#269 - Sales Slowing, New Car Consolidation, Best Vehicles Under 10k

You are listening to the Independent Dealer Podcast with hosts Luke Godwin and Jeff Watson.

Hello and welcome to the Independent Dealer Podcast brought to you by Buckeye Dealership Consulting. Luke, just you and I today. Hot topics, man. I want to talk about a couple of interesting news articles that have come up and just kind of get your take on a few of them because I think a lot, there is a lot going on right now in the car industry, especially as it has to do with pricing. Right. There's such a crazy disparity between auction prices, retail prices, demand, this post Covid kind of hangover and like all this demand that was pulled forward like.

I.

Don'T know, man, it's, it's crazy. And I say that, but we always say it's crazy.

Yeah, I mean it's, you know, it's that time of the year, prices are, you know, at their peak probably, I would think two weeks ago, maybe, maybe three weeks ago with auction at their peak, Tom, I think we will see a steady fall from here, in my opinion, until the end of year. I, I don't see demand that's going to keep it, keep it where they are. When you start seeing floor plans back out, you can really see a precipitous drop in prices. And I think we'll probably see that with interest rates rising. So I think there's a perfect storm to cause prices to come down. I do not believe they're going to come down rapidly, Tom. I believe it's going to be a. But a steady downturn in prices, kind.

Of like your typical slow burn. And it's funny, we talk about this every year. It's like, yes, guys, prices go up in January, February, March. Like that's what happens every single year. So what I'm going to find interesting is the tax time demand keeping some dealers afloat. That would not have been afloat if they weren't selling cars. Right. Because sales solves everything. Right? Turn time solves everything. You could be heavy in your inventory, you could have curtailments and you could be overbought. But as long as you're able to turn units and get them out the door, nothing really crashes. But now if you're heavy into units and you bought them at yesterday's prices, and then all of a sudden the demand slows down and your sales drop and at the same time, the flooring line is knocking at your door, oh.

Man, that's perfect storm. And I mean, honestly, that's where retail dealers will find. They may end up, unfortunately. Buy your pay here. Dealers have the luxury that they don't have to sell cars to survive. Right.

For a minute.

And so for, for. It depends on your. Honestly, it depends on how leveraged you are.

Structure.

Yeah, yeah, all that. But you can just say, okay, we're just going to sit here and collect cash. We're not going buy an inventory. Right. And you can do that, and it will get you to a certain point. Unfortunately, retail dealers don't have that luxury because they really don't have any residual revenue coming in. And so when expenses are higher because your floor plan interest rate run up when sales slow and the expenses you had on your dealership stay the same if it creates a really, really bad situation, and hopefully nobody listening to us is going to experience that. But it's just something to plan for. Right, Jeff?

Yeah.

Luckily, prices will fall, I believe new car production is up drastically compared to this time 18 months ago, this time 12 months ago. And so new cars are coming, prices are going to come down. And you'll see even rental cars start to flow back in the market. Leases start to flow back in the market.

So with a ton of miles.

With a ton of miles. You know, the other thing that's funny in this is you're going to have so many people upside down. I mean, and I've seen it, man, just some of the crazy. Last week we had some. I was $14,000 upside down on a. On a $14,000 maximum. They were, they were trying to trade with us. And so this is going to create more repos, which will. Will force prices down. It will also slow retail sales again. You know, it's, it's. It's the, it. It will slow these sales while people try to pay out. And what you're going to find is more people are not willing to stick to it and pay out. So their credit rating is going to go down. There's going to be more repos on the market. Yeah.

And I think the Manheim report came out and said that retail sales were down for March. Right. I think Overall retail sales, 6%, something like that, down for March year over year. So we see a retail slowdown even though the prices at the auction have stayed healthy.

Yeah, yeah, yeah, they're going to fall.

Yeah. So that, that, that, like you said, creates kind of that perfect storm situation. What's interesting to me, though, when you say that, you don't see those prices and people being upside down. You know, new car. The cost of a new car has gone up too. Right. So people's payments, you know, that's Something we've talked about before. But your average payment is like $700 now or 7 mid-700s. Yeah, I mean that's jumped up. Well like $100 a month from last year. I mean we hit like 650 and people were crazy like oh, a new car average payment $650 now the new car is 750.

And the average used car payments around the 600 range, right?

