next thing, I guess. In other news, Port of Brunswick sets new all-time record for row row traffic roll on roll off. Dude, cars, another month passed another all-time record was set at the Port of Brunswick. More units of roll on roll off cargo, 86,000 plus move through the port. That's a lot of cars in one month. Move to the port during May and more than more in May than any other month in its history. The volume came and went aboard 57 vessels that called on the port. Much of that growth was driven by the newly constructed space at Krunal's Island Terminal, a shift of all roll on roll off cargo that was previously handled in Savannah to Brunswick. This is also in part a diversion of traffic from Baltimore following the march collapse of the Francis Scott Keybridge. But I do remember at an auto haulers association America meeting, I believe that was five years ago where we heard we were being told more about Krunal Island's terminal. So, good call, Krunal. Let's talk about car max's focus shift to reducing costs and we're going to move into the party crash. What car max is focused on is putting themselves into position through active cost management to be able to lever on low single digit gross profit growth. And that's what they're focused on. Single digit gross profit growth. You know that, yeah, tightening of the belts for logistics. We're testing a transportation management system that dispatches moves through a centralized team. The system automates communication between drivers and stores, provides new planning and execution capabilities. We'd love to know what that system is. By the way, do you have a loadboard? For reconditioning, we've identified opportunities to reduce costs, such as parts acquisition, bringing elements of sub network in house and optimizing production workflow. Yeah. And from a funding perspective, we plan to expand our current asset backed securitization program from a single platform to one that more broadly incorporates receivables across distinct prime and non prime segments. Okay. Try it. It's a man that's tough. It is tough to stay informed on the full ecosystem. Sky home and share this post. Thank you, Sky. Now that we're slowly transitioning to normal new normal post CDK hack, let's delve into the summer trends regarding inventory and aging. He's got carvana, car, mots, car max, Penske, sonic group one, Lithia, Asbury, auto nation, number of vehicles, percent aged, and days on the lot. And I will say, man, look at those numbers days on the lot. You don't want, you don't want to see that. You know, you know, it's a lot. New vehicle sales pace hit 15.9 million units in May, marking this year's peak, Cox Automotive Forecasting, even hotter pace, 16 million for June. So we're going to hear now more about the party crash. And here's the deal. So Brian lays out three main party crashes, rising inventories. Finkle Meyer also highlighted three party crashes, rising inventory is number one, and influx of new car inventory. Party crash are number two, lower margins, profitability, decline evident in shifting landscape of average invoice prices, and party crash are number three affordability challenges. Now I have to keep a straight face when we're talking to customers about $800 a month payment. By the way, Brian has a new two minute tune up series, and you can learn more about the party crash, about him, about Cox Automotive, and you can stay tuned and leverage ATI in your business. Do me if I ever stick around because right after this, we're going to bring in Brian. You can contact me. You can get the podcast. You can get to know your ecosystem all here on one channel every Tuesday night live. Thank you so much for jumping in the live chat saying hello. Wow. Look at that live chat go crazy. All right. Do me fifth. We'll be right back after this. Are you completely stressed out from all the calls and the contracts and the verifications of loads where nobody ever answers to the phone? 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As you just said, we're leading into the holiday weekend. You've got party crashers going into the holiday weekend and CDK back online. Well, I didn't know about the CDK thing. I wrote the article, but I think that I guess we feel very fortunate that Cox Automotive this last, you know, seven to ten days with the bad luck didn't strike us. But certainly glad to hear that dealers across the country are getting their systems back up. I think I read maybe by July 4th that everybody should be back online and certainly hope that the business gets back on its feet after a tough couple weeks. Well, I'll go ahead and bring the elephant into the room in that. There's competition and things like that. And then there's acts of God or whatever. Like this event is so big that it crossed party lines and it really brought everybody in to realize, wow, this is, this is, I mean, this can happen anywhere. And we've heard through the years, right, financial or healthcare or, I mean, it does kind of put a bit of a scare into like, what, what can you do, right? What do you do? Yeah, I don't think that there was anybody in the entire organization of Cox that took any joy and what transpired. I think your point is right that everybody recognizes this could happen to any of these companies tomorrow morning. And it's certainly a new world that we're living in. And, you know, the big story, I think