November Newsletter

November ushers in the official holiday season for many; that comes with a packed schedule full of to-do lists, dinners, trips, etc. Amid all the usual holiday chaos, many of you are expected to wrap-up the current year of business as well as lay out budgets, strategies, and forecasts for the coming year.

This November also brings national and local elections to us. One of the greatest gifts we have as Americans is the ability to get out and vote. Sadly, for a myriad of reasons, many Americans (about half of eligible voters) choose not to vote in mid-term elections. A lot of people only think about voting every four-years when the presidency is on the ballot. Fact is, there is a tremendous amount being done at the state, county, and local level. State representatives, judges, city council, etc. are most likely on ballots in your area. Please get out and vote this November.

As we evaluate 2022 and the successes or opportunities we have had, we must turn our attention to 2023 and what lies ahead. As with 2021, and 2022, there is much uncertainty in the economy, supply-chain, monetary policy, etc.

Here are a few questions being asked…

Although nobody knows for certain what the future holds, we do know there will always be consumers looking to purchase vehicles. The number of consumers and the prices they are willing to pay may vary, but the founding principles of our industry will remain strong and the dealers who provide the best experience will create the greatest value.

Happy Thanksgiving!

Here’s to another great month for everyone!

To view, our entire newsletter follow the link https://mailchi.mp/advdealer.com/november-newsletter.

Auto Market Summary

Financial markets had a roller coaster ride last week, ending the week lower due to stronger-than-expected inflation data and consumer sentiment data indicating rising inflation expectations. Both suggest the Fed will raise rates as much as planned in November and December and possibly more.

The September Consumer Price Index (CPI) inflation report indicated headline inflation did not come down in September, and core inflation rose to a new 40-year high.

Retail sales in September were flat with August and were weaker than expected. Adjusted for inflation, spending declined in September from August but was unchanged year over year.

Consumer credit growth grew in August with heavier credit card usage. Auto loan performance has deteriorated further as both severe delinquency rates and default rates increased in September. While delinquency rates are very high, default rates remain relatively low. Auto loan credit loosened in September across all channels and lender types.

Sentiment increased slightly in the first half of October, according to the University of Michigan. However, inflation expectations are increasing, and the measure of future expectations declined.

September CPI Report Indicates Higher-Than-Expected Inflation, Core at 40-Year High

Inflation increased in September more than expected, according to the CPI. Headline year-over-year inflation was unchanged but remained lower than the peak in June.

The headline aggregate measure increased by 0.4% when a 0.2% increase was expected on a seasonally adjusted basis. The increase was an acceleration from the 0.1% increase in August.

The core CPI, which excludes Food and Energy, increased by 0.6% just as it did in August. A slowing to 0.4% had been expected. Energy declined again in September but at a smaller pace. Food and all other items saw similar aggregate gains.

Drilling down further, medical care and transportation saw the largest gains. Fuel oil, motor fuel, apparel, and used cars saw large declines. Rents saw another 0.8% increase, likely misleading and not reflecting current trends as the CPI methodology produces a severely lagged measure relative to real market activity.

Vehicle prices again moved in different directions in the CPI, finally reflecting what we have been seeing in the auto market, as new vehicles saw a 0.7% increase in September. Still, used vehicles saw a 1.1% decline.

The core CPI accelerated to a 6.7% increase on a year-over-year basis, a new 40-year high. The overall CPI year over year was unchanged at 8.2% but down from a peak of 9.0% in June.

The categories with the largest year-over-year increases in September were airline fares (43%), fuel oil (40%), piped gas utility (33%), butter (32%), and eggs (31%).

September Retail Sales Were Flat and Weaker than Expected

Retail sales in September were unchanged and weaker than expected, but August’s sales were revised higher. The initial estimate for September showed spending unchanged when an increase of 0.2% was expected.

The auto sector underperformed as sales excluding motor vehicles and parts increased by 0.1%, while sales of motor vehicles and parts declined by 0.4%. As gas prices declined for most of the month, spending at gas stations declined by 1.4%.

Categories saw mixed performance in September. Miscellaneous stores (-2.5%), furniture, home furnishing, electronics, and appliance stores (-0.7%), sporting goods, hobby, book, and music stores (-0.7%), and building material stores (- 0.4%) were also down. Clothing and accessories, non-store (e-commerce) retailers, and food services and drinking places were the largest gainers, each with growth of 0.5%.

Retail sales were up 8.2% year over year on a nominal basis. Only furniture, home furnishing, and electronics (-2.9%) were down compared to last year. The biggest year-over-year gainers were gas stations (+21%), non-store (+12%), and food services and drinking places (+11%).