Yeah, yeah, yeah. An average used is getting, is flirting with 600. So I mean cars are just more expensive. Part of that obviously is the interest rate spread. Right. You look at like what was a new car interest rate at the 4% and now you're like 7%. Right. And used you're, you're similar. You know, I think, I think that's 7 up to 11.

I think the average new car price is close to $50,000 now.

Yes.

In the last, I think in the last three years has gone up 30% or something, something crazy like that. Or maybe 20%. It's a big number. And, and you know what we saw? We have seen inflation in our industry more than I believe maybe any industry, except for maybe eggs for a certain point. But I mean it's just incredible. I've never lived through inflation like this. I mean I did, I did live through inflation like this, but I was too young to understand it. But now we're really in a, a pickle.

Yeah. Inflation for industries like ours are so, are so they're drawn out. Right. Like eggs might spike, toilet paper might spike. You know, some of these silly runs and, and, and issues in the supply chain may spike certain inflation on certain things. But for ours, it's such a long lead time. Right. Cars are such a long process, you know, and other industries have that. When you're talking about manufacturing goods or electronics or these larger long lead time type items. But ours has so many little components that come from all over the place and each one jumps up 10% and that adds to that overall cost of the car when it finally gets here.

Then there's another piece of that, that inflation lasts for years.

Yeah.

Because of, of people financing their cars for too long. Right. And so it leads to repos and it leads to, you know, bad credit, at least these things. So it's not just the initial portion of, of inflation in the good soul. It, it's a chain reaction as a snowball and we've got to observe that.

And yeah, my question is, does it leave more air cover for used cars to stay high in price? Right. Because a new is now 40, 50 grand. That one or two year old model one is actually selling for more than retail, you know, because the new one went up so much. Those, those used prices have more room where it's like, man, the difference between a used and a new. Okay, I'm just gonna buy used because new has gotten crazy.

Yeah, I, I think so. I was trying to sell a Customer A, A20, 21F150 lariat the other day. And, and let's just say that it was 50. It was. To him, it's gonna be $58,000. Yeah.

Yeah.

And so I pull up the, the window sticker and the window sticker was. Show him the window sticker was like 55, right?

Yeah.

And he goes, he goes, well, Luke, he, Luke, I, I, I can pay more than then the window sticker if I want to. I have the money to do it, but I'm not going to.

Yeah.

I said, well, if you want one, you're going to have to.

Yeah.

And he said, well, how much is a new one? And me, like a dummy, I didn't know. So I call up my buddy who's a new Ford dealer. So, hey, what's the new sticker on this? He said, It's $76,000. And I go, what? And it's, you know. Yeah, lightly, it was $76,000. So the difference in a 2021 sticker price and a 2023 sticker price, it's, it's 20,000 more dollars.

Yeah.

So, so then once I reported back that this one was 58, he was a lot, he was a lot happier about that.

Yeah, exactly. And that's to my point. You got to, you know. Yeah. You're paying, you're paying more for this car than the person who bought it new paid for it. But, and again, that was MSRP. There's no guarantee that thing went for MSRP back in 2021 either. So.

Yeah.

Not accurate information. So, Luke, obviously, guys, hopefully you listen to this in a timely matter. We are at the beginning mid of April. We've got Buy Here, Pay Here United coming up in just a couple of weeks. So if you haven't already signed up for Buy Here, Pay Her United in Las Vegas. You've got to jump on it today, right now, get on your computer, book a hotel, book flights, get there, I.

Mean, we're like 20 days away, so there's probably a flight or two left that can get you to Vegas. You can get to Vegas from, you know, from the middle of the country, anywhere from Iowa Probably. I don't know. But let's get. Let's get there. I think they extended the hotel block just a little bit. It may still be in there. It's still pretty inexpensive. Come to the Bellagio. See all the great dealers helping us try to get better. Jeff and I will be there. And Jeff, we. We got this little thing we want to do out there, and it's. We want to interview some dealers and we want to ask you about your daily routine. Right. Yeah, I think. I think it will help other dealers figure out how to time management better.

Yeah, yeah. It's so true. You know, as dealers, we always battle a. The work life balance, be the personal, you know, our own health. We think we're going to live forever and we don't need to take care of ourselves. And there's always a fire to put out. But there are a handful of dealers that are able to balance that out. I think it takes a lot of discipline, you know, I mean, even for me, if I have an early morning meeting, I just, I blow off the gym, I blow off these other things that I need to be doing because the car lot always seems to take precedence over some of these things that could be more important.