of 2024 has really been AI and everything that's going on on that front of technology. And obviously the hacking situation is not new. I mean, other, you know, it was a couple of years ago, I think the MGM casinos out in Las Vegas were hit by a big attack. And I think that this stuff probably goes on more than what we even recognize. But when it hits a major component of our economy, like the US auto industry, certainly catches a lot of people's attention. It really makes you wonder, you know, like, what do you, what can be done? And, and what is going to happen next in this situation? It is so fascinating. It is, it is a case study in. And it just happens to be touching our industry. Right? Yeah. I mean, that's, and is that ran? I guess that's where a part of gets into, because I look at what was the, wouldn't it be great if we could get the YouTube video of like the guys planning this deal? What was the motivation? What was the planning? Why? How? What was expected? What was unexpected? Well, you know, they're estimating that this could potentially have a billion dollars worth of cost associated with it. And I don't know that that's necessarily some of these service appointments and new car purchases and use car purchases. I would argue are probably more delayed than lost. But certainly this had some impact on the industry. And I would say that from what we call loss and Cox automotive, you know, we're just glad to hear that dealers are getting back on their feet. And, and this is, you know, we're at the end of the day, we're all in this together. And I think that we certainly wouldn't wish this upon anybody. Through you, curveball, we didn't have any of that plan to talk about. But I also know that, I mean, we're both professionals. We're in an industry. We can't control the news. We can just control how we react to it. And so, you know, thanks for discussing that as we move into the party crashers. I'm going to say this about the billion dollars. I agree. I don't know if it's all a billion lost. And there will be delays, no matter what you do. And there will be deals that need to be altered. What is the party crasher thing? And how did you come up with that? What? Where did this start? Well, yeah, I mean, I think Jay, that any auto dealer, you know, would tell you that despite the challenges during the pandemic era and the and the microchip shortage, and then all the different headwinds that the dealers face with, you know, employees and shutdowns and mobile deliveries, and wasn't that long ago that, you know, our entire industry was just a mixed complete chaos, where we didn't know from day to day what was going to happen next. And that despite all those headwinds and challenges that we faced, car dealers actually had historic profitability. And if you look across the publicly auto auto groups, like your Asbury's and Auto Nations and Lithiers, you know, roughly speaking on average, these companies had a 2% return on sales, which is to say every $100 a revenue that rolls through the business, $2 dropped to the bottom line. But during these pandemic years, it was around $5.50, $6 in some cases. And even some of these accounting firms that deal specifically with car dealers told me that they were seeing return on sales of 7, 8%. And we, for the longest time in the industry, always said that if you got 2%, you were actually doing a pretty good job. And so to see 3x, maybe 4x improvement to profitability was just an incredible boon to the industry. And the car business actually figured out, you know, unintentionally how to make more money selling less cars, because during the pandemic years, we had less production and we had less incentives and, you know, average MSRP skyrocketed from about $36,000, almost $49,000. So just all these dynamics in our industry changed. And so I would say that despite all those headwinds that we faced during the COVID and microchip era, deals would say it was maybe the best at times. It was maybe the golden era of the car business from a profitability perspective. But now as we're beginning to enter, what I'm almost calling the new normal that isn't totally normal, we're faced with these party crashes. And the party crashes really include much higher interest rate environment than we're used to dealing with. That coupled with rising inventory, we're up about a million units of dealer ground stock from just a year ago. And when dealers are seeing that, you know, some of that inventory today, in fact, I was on the highway today and drove past many car dealerships where wasn't that long ago, you saw maybe 10 vehicles total on the lot. Now you see lots that are loaded with inventory and dealers are feeling a really brunt of that on the holding expense side of their business, that huge, huge uptick in terms of their holding costs on inventory. So the interest rates are hurting the dealers and party crash and the dealers from that perspective. But there's also this party crash or issue to consumers that it's costing more money to borrow to buy new cars. The average new car loan amount across all credit tiers from Cox Automotive came in at 10.02% last month, which is the first time that we've cracked 10% in a long time. I think used cars was up over 14%. I mean, it wasn't that long ago, we were borrowing money for two, three percent. People ever was refinanced of their homes and buying cars. And so now we're