Editor’s Notebook: 10 Points from NADA 2015

by Jon LeSage, edi­tor, Used Car Mar­ket Reports

NADA 2015 For fran­chised deal­ers and their sup­pli­ers, NADA 2015 at the Moscone Cen­ter in San Fran­cis­co was a suc­cess. It’s an  excel­lent place to speak with indus­try col­leagues and get a read­ing on what’s real­ly hap­pen­ing in new and used car sales.  Here are a few thoughts from my note­book:

1. The indus­try seems to be healthy, with atten­dance at 22,000 to 24,000 peo­ple – up from last year and about 550  exhibitors in the three sep­a­rate Moscone Cen­ter halls. As for car sales, NADA’s chief econ­o­mist Steven Sza­kaly fore­cast­ed  US new vehi­cle sales will go up from 16.5 mil­lion sold in 2014 to 16.9 mil­lion sold this year. Eco­nom­ic growth is behind it  with an improv­ing hous­ing mar­ket and job expan­sion lead­ing to a surge in demand; low gas prices are a fac­tor and that  should tip the scale to more demand for pick­up trucks and SUVs.

2. Jonathan Banks, exec­u­tive ana­lyst at NADA Used Car Guide, said that used vehi­cle prices are expect­ed to fall 2% to 2.5%  for the year, while grow­ing off-lease sup­ply will dri­ve late-mod­el vehi­cle vol­ume up 8%. High­er used vehi­cle sup­ply, flat new  vehi­cle prices with high­er incen­tive rates, and less favor­able cred­it con­di­tions are some of the fac­tors that will pres­sure the  vehi­cle mar­ket for the year, he said. Over­all, the new and used car mar­kets should be sta­ble this year, accord­ing to  Manheim’s 2015 Used Car Mar­ket Report that was released Fri­day at the NADA Con­ven­tion. “While last year was a ban­ner  year for growth and sta­bil­i­ty in the used-vehi­cle mar­ket, we antic­i­pate that we’ll see the sixth con­sec­u­tive year of increased  new vehi­cle sales in 2015,” Tom Webb, chief econ­o­mist at Cox Auto­mo­tive, said.

3. While True­Car has been con­tro­ver­sial for sev­er­al deal­ers in the US, the company’s pres­ence was strong at the con­ven­tion. John Kraf­cik, pres­i­dent of True­Car, told me that 40 of the top 50 deal­er groups in the US now par­tic­i­pate in True­Car. True­Car esti­mates that deal­er are spend­ing $616 per car sales trans­ac­tion on mar­ket­ing — from buy­ing leads to adver­tis­ing and oth­er costs. He said that in True­Car, they’re spend­ing and aver­age of $299 for new car sales and $399 for used cars. Used car sales cost deal­ers $100 more because the sales trans­ac­tions are more prof­itable than new, and the mar­ket is more com­pet­i­tive and needs that extra mar­ket­ing spend. True­Car is work­ing with its part­ner com­pa­ny ALG to pro­vide trans­par­ent pric­ing to help deal­ers “set their top line and pro­tect resid­ual val­ues,” Kraf­cik said. True­Car esti­mates rev­enue of $1.2 tril­lion last year in US new and used vehi­cle trans­ac­tion price sales rev­enue, about even­ly split between new and used. Anoth­er inter­est­ing point: Kraf­cik thinks that the US is the lead­ing auto­mo­tive mar­ket in the world and not Chi­na. “Chi­na doesn’t yet have a used car mar­ket,” he said.

4. Ter­ry Dortch, pres­i­dent and CEO, Auto­mo­tive Com­pli­ance Con­sul­tants, Inc., thinks that ancil­lary prod­ucts is what the fed­er­al agency is look­ing into next. Richard Cor­dray, direc­tor of Con­sumer Finan­cial Pro­tec­tion Bureau (CFPB), has made a state­ment about it. Val­ue to price – it’s not legit­i­mate unless it gives good val­ue to price, Cor­dray has said. He wants deal­ers to be as trans­par­ent as they can be – with pres­sure placed on deal­ers’ F&I offices. CFPB was prob­a­bly the top, key theme at NADA 2015 — and it was enough for keynote speak­er Jeb Bush to make it the sub­ject of his speech.

5. While work­ing with, and mar­ket­ing to, mem­bers of the Mil­len­ni­al gen­er­a­tion was a key theme at NADA 2015, it’s not as dif­fi­cult as you might think, says Kei­th Pret­ty, pres­i­dent and CEO of North­wood Uni­ver­si­ty. North­wood instruc­tors have found Mil­len­ni­als to be hard work­ing, focused employ­ees at deal­er­ships across the coun­try. The work­ing envi­ron­ment is tran­si­tion­ing along with the over­all auto­mo­tive mar­ket through new tech­nolo­gies and what’s expect­ed of deal­ers by con­sumers. Young man­agers appear to be will­ing to adapt to what their peers expect, Pret­ty said. (Read more about what makes for great lead­ers in the deal­er space with a recap of Northwood’s sev­en award win­ners giv­en out on Sat­ur­day morn­ing.)