Yeah. You know, I was reading a book the other day, and his master mentor, Scott Miller, who's been on the podcast before, and he had interviewed this guy, and essentially it was about, you know, block scheduling. Right. And how to prepare your day so that you're most prepared for the day or most productive. And I really wanted to focus in on that myself. One of our listeners actually reached out, text me the other day, said, hey, be awesome to hear what other dealers are doing. So we're going to take that run with it and hopefully if you see us there, say hello and. And let's make some podcast magic.

Yeah. Yeah, we definitely have a great time at those conventions. Anyone that hasn't been to them, you know, and then you're in the buy here, pay here. This is a great, great one to go to because, I mean, we have a good time.

Great time.

We definitely have a good time. So, Luke, one other thing I want to talk to you about was we've read a lot about new car store consolidation. You know, if you guys pay attention to the news, these dealer groups are being consolidated into a few big names, right? All these little regionals are getting bought up by the big, I don't know, 10 or Big 12 or whoever they are. How does that. Is that good or bad for us? Is that something us as independents need to pay attention to. Do you feel like that's going to have repercussions down the road?

I, I think it's horrible for the industry as a whole. It, it limits competition to a handful of people who have public money or billions that can go to the auction.

Groups, whoever's backing them, whatever, whoever is.

That they can just go to auction, buy everything they want to. Right. They can kind of control the market and they do it. I think it's unfortunate. It's also unfortunate for someone who would, an independent that would like to have a new car franchise. It's almost that, that's almost done now. I don't, I don't see how one individual can go and buy a franchise at this time in the market. Now. This may change. Suzuki, I don't know. I don't even know if Suzuki even makes a car anymore. Mitsubishi, I mean, yeah, maybe.

I don't know.

I, I've tried, I've, I've tried to get in, to try to get a Mitsubishi store, but it's a, it's a concerning thing. I think it's, I think it limits, I'm all for capitalism, so don't nobody fuss at me. I think it, it limits competition and I think it's, it limits entrepreneurship in, in the car space. But, but on the other hand, are we even going to have franchise dealers 15 years from now? That's, you know, Tesla has proven that it works to not have franchise dealers. I think Rivian is, is light years behind and lucid in place like that. I don't know if they'll ever catch up. But I can tell you this. If Ford Motor Company and General Motors and Toyota decided and had and somehow found a loophole in the legislation to say we're done with franchises and we're just going to do this on our own, they could do it. If they do it, these franchise dealerships are not going to be worth anything.

Well, what I could see is the economy is a scale from the, from the dealerships, right? If, if you can go in and say, hey, you know, Ford tries to come after my franchise license. And me and 10 of my large dealer group principals get together and say, hey, we own 75% of your franchise locations in the U.S. me and 10 of my buddies were formidable. Whereas back in the day, you know, Chevy had come in and strip you of your franchise license just because they didn't like you and hand it to the guy across the street and it's like, well, I'm just a little mom and pop with The Chevy store that they just yanked and gave to the big guy. I can't do anything about it. But if you're a big guy and they try to go against, you know, I don't know, Lithia or some of these big, big dealer groups, that's a. That's a fight. That's a formidable fight that those guys will not give up their franchise and let Ford go direct to consumer because they've got billions of dollars sunk into that.

Yeah. I mean, I think you will see, though, maybe Ford and GM spin off a. A different company that sells electric vehicles. If they spin off an EV company, then I think they can go directly to consumer, and who knows? I think there's a lot of things going to happen in that new car space in the next 15 years. I. I don't know. I don't know. I think it's. I think it's bad for competition to let all these conglomerates, you know, Berkshire, Lithia, the list goes on and on. At one point in my town, there were probably. We're about a half a million people. There were probably 20 different new car store owners. Okay, maybe that's probably about right. 20. I think there's four.

Yeah.

Now maybe four. And two of those are very large dealership groups.

Yeah, that's what ours is. We went from 10 to 3, and the 3 own. The majority, own all the name brands. And then maybe there's a dealer trying to open up some boutique, small name, you know, whatever Porsche or Bugatti or some Lotus or nonsense that won't survive here, but that's the way it's gone. Luke, I want to talk to you. I'm sure you've got your taxes wrapped up. What has your reinsurance company done for your tax liability in 2022? And I know I'm kind of putting you on the spot there. Do you have any idea the kind of money that you saved or deferred or rerouted in taxes by putting money into your reinsurance company, where our friends.