in a new normal. So I think those are some of the big party crashes that we've seen that's beginning to calm the industry. But despite all those issues, it's just remarkable. And you mentioned the CDK headwinds. We reported at Cox Automotive, the 16 million unit SAR for the month of June. I would say that if you looked across all the different headwinds that we're facing, affordability challenges, interest rate issues, all the CDK challenges to the industry to post 16 million sales, I would say, is just really remarkable and just a testament to the ability for dealers to navigate through tricky times. So all right, I think, and I took many notes. I was really trying to keep up. So all right, I think I understand the party now is that two percent normal into, I mean, I don't want to say COVID and party, but that was the co-ins, right? Okay. So COVID kind of brought in this sales increase to six percent above normal 3x retail. For profit, right? And just to put numbers on it to make sense for everybody. If the dealer was making a million dollars in 2019, they made three million dollars of profit in 2022, just to kind of give you your audience a sense of the magnitude of this uptick in profitability. So it was even though that new car sales and used car sales were under a lot of pressure and we had an inventory crisis, profitability of these car dealerships, just skyrocket. And that was really the party. What I'm saying now is that there's this confluence of macro factors that's beginning to crash this party, but it's not over yet. And that was really the point of my articles to say that even though these party crashes have arrived, the celebration is still pretty decent at the auto dealers bash. Well, and one could say it's just back to where it was. Well, and I would say that it's actually better than where it was. So just to put a, you know, point on that if the return on sales was two percent in 2019, we're running three, three and a half return on sales this year. So we've come down from the peak, but we're still well ahead of where we were in 2019. Right. Okay. And there it is. Okay. And that also then, because I wrote car max tightening. If the, if COVID brought in a three X return, that would also explain why, I mean, we could see where buying cars online was exploding and now isn't exploding. Yes. It's the same timeframe, right? Absolutely. Okay. So then I guess, and this is where, and I teased up the, in the email, I said, well, what can dealers expect in the coming months? What do you think that is? Well, I think that our forecast, the Cox automotive is that we'll finish the year around 15.7 million TIV. In fact, I take that back 15.9 million for this year, 15.7 million is where we finished last year. So we'll be up just a bit versus last year, but I think that dealers largely are going to continue to see, you know, there's this, this pressure between the car manufacturers. Obviously, they get paid to produce cars and ship cars to dealers. And we're seeing that in particular brands, largely those not by the name of Toyota and Honda, we're definitely seeing inventories rising. And then we're also seeing the accompanying uptick in terms of incentives. And just to kind of give your audience a sense of that, you know, during that microchip shortage, the average incentive across trucks, SUVs, sedans, all of it was roughly $900. Today, we're up around $3,200. So we've seen a pretty significant uptick as car companies have no choice, but to bring out the incentive lever to try to begin pushing more retail through the system. Well, there's a term I haven't heard in a little while, microchip shortage. And I will say, you know, through the decades and years or whatever, I guess I thought about the past, you know, oh, that was five years ago. That was three years ago. But because of COVID, I'm even more trying to measure where we just were. Isn't it weird? You say now you talk about masks and it already seems like a decade ago. Yeah, that's weird. I mean, there's a lot of things that I, you know, I reflect sometimes, Jay, there's a, I live in Nashville and there's a flight path where I can see at night the planes coming around, kind of where I live up towards the airport. And it was an eerie experience where all those planes are used to seeing in the sky, just everything stopped, right? And you saw people in the middle of the day taking walks and everybody kind of wondering what was going on. And now here we are. And like you say, that seems like it's quite a waste in the rear view mirror and we're back to, you know, going on vacation and going out to dinner without having to wear a mask when you're walking through the front door. And I would say that certainly from my vantage point, I'm a lot happier today than I was in 2020. Yeah, I think we're pretty much back to normal. And the good news is we're still above average, according to, you know, the data you're bringing, right? Absolutely. I think that car dealers, and you know, one point that I would make on this, Jay, is that there has been enormous amount of activity on the M and A side of the car business in the past two to three years. And even this year is trending above where they expected. So in a typical year, you might see 350 to maybe 400 car dealerships change hands. We had a year, I think where we were over 600 this year, we're going to be well north of 400 again. And