The Expert Podcast

…So it was the car business changed for good. Obviously the last two or three years have been a lot of turmoil for the automotive industry First there was pandemic and then there were lockdowns And then there was inventory shortage where factories weren't turning out vehicles. Supply chain was part of it. And then dealerships were charging huge markups. And now and used car prices went up and now that equilibrium shifting back where now there's some inventory at dealerships but…nobody wants to buy them because of inflation The prices are higher and because of interest rates the payments are higher. Look, the average price of a decent new car right now is about 46…At a…Regular interest rate for most car loans that's going to be about a thousand dollar payment. Right Yeah The six or 7%. Interest rate. Time 60 months a five-year loan. 400 or $46,000 car it's going to be a thousand bucks a month. And that's pretty stout So that's cutting back the demand side of the market. Now where does that put the car business Well, dealerships now have inventory but they don't have buyers. Factories are pressing on the dealership from the other end…in saying that we're not going to really. Have hundreds of cars on the lot anymore. And some factories are saying. we're not gonna even have dealerships anymore Buy direct from the factory. Not have markups. By the dealer. And make it a more Tesla like experience. What's that going to do for used cars? Our used cars going to be sold only through dealers. Both. Carvana and CarMax are both having problems as large used car retailers. Where do you see the car business in two or three years down the road Is it going to be factory stores? With a small used car department What about EVs? A lot of these manufacturers are telling their dealers. That in three or four years, they have to sell only EVs are mostly EVs. Some states are canceling…The eligibility of gasoline vehicles by the end of the decade by 2030. So they can't even sell gas vehicles anymore. The old ships have to do a big transition. That's also going to put a crimp on their parts and service business. Look most dealerships have what's called a. a fixed absorption, fixed absorption means that…the fixed operations department fixed operations means service parts. Body shop the the, fixed…Part of the dealership. or the repair part of the dealership covers their fixed expenses meaning that the rent their overhead, their taxes insurance all that's covered. By their parts and service department. Right That's fixed absorption. And the sales department is their profit That's where they make their profit from So if your service can do a hundred percent fixed absorption you're in good shape Well…Electric vehicles don't need as much service. They don't have internally lubricated engines They don't have transmissions. They don't have all the other parts Yeah They might need breaks and maybe shocks and tires, but that's not the same as. More. expanded repairs. Now a lot of that's covered by warranty but the factory still pays the dealer for the warranty. So what happens when everything goes to EVs and you don't have that a hundred percent fixed absorption on the. repair side. Maybe you have a 20 or 30% absorption. Well now your sales department has to cover the difference. And if you have…a lower margin and a lower volume at the same time. That may not be enough to. Withstand the expense footprint of a large. Traditional dealership operation. Right with a five acre lot. With a…10,000 square foot showroom and building and all the. you have to do. It may change the dealership profile. To be more of a boutique style outlet. Doesn't have a lot of cars, but it's more of a delivery. Outlet for the factory. You don't need 10 salespeople. You don't need, you know five managers, finance manager all the different things go with it…Obviously. Automotive consumers have an opinion about this Some liked the idea Some don't take away your thought about wishful thinking how you want dealerships to be. And let us know how you think it's going to be. Nobody wants to have to deal with a salesperson that doesn't give you a price right away that, you know plays around with numbers and has the manager in the back they go back and forth with. Nobody likes that but. What about the alternative What if it's a fixed price but you can't negotiate You have to pay full list Is that better? Carvana was supposed to be, you know the…You know, Utopia of car dealerships to buy used cars. It turns out they had problems too They're having title problems Some of the vehicles aren't properly maintained. What is the happy medium for consumers and how does a. Dealership enterprise create a structure that's profitable that can sustain ongoing operations without going out of business.