DETROIT — Officials from Cox Automotive, which owns AutoTrader and Kelley Blue Book, discussed their 2018 Mid-Year Review for the automotive segment. They also provided some insights into the future of the car business. The press conference took place on Wednesday at The Madison in Detroit.
“The economy is looking quite fantastic,” said Charlie Chesbrough, senior economist at Cox Automotive. “Tax cuts have been a big boost. Consumer optimism remains elevated. Wages are rising; moving in the right direction. Incentives are looking quite high. They are trying to move this metal. Consumers are eating up this new technology.”
He announced Cox Auto’s projection that 16.8 million vehicles will be sold by the end of this year. However, if President Trump gets the United States into a big trade war, the number could drop to 16 million vehicles sold. That would cause new vehicle prices to go up and those increases would be passed onto the consumers.
“The dynamics are changing out there,” Chesbrough added. “It’s starting to turn a little bit. Conditions may influence the market. Interest rates are going up for new vehicles and credit cards. Dealers are facing higher costs. We’re in the late stages of the cycle. Inflation is an issue. Early signs that may be coming back. Hourly wages starting to rise. We’re far below the levels prior to Great Recession.”
The senior economist said that most Americans are facing an affordability issue. That’s forcing them to move from the new car market to the used car market. He said that most consumers are borrowing over $30,000 for their car loans. The average car payment is around $400 per month.
“The industry is starting to be more competitive,” Chesbrough explained. “They’re fighting for a pie that’s shrinking a little bit. Consumers are dwindling down their savings. The used market is going to provide a solution for consumers. A few folks will be pulled over to the used market. They might have leased before. A few hundred thousand consumers. The industry isn’t targeting the low cost buyer anymore.”
Zohaim Rahim is the manager of economics and industry insights at Cox Automotive. We expect volumes to be flat year over year, he said. Off lease units should peak next year at a little over 4 million units. We think the tsunami hit in 2016.
“New, it’s a light truck market,” Rahim explained. “The growth that we’re seeing is coming at the expense of cars. Dealers are spending a lot more in inventory. We’re seeing strong demand for a lot of these vehicles. No surprise we’re going to see a lot more CUVs in used vehicle market. Get a great price on not that old of a unit. Overall, a very good deal for these vehicles.”
He was asked what it would take for electric vehicles to start selling at faster rates. Rahim said it would require a higher tax on gasoline. For example, President Trump once proposed a 25 cent tax on gasoline. Then, consumers would be more likely to buy an electric vehicle.
Compact utilities are now at 18 percent of overall sales, according to executive analyst Michele Krebs. Trucks are staying pretty stable. More SUV entries are coming with the all-new Ford Bronco.
“The strong keep getting stronger,” she explained. “Jeep is the big winner of the first half. It’s all about the Wrangler and the Compass. More luxury brands lost share than gained. We expect Chevrolet to be up. Mazda and Volkswagen has a little bit of gain. Kudos to Volvo. They got new product that gave them a rise. The big story is Ford moving out of the sedan market. Surveys say [consumers] will change to another brand. Ford’s not had much success converting to SUVs.”
Krebs said there have been cutbacks in production to keep incentives up. Automakers are putting more incentives into leases then we’ve seen before. Leasing prices have gone up. Leases trying to keep you loyal to the brand and same with pull aheads.
Who are the winners and losers? Jeep is the huge winner. On the luxury side Volvo, Subaru and Volkswagen. The Honda Accord has stalled. Not doing incentives and fleet sales. Tesla they’ve had a tough first half. Acura is a brand that is struggling. Hyundai is pretty promising. The Kona is out I think we’re gonna see some good sales on that.
With respect to electric vehicles, Krebs added: “We’re telling the industry to build them but we haven’t created a consumer appetite for them. Because of China and California and other markets that regulate them. Tax incentives move the needle more than anything. They’re not building the body type that consumers are buying.”
Cox Automotive COO Mark O’Neil said that 25 to 35 percent of cars will one day be sold online in a digital way. In addition, 83 percent of consumers want to start the car buying process online. He used Carvana as an example for a digital car buying experience.
“Consumers are not ready to commit without touching the car, final signing,” he said. “We still want to interact with a dealer. They are going to choose a dealer with a digital transaction. By 2020, other automakers fully embracing digital transaction from start to finish. A big trend of how the process will differ.”
O’Neil said that urban dealers will be at risk for closing when autonomous vehicles hit the market. Those areas will instead be served by ridesharing and subscription services.
“The dealer becomes a hub for subscription or maintain these vehicles running around,” he added. “A need for inspecting and cleaning. Think about themselves in a bit different way. The super regional dealer that is dominate…we see them growing. The biggest gets much bigger. By 2030, 1,000 owners or less. Drastically consolidates. We think that accelerates. Some dealers will go away. We need to be prepared for this environment. All of us need to pivot our business model.”
The Cox Automotive team introduced their new platform called Accelerate. It is a service that partners with dealerships to make the car buying process much easier and faster. Currently, 10 percent of listings on AutoTrader are Accelerate enabled. Once they surpass the 20 percent mark, Cox will rollout a national advertising campaign.
“There’s a call for a solution…dealers are looking for profitability,” said Jessica Stafford, general manager of Autotrader. “Less than 1 percent are satisfied with the process. We need to listen. It’s time to listen. We can save time in everything else besides automotive. How do we bring the happy satisfied part forward? We still see some dealers not ready to embrace. Fear. Once we get over that hump.”
She believes that consumers will feel more in control of the car buying process when using Accelerate. Yet, dealers can stay in control of profitability. Consumers have instant trust and loyalty with these car dealers. When buyers use accelerate, they can enter the dealership and pick back up where they left off online.
Autotrader used Las Vegas as test market for Accelerate. When all was said and done, dealers had engagement rates that were three times higher than before. In addition, the average dealer made 15 deals per month using the platform. That equals huge increases in their bottom line.
Finally, we heard from Isabelle Helms, vice president of Research and Market Intelligence at Cox Automotive. She said that nine out of 10 consumers move about with their own vehicle. However, there’s been a significant growth in ride hailing and interest in car subscriptions.
“Car subscriptions are the new kid on the block,” Helms explained. “There’s pretty decent awareness. A monthly fee to swap vehicles at leisure. Consumers get the latest technology and are not responsible for repairs. We are placing big bets on subscription services. Subscription services are disrupting ownership. They are now owned by commercial fleets. Who will these fleets be? Dealers or OEMs?”
Here’s how it works: Consumers can choose an SUV for the work week and then swap it out for a sports car for the weekend. When they need a truck for moving, they can get one of those too. Car subscriptions start on the low end at $500 per month and go up to $3,000 per month for Porsche.
She added that car sharing has not seen much growth. Awareness has increased but usage has not. That’s mainly because car sharing is not available in all U.S. markets today.
Trucks and crossover vehicles are king so far in 2018. Will the trend continue???