what we're seeing is that big auto groups with enormous capital, the players like Lythia, players like Asbury that have resources are now able to go out and make these acquisitions are buying large family owned businesses. And they're able to pay, you know, a billion dollars. I mean, big auto group in Washington, D.C. Metro, the Coons Automotive Group, I think they sold for close to three billion dollars. So that just tells me that these operators like the Asbury's and the Lythias and the Auto Nations are run by very smart, sophisticated investors. And I think that that speaks to the forward looking optimism about the car business, that if you're willing to pay a billion dollars today to buy a collection of car dealers, you're feeling very bullish about the future of the retail car business. I want to continue this M&A conversation. Let's go ahead and bring in Patrick. Patrick James is the assistant vice president of the auto inventory solutions. And he's going to join our conversation here. I just let him in. He's coming in the door. I try to. I don't really report on M&A much because it is, again, above my pay grade. But I see it. And so there was an increase as well in the past two to three years. It's all right. Patrick James, how are you doing? Can you see us and hear us? Okay. Okay. Yeah, can you hear me? Okay. Great. Can you hear you? We're talking about M&A. Mergers and acquisitions, right? There it is. I'm with you. So, all right, Brian, you were just talking about you mentioned Coons. I'm going to say, I'm going to say that there are like, I don't think everybody has the has a copy of the top 100 dealers in the US in front of them, right? But everybody should. Actually, Jay, I have one right here. It's crazy. What? You got the memo? It's laying by my feet. I don't know. It's something I looked at. I don't mind somewhere over here. That is the best. Why Patrick? Why? Why do you have that? Well, hey, this is a this is a softball here, Jay. We didn't talk about this, but, you know, the auto historically, the way we went to market with our dealers and helping them with, you know, manage inventory, it was very rooftop centric. Like, you know, you had a store, you needed to manage that store, that piece of property, you had inventory in it, and we wanted to give you insights to be more efficient, et cetera, et cetera. But to Brian's point earlier about all these mergers going on and these groups getting larger, we're finding a need to connect those stores and give the C suite, you know, whether it's a 10 store suite or a 100 store suite C suite, the ability to look across those stores and manage certain KPIs that they can do centrally. And quite frankly, there may be jobs to be done, if you will, that they're going to start doing centrally, right? And it might be, you know, in your wheelhouse buying cars at auction, it might be transferring cars from store to store to optimize the return, which I, I'm sure CarMax and Carvana does a lot of, that's why we're seeing them, you know, be start to be very efficient. So, yeah, we're looking at that real hard. So I pay close attention to the top 100, because, you know, even the even the small guys are getting bigger, and we got to be their farm to help them run those operations. And that makes sense. And that's the nerve center of what we're all talking about, right? And that's how a cyber event can reach really high numbers, if you're reaching that many dealerships, not to go back to that. But this is a, this is a nerve center, and we're all connected by the sale of the car, the inventory of the car. I was going to say this to Brian before I forget, I wanted to write down October Surprise. You know, there are different phenomena that get me jazzed about life itself. And October Surprise is one of them. It's real. We don't know what it'll be. And we're going to get an October Surprise this year, whether we like it or not. I think we get more than one October Surprise. We get monthly October Surprise. Is that my right? Yeah, yeah. I'm excited to talk politics with you, but I don't know that we should be doing that in the public. No, we're not going to. That was it. That's where I just wanted to say the phenomena. But my point is that because we're talking about in the coming months, and I didn't want to leave that out because that's, you know, okay. All right, so we've got Patrick, you were going to say something. No, I'm going to say, Jay, I'm not going down the political route, but I will go down, you know, Cox Automotive does a dealer sediment survey. And I have the latest one pulled up my screen because it's amazing. You just kind of telegraphed it, the shift that happens, you know, prior to an election and where we are in the market today. So the ones that jumped out of me, obviously, the number one concern is interest rates. We already talked about it. Then it goes to the economy, and then it goes to market conditions. Okay, those are all things that we tend to hear all the time. Number four is the political climate, right? So that one was way down at the bottom. And now it, you know, it came up to the top already part of this year for the context. I needed the help. Yeah. But the one that shocked me though, was earlier in the year, limited inventory was way up at the top. That's moved down to like eighth place. Matter of fact, 44% in the second quarter of last year, 44% of the