6. Black Book expects to see a wider val­ue depre­ci­a­tion gap in 2015 — 14.5% depre­ci­a­tion ver­sus 12.1% in 2014 and 12.8% in 2013, said Ricky Beg­gs, senior VP and edi­to­r­i­al direc­tor, dur­ing an inter­view. That will come through a greater sup­ply and more new car sales with trade-ins. “We expect about 60% with trade-ins,” Beg­gs said. Off-lease has been com­ing back into cer­ti­fied pre-owned vehi­cle sales, but the vol­umes will be increas­ing this year and next and the impact will be felt more on used car prices. Beg­gs and his col­league Anil Goy­al, VP, ana­lyt­ics and strate­gic part­ner­ships, see mar­ket sta­bil­i­ty com­ing from the lend­ing envi­ron­ment. That was the key theme at AFSA Vehi­cle Finance Con­fer­ence in San Fran­cis­co right before NADA 2015, Beg­gs said. “It’s a very pos­i­tive envi­ron­ment out there for lenders,” Beg­gs said. Goy­al also sees pos­i­tive signs com­ing from strong eco­nom­ics with unem­ploy­ment being low, sev­er­al indus­tries are see­ing growth, more cred­it avail­abil­i­ty and the right bal­ance in their invest­ment port­fo­lios.

7. Kevin Filan, VP of cus­tomer mar­ket­ing at Cox Auto­mo­tive and Michelle Krebs, senior ana­lyst at Auto­Trad­er said dur­ing an inter­view that they see hybrid and elec­tric vehi­cle sales con­tin­u­ing to soft­en this year – much of that com­ing from advance­ments in inter­nal com­bus­tion engines with stop/start, direct injec­tion, and tur­bocharg­ing lead­ing the way. Per­for­mance and effi­cien­cy has been the win­ner late­ly. There’s still a lot of shop­per inter­est in hybrids, but that’s many times divert­ed over to fuel-effi­cient vehi­cle pur­chas­es, Krebs said. Over­all, deal­ers are turn­ing about 60% of their used inven­to­ry in 90 days; high-per­form­ing mod­els are see­ing 60% in 60 days, Filan said. Cox Auto­mo­tive sees a lot more used cars com­ing off-lease but grow­ing cer­ti­fied pre-owned sales is soft­en­ing the blow for now. Small crossovers are strong in price but mid­size cars are not, Filan said. An inter­est­ing side note: in one of their recent stud­ies Auto­Trad­er found that con­sumers don’t clear­ly under­stand what MSRP means. Their top pri­or­i­ties are guar­an­teed price and what the month­ly pay­ment will be. They will dri­ve up to 30 miles from home to save 5% to 10% on the car price, accord­ing to Filan.

8. Mike Williams, VP mobile solu­tions at Black Book, says that deal­ers and remar­keters are using the Black Book mobile app for a cus­tomized look at report­ing – what makes the most sense to them in their mar­ket and vehi­cle line­up. It helps them improve inven­to­ry man­age­ment, pric­ing, and view­ing auc­tion win­dows. They can per­son­al­ize it, such as using the system’s prof­it cal­cu­la­tor. The deal­er can base analy­sis of what that deal­er­ship prac­tices – how much spent on con­di­tion­ing, new tires, etc. Used car man­agers at deal­er­ships are play­ing the lead role in over­sight – they might be on a desk­top inte­grat­ed with their traders’ mobile apps when they go to auc­tion. Inte­gra­tion of plat­forms a big area of focus now – such as auc­tion activ­i­ty, Car­fax reports, pho­tos, and sell­ing one-off, spe­cial­ty vehi­cles. Just like it is for cus­tomers to deal­ers, build­ing trust is very impor­tant between deal­ers going to auc­tion and cre­at­ing “vir­tu­al inven­to­ries” togeth­er online, he said. Things are cer­tain­ly chang­ing for deal­ers – Williams might see them still using VIN scan­ners at an auc­tion. He asks them why they’re not yet using a run list that already has all of that infor­ma­tion in an orga­nized, acces­si­ble for­mat. Mak­ing changes to new tech­nolo­gies comes down to per­son­al per­cep­tions and choic­es, he said.

9. To sum up what it was like attend­ing NADA 2015 as the Used Car Mar­ket Reports edi­tor, I would say a key theme was that there’s a chang­ing role deal­ers are now play­ing in used car mar­ket dynam­ics and val­u­a­tions. It’s not all about off-lease, off-rental, gas prices, and incen­tives any­more. For the past five years, deal­ers have been more care­ful­ly man­ag­ing inven­to­ry and access­ing it around the region and coun­try — not just their local mar­ket as they did in the past. Prof­itable used car sales trans­ac­tions are not real­ly about reach­ing the high­est pric­ing. It’s more impor­tant to hit sol­id prices and high­er sales vol­umes for that mar­ket. Mobile apps are work­ing for them – becom­ing more cus­tomized to their needs. They’re ana­lyz­ing trend­ing reports more often and cus­tomiz­ing them to their inven­to­ry and mar­ket dynam­ics. Fran­chised deal­ers are devot­ing a lot more of their resources to used/pre-owned sales than they were doing five years ago — are see­ing the pay­off in prof­itable sales trans­ac­tions.

10. Two more thoughts — CPO sales are grow­ing and may look a bit dif­fer­ent with spe­cial­ized, brand­ed pro­grams com­ing out from a few automak­ers and third par­ties. Also, watch where deal­er­ship merg­ers and acqui­si­tions are going with War­ren Buf­fett of Berk­shire Hath­away and investor George Soros inter­est­ed in mak­ing a sim­i­lar, major deal­er acqui­si­tion.

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