At Buckeye Dealership consultant definitely are the people to go to to get your reinsurance. Jeff has put me on the spot, so I'm, you know, I'm filling in with this.

Give me a guess. Give me just like a ballpark. Like, what do you think you're. And I guess if you don't have to tell us a dollar amount, because then we're all gonna know. Find out that you make millions a year and we'll be jealous. But from a percentage standpoint, maybe, you know, you think it saves you 20, 20% on your tax bill. 10%.

Well, I'm. I'm going to look. Let's see.

So while you look, I would just do the rough math and say, okay, if I was going to have a net income, you know, of $1 million in my dealership at the end of the year, right? That's a. Whatever number. If I were putting away, you know, what, 100, 200, 300, 400. I mean, if you were. If you were netting a million, you're probably putting 500,000 away or could potentially put 500,000 away into a reinsurance company through, you know, your warranties, through Gap, if you were really taking full advantage of it. And maybe we need to get the guys on here to give us some better math, but I imagine you could probably reduce 25% or more of your tax burden.

I'm almost to a number here. Jeff, you can keep talking about how great ship consulting is, but I will give you a real number here in.

A second while Luke gets that. Guys. Yeah. So obviously, the guys at Buckeye, great sponsors of the podcast, get your reinsurance set up now. The craziness of tax time has slowed down for you. You're gonna have some time on your hands. So if you didn't do it at the first of the year, what was interesting to me is I looked up my CPI number the other day, and I had no idea I had so many people on CPI and so many people, because I don't do a good job of a. Pushing it with my salesman to sell my CPI program. But also, I haven't even looked at the numbers to know what kind of money I'm bringing in through cpi. So I was actually pretty surprised. You know, it's at least enough to buy lunch once a week or so. So, yeah, you know, go figure. It's.

Yeah, that's.

That.

That is really good. So are we looking at the number compared to gross income?

True. I don't know. I would just want to know.

So I think compared to gross income, let's just say. Sorry, guys, I know this makes for great radio. It's about 17%.

Okay, so right now, ballpark, that was your gross. Your gross receipts. You're putting away about 70% into your reinsurance company as an expense. So when you compare that to your bottom line, it's probably a much, much larger number that it would save you compared to your net. If you're.

It's almost 40. It's almost 40% of the bottom.

Yeah, my net would have been $1 million but I was able to put 400,000 away into my reinsurance company. So my net income is only 600,000 of which I will now pay my taxes on, depending on your state and other interests. But anyways, the argument is, do the math. Look at what you paid in taxes. Look at what you could have. Reduce that tax burden by having your reinsurance.

And it's just not that. It's the wealth, Jeff. And we've talked about it so many times. You just put money away. Put money away. Put money away.

Putting it away. Yeah. So that was a lengthy advertisement for Buckeye. But Luke, I want to wrap up our segment with one other thing. Consumer Reports came out with their top cars. Their top cars.

I love how stupid. I love how stupid Consumer Reports are. But go ahead.

I. Anyways, so I want to run a couple of these past you.

Under 15 grand.

What's that?

Under 15 grand. Is that right?

Yeah, some are under 15, some are under 10 and they have different segments, you know, small cars, blah, blah, blah. So let's just rapid fire these. Small car under $10,000. They gave that to the Nissan Leaf. The best small car under $10,000.

I. I don't know anything about the Nissan leaf.

I've never. 13 and 15. Nissan Leaf. Yeah, I've never bought a single one. I can't speak to that either.

God, awful ugly.

Best mid sized car under $10,000. The Subaru Legacy. No, the Legacy Outback, maybe.

Well, the problem with, you know, man, never mind. I don't know. I'm gonna go there. I hate him so bad.

Best mid size SUV under 10,000. The Nissan Murano.

No chance. That's the garbage. It's just straight garbage.

Well, I don't even know where that came from.

That is straight garbage.

Worst car produced. Insane.

I got a text from a buddy yesterday that his wife was broke down on the side of the road. You know what kind of car it was?

Yeah, Murano.

A Murano. I said I'm glad I didn't. I'm glad I didn't sell that to you anyway.

Okay. The best small car in the 10 to 15,000 range, they have two. The Ford C Max.

I don't even know what that is.

The mid teens, 2014 to 2016 Ford. Honestly, I would probably agree with this. I wouldn't say the best small car, but it's the C Max is I haven't bought a ton. I don't have a lot of issues. The other one is the Toyota Prius.