dealer said, Oh yeah, limited inventory is my biggest problem this year, same time, 29%. So that's like falling off the radar, you know, limited inventory, how am I going to get cars? And all of a sudden, everything that's gone to the top is economy, interest rates, political climate, you know, all the stuff that we typically see, you know, when you're coming into elections. So it's kind of interesting. That's what's on the dealer's mind. Well, thank you. So, and that's what I'm trying to get. Okay. So what was number one on the dealer sentiment? It was interest rates. That is now shot to the top. They're concerned, you know, obviously, which really is the affordability thing Brian was talking about, right? And then it, then it moves in the economy and market conditions. And then, and then comes political climate. So how all right, so let's talk about number one, what can be done? That seems like a real toughy, right? Well, I think I don't know, Jay, what can be done? I know that the, you know, the circumstance is just fundamentally changed. And what I mean by that is that once again, using pre COVID is a reference point, households making $250,000 a year represented 4% of total new car sales. So relatively small percentage. Here we are five years later, households making over a quarter of a million dollars represent 16% of new car sales. So we've just had a fundamental shift where new car purchases has become almost a luxury item, right, for wealthy, more well to do families. And unfortunately, and I think that this, you know, speaks to some of the frustration we feel inside this country is the middle class and the households making 75 to 125, those households percentage of new cars have gone down. So the wealthy families have bought more and the middle class has bought less. And so those families are the exact ones that are now, I think more tuned to the use car market, which I'm sure is helping to prop that up. And what we're seeing, you know, as you look across the different segments, Jay, is that for a while here in this country, we thought that sedans had like gone out to die and that everybody was going to buy trucks and SUVs. And what we're seeing is a bit of resurgence in terms of those compact sedans and midsize sedans that tend to be more fuel efficient. Those are running some of the lowest day supply of any segments in the industry because that's where the market is and consumers are looking for payments that are well below $755 a month. Would that then coincide with seeing like Tesla working to bring down price of new vehicles, right? I think absolutely. And just one last quick thing I would share on that, Jay, that I thought was interesting is that, you know, only 50% of American households can afford a $400 a month payment. And at today's interest rates, that equates to about a $20,000 vehicle. If you look across the universe of inventory and Patrick knows as well, there's not a lot of $20,000 vehicles for sale. And the problem is, if it is a $20,000 vehicle, it's a use car. And guess what, you know, the average rate is on a use car. You're up in the 1314% range, right? So it's definitely a challenge for sure. How is that affecting like the individual dealer, you know, the smaller dealers? Patrick, I mean, I think Patrick works with a lot of, you know, big dealers, small dealers. And I think Patrick, you can speak to this better than me. But I think the real challenges around use vehicle acquisition poses a real challenge for dealers right now. Yeah, it's finding that inventory that is affordable. So, you know, Brian and I were talking yesterday about, you know, this stream of off lease cars that used to just flow into the dealership, you know, and customer grounded it, dealer bought it, and they had a, you know, three-year-old late model car that was a perfect, you know, CPO car or used vehicle. Because of the timing of where we're at back in the pandemic, you know, we weren't leasing any cars back then, right? Leasing had gotten turned off because they didn't need to submit residuals and do any of that type of stuff back then. And so I think next year is going to be the lowest point of off lease cars returning, you know, since well before the pandemic. So I, in some of the numbers are like 40 and 50 percent down from what they were, you know, pre-pandemic in terms of that flow of inventory, coming back to dealerships. So that car doesn't exist. It's not coming to the doorstep. So what we've been really working with our dealers on is they got to get more savvy in acquisition. And it's not necessarily going to the auction because that's a bidding war, right? So you, you know, sharp guy can go and buy some good pieces. But if he's solely relying on that, he's going to be disappointed because there's quite a few other folks in there trying to do it with them. And we've been really working with our dealers to find other acquisition sources, you know, work in the service drive, work in those private party listings, which is some of that older, higher mile type vehicles. I've heard dealers having tremendous success with buying cars from private sellers and being able to get that affordable inventory because that's where it's all set because it's not coming in on a trade cycle necessarily. So I think the dealers are getting really savvy about that. We're trying to help them with some technology to help them find those cars and be a little more efficient and being able to buy them. Those are the ones that, you know, are getting the cars in that consumers can ultimately afford at this point. Thank you for steering us back to off lease because I want to talk about that. But before we do, or as we do, so what the problem you just mentioned, now that can be solved with technology. Somebody's got a vehicle. They want it. They want to get top dollar. They want to release it. You've got many folks out there that want that vehicle and the technology can help connect the two parties as the technology gets smarter. This might be an AI thing because we're not talking about the need for the seller to do all the things they had to do in the past. They had to really make a marketing deal out of selling the vehicle. It shouldn't need to be the case anymore, just like when you post a product on eBay. It feels like such a process. Oh, man, I got to do all the stuff. I just want to sell the thing. I have it for sale. I just want to sell it. How can I easily do that? How can I quickly get paid? And there's got to be technology that can help that happen. Yeah. I think Patrick can speak to some of the things that we're doing at Cox Automotive to help connect the dots as you're describing, Jay. But just to put an exclamation point on the extent to which this off lease thing is going to create stress. And what I call that as a party crasher is that once again, 2019, there were 4 million customers a year that largely brought their off lease vehicle back to their dealership. And then that facilitated perhaps another new car sale that facilitated a used vehicle acquisition that was done a three-year-old car. We can throw that into our CPO program. We can flip that used car and make pretty good pop with fairly low effort on behalf of the dealer because it was almost like an annuity of off these cars that is coming back. Well, next year, that 4 million drops to 2.3 million, almost half. And I think that Patrick's point is that dealers are going to have no choice, but to become more sophisticated. And as you say, using technology and put more emphasis and effort on this part of their business because we're losing half of the volume that we're used to seeing it. And just to elaborate, why are we losing half? That is, is that also COVID related? So yeah, two issues there, right? So we normally were operating around, let's call it 16 million unit sales during the pandemic. We dropped to 12 fish, 12 and a half. So we lost volume, but then the bigger issue was that the industry typically leased one out of every three cars, was a lease. And lease was always used by the automakers as a safety release valve to rise in inventory, throw big incentive dollars to create that 199 lease and blow cars out, right? Well, when there was the shortage of inventory, the car companies are saying, I don't need to spend this big money on lease prevention. And the lease pen in the industry dropped from call it 3132% to 6% or 7%. So you had a double whammy, less volume and significantly lower lease pen. And that's why we have this situation where we should at least 4 million cars back in 2020, but we probably lease closer to 2 million. And that's why we're seeing such a drop off in that off lease return volume. Okay, I didn't know that I get it now. It's in it really, it's it's related to the dealer plant shutdowns being unable to keep up with that 17 million a year inventory. And because they didn't have the excess inventory, they didn't do the excess lease plans. Is that right? Exactly. Wow, exactly. I didn't realize that. Yeah, I'll add another interesting back to that is that, and I personally did it myself, is those folks that did lease, even, you know, pre pandemic before everything shut down and they had a car and now that three year lease is up, you know, use car values went through the roof, right? After after the pandemic vehicles were appreciating. So I had a car three year lease about a year ago, you know, booked the car out and looked at what my payoff was to buy it myself out of it out of my own lease, found out I had about six grand worth of equity in that car. I bought the car. I mean, why would I turn that in and walk away and go get something new where interest rates are higher, leases still aren't really aggressive. I'm like, I'm buying this car and drive it for another couple of years. I'll probably still have equity in it when, you know, I try to sell it two years from now. And so back to our point about acquisition, those cars are out in the car park. You know, people bought them. They're not leases coming to do anymore. People are driving around and they own them because they bought them out of the lease and dealers are going to have to find those cars when and if those folks are ready to sell them, which, you know, as you know, average customer now has what 2.6 offers on a used car before he goes into a dealership, you know, has already gotten them online and knows what the cars worth. I mean, they got to go out and fight for those cars to get that inventory. It's not just the natural what we bring it in and trade it. So, so yeah, okay. So you already had less lease right. And then you had, well, I'm just going to go ahead and keep this is that double whammy. This off lease turn ins, I was going to call it a cliff, but I didn't want to, you know, freak anybody out, but it's I