C. So Toyota Prius Nazi is one of the best cars ever made. The C, which Toyota don't tell you just stands for is cheap. So. But anyway, but I'll say this. A Toyota Prius, cheap is probably better than any other car on there than any other non Toyota car on the road. Or non Toyota, non Honda congregation.

Huh. The 2013-15 Toyota Prius C. I don't know if anyone has any other input on that. I would love to know more. The Prius line confuses the crap out of me. There's Cs, there's, there's Ss, there's level threes, there's level fives, there's four, there's twos, there's which one has engine with which battery. And, and when did they, when did Toyota go off the rails with the Prius? Because I know early versions were mid versions were better and then the later versions went shitty.

I bet, I saw, I Bet I've sold 500 Prius.

Really?

Yeah. Great cars.

I don't even know where to start with them. Okay, the best mid size large cars in the 10 to 15.00 range is the 201314 Honda Accord 100.

Agree. That's we sell, we probably sell 10amonth. Just a wonderful, wonderful project.

And you could find a 13 to 14 in that 10 to 15 range right now. Right?

A little molly. A little molly. Four cylinder lx.

Yeah. The runner up was the Toyota Camry hybrid.

Yeah. Great car.

Okay. I don't know. Hybrids scare me. The best luxury car in that range is the Lincoln MKZ.

Yeah. If that 3, that 3.7 Lincoln Motors is really top notch. If you just avoid it.

If it has a Lincoln badge on it, I don't buy it.

You get the two wheel drive. That is a, that's a solid car.

Well good. Minivan wagons in that same price range, they're saying The Toyota Venza.

Yeah, 100. That is good luck finding one for less than 15 grand. But that is a solid product.

Yeah. The 13 to 14 Venza. I mean not really a minivan I guess. Wagon.

Yeah, yeah, wagon. That, that'd be a base LE car with a four cylinder but that's a really good car.

Okay. The small SUV in that range, the Mazda CX5, I don't sell Mazda's. And the Toyota RAV4.

Yeah.

100 brain. Yeah, that's an obvious one. And the best pickup in the 10,000 to 15,000 range is the F150. No. Toyota Tacoma.

No, you can't buy one for 10 to 15,000. I know you talking about that's the.

End of the article at the end of their list. And that one really just takes the cake for me is it's like you bring me every Toyota Tacoma in the mid teen range that you can find with respectable miles.

What years, what year, what year Tacoma was that?

It said 2013.

Oh my gosh.

Maybe a pre runner. Maybe 200000 miles even by pre.

You can't buy a Pre Runner for that. You can buy the like the single cab.

The base.

The base single cab with roll up windows without AC for that I think.

Well the picture they have is like an SR5 with a dual quad cap. So. Yeah, yeah, it's very misleading.

We got to talk about our friends at Primal in and all the. I mean you're going to need some money guys. I'm actually going to visit my banker tomorrow. Tax season was very good. And when tax season is good, what does it do to your cash and your buy here pay your business?

Jeff, is that why my bank account is so low right now?

That is why your bank account's so low. But those boys at Bramaland, they will take care of you. Todd Yates is a professional and he will help you figure out how to get better running your buy here, pay your business and also figure out how to get you capital to run it more smoothly.

And the beauty of loaning money right now is if you can get it, which I believe Primal end and you know, and with today's interest rates, if you can make that pencil for you, you are going to be running a lean business in a, in a time that hopefully will not get much worse. But you're not coming in with fake puffed up financials. Right. It's like sure, anyone can make these programs work or my flooring line makes sense or my buy here payer portfolio makes sense when I'm getting money at 4 and 5%. Right?

Yeah.

And then when it starts getting to that 9 and 10% area, does that break everything? So if you can do it now, you can do it. Like they always talk about some of the best startups and some of the best businesses are always born out of recessions. Right. They're born in hard times when they really have to like make every single dollar count. When things are great and it's all frothy, man, we all get fat and happy. So.

And what we also hear out there is commercial property is going to start to, to go down. So Matt, you know, in the next little bit it might be a time to look at buying your property or maybe move into a better piece of property. And Prominent of course can can help you do that as well.

Or you could vulture in on that dealer down the street who's over leveraged and sitting on too much inventory and then you swoop in like a and just pick the carcass. Awesome. Blue K this has been so much fun guys. We'll see you next week and hopefully see a Buy here Pay here United at the end of the month.

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