mean, it's pretty severe. Yes, absolutely. And I think that next year is really bottoms out and we'll kind of hit the low point about 2.3 million lease turn ins and then it begins to pick up from there. And you know, one bright note, Jay, is that so far here in 2024, lease is up 30% as a sales type. So if you look at just the raw number of vehicles across the industry, be at least we're up 30%. Why is that? Because we got brands that are sitting on excess inventory, floor plan pressure that I talked about. All these issues are coming to be so so car companies, as I said, this is, you know, two big safety release valves for car companies that are under inventory. Release valve number one is attractive lease offers. Release valve number two is selling cars to fleet companies like Enterprise Hurts and Ava's. And I think we're seeing it uptick on both of those. Right, gotcha. Right. So we are back to again, more normal lease plan. Yeah, this release valve thing is, I'm learning a lot. I like hanging out with you guys and learning all kinds of stuff. You know, well, Brian, Brian told you his real background. He was the guy pulling the release valve back when it was earlier part of his career. So he was pulling the lever all the time. He knows all about those release valves with the OEMs. That is awesome. It's already, guys, it's already 10 to 8 central time. And I didn't know what to expect. And I never want to overstay my welcome. So I think I'll end it here unless you've got any final thoughts. I mean, did we miss anything? I think we hit it all. Well, I think, Jay, the only thing we missed her, what are your big fourth of July plans? What do you got going on? What's it? What's where's the ATI party? Right? Well, there should be. Well, ATI's more back to a normal, you know, the the party crashing and all this stuff. Not as many fireworks as there were a couple years ago. So I don't have anything special plan. Just I'm just hanging out. Plus, it's a Thursday. It's a, you know, for the July Thursday. For the ATI like support every weekend, Jay, you've got I'm sure it'll be fine. I think I will. I'll be okay. I, you know, I don't even have it. I don't have a Thursday show. So really, my fourth of July starts pretty much in a few minutes. That's great. Thanks for having us on. Patrick, I always enjoy joining and chatting about the car business and look forward to coming out again sometime soon. I love it. So let me say this is that keep me posted about your two minute tune up. Congratulations. Thanks. Right? Jumping right in and I mean, you know, you see you have the two minute tune up with the party crashers. What's given of the two minute tune up planned anytime soon? Yeah, we got to work on over the fourth of July and come up with my next theme. Yeah, one of my old glosses that was a mentor of mine for a long time gave me a hard time that in my party crashers article, I didn't include any reference to a beer bomb. So he was a little disappointed that I didn't tie that in. Oh, man. Hey, I'm happy for the July. Oh, well, you know, let me know if if I could be of any help. I love you know, this is my thing, right? You know that. And I also am looking forward to an August to remember the central dispatch tech transformation. So I'm looking for, you know, I'm looking, I think there might be a little bit of collaboration coming soon. So thank you. Shout out, Cox, Cox on. Thank you. Thank you. I always fun to chat about the partnership. Thank you. Thanks, guys. All right. Happy fourth. Talk to you soon. All right. Thank you very much. Okay, a lot. And that's a cut. There's my button. You know, zoom updated. Did you see the zoom update? And it used to be a big red bar that said end meeting. And now it's this little like, where is it? I'm surprised it didn't make it roaming so that I had to feel like I'm playing a game. But I ended the meeting. I let the guys go. That is super nice. Brian and Patrick and Cox on a motive. Thank you very much for giving me your time on a Tuesday night. I really do appreciate it. Jim is in the live chat. Well, Jim, I was going to say, um, retail my ride. And, um, uh, what is it? Get free inventory.com. Get free inventory.com. Here. Let's do it right now. Let's go check it out. Get free inventory.com. Let's see. Get free inventory.com. Get free inventory.com. Hit record, Jim. Get free inventory.com. Connecting car dealers with free inventory technology to help you stay ahead. Get free inventory.com. Go there. No cash outlay, no floor plan costs, no reconditioning costs, no market risk, earn good margin, keep all the F and I, get free inventory.com. Go there. Check it out. Thank you so much. Thank you, Brian Finkelmeyer. Thank you, Patrick jeans. Thank you, Cox on a motive. Really do appreciate the time. Um, thank you, Murphy out of transport, superflow systems. Thanks, live chat, shout out, Jim Horan and everybody in the live chat. Thank you so much. No show Thursday. Enjoy your 4th of July. We'll see you next Tuesday night. We've got, oh, Heming's Heming's private collector auction. Man, this is going to be a really interesting show. Heming's dot com. Yeah, is a car collector's auction site. I got a man, I got some research to do. I got my research cut off from where I know what I'm doing this weekend. Thanks for watching, ATI. We'll see you next week, everybody. Take care. Here comes the car hauler. Have fun. [Music]