Adjusted for inflation using the CPI, retail sales declined 0.4% for the month and were unchanged from a year ago.

Consumer Credit Card Growth Increases

The Federal Reserve reported that Consumer Credit, excluding housing-related debt, increased by $32.24 billion in August, accelerating from July’s $26.10 billion. Credit cards drove the acceleration in growth.

Auto loan performance in September deteriorated. Delinquencies of 60-plus days increased by 2.6% and were up 30.8% from a year ago. In September, 1.72% of auto loans were severely delinquent, rising from 1.65% in August and the highest rate since January 2010. Compared to a year ago, the severe delinquency rate was 44 basis points higher.

In September, 6.66% of subprime loans were severely delinquent, increasing from 6.38% in August. The subprime severe delinquency rate was 184 basis points higher than a year ago, and the September rate was the highest in the data series back to 2006.

Even though severe delinquencies are high and defaults increased in September, delinquencies are still not leading to pre-pandemic levels of defaults. Loan defaults increased 19.6% in September from August and were up 22.1% from a year ago. The annualized auto loan default rate in September was 2.24%, which remains below the 2.87% rate in September 2019. Auto credit access loosened in September.

Our Dealertrack Auto Credit Total Loan Index increased by 1.1%. Credit loosened across all loan channels and lender types in September, with new-vehicle loans loosening the most. Credit unions loosened the most across lenders.

Initial Consumer Sentiment Reading Mixed for October

The initial October reading on Consumer Sentiment from the University of Michigan increased by 2% to 59.8 from improving views of current conditions. However, inflation expectations are increasing, and the measure of future expectations declined. Consumers’ views of buying conditions for vehicles improved and were tied with March for the second-best reading this year. June was the all-time low in the reading.

Originally posted by Cox Automotive https://www.coxautoinc.com/market-insights/auto-market-weekly-summary-october-17/.

COUNTERING THE COST-OF-LIVING CRISIS

Global economic activity is experiencing a broad-based and sharper-than-expected slowdown, with inflation higher than seen in several decades. The cost-of-living crisis, tightening financial conditions in most regions, Russia’s invasion of Ukraine, and the lingering COVID-19 pandemic all weigh heavily on the outlook. Global growth is forecast to slow from 6.0 percent in 2021 to 3.2 percent in 2022 and 2.7 percent in 2023. This is the weakest growth profile since 2001 except for the global financial crisis and the acute phase of the COVID-19 pandemic.

Global inflation is forecast to rise from 4.7 percent in 2021 to 8.8 percent in 2022 but to decline to 6.5 percent in 2023 and to 4.1 percent by 2024. Monetary policy should stay the course to restore price stability, and fiscal policy should aim to alleviate the cost-of-living pressures while maintaining a sufficiently tight stance aligned with monetary policy. Structural reforms can further support the fight against inflation by improving productivity and easing supply constraints, while multilateral cooperation is necessary for fast-tracking the green energy transition and preventing fragmentation.

This article was originally published by International Monetary Fund https://www.imf.org/en/Publications/WEO/Issues/2022/10/11/world-economic-outlook-october-2022.

U.S. vehicle inventories at highest point since June 2021

Slowing sales helped inventory levels recover further to 1.32 million vehicles in September, a significant jump over where they were a year earlier but still historically low, according to Cox Automotive and the Automotive News Research & Data Center.

Cox said the figure — the highest since June 2021 — represented a 42-day supply, based on its practice of using the selling rate from the last 30 days.

It was nearly a half million vehicles higher than where inventory stood at the same point last year and about 90,000 higher than where it stood a month earlier.

But inventory remained more than 2 million vehicles down from the same month in 2019, before the pandemic.

Mass-market and luxury brand inventories collectively rose from the previous month, Cox said. Within individual segments, stocks of compact and midsize cars remained tight, along with minivans and electrified vehicles, while selections were best among full-size pickups and high-end luxury cars.

Among automakers still reporting monthly sales and inventory figures, five saw their days’ supply increase, with Ford Motor Co.’s climbing the most. Volvo’s figure stayed flat, and Toyota Motor North America declined slightly, according to the Automotive News Research & Data Center.

This article was originally published by Automotive News. https://www.autonews.com/manufacturing/us-vehicle-inventories-highest-point-june-2021

October Newsletter

Fall has arrived and October typically brings us ghouls, goblins, and ghosts. This year our industry is dealing with more tricks and treats than normal…

A few of the “Tricks” dealers are facing:

There are still a few “Treats” to be found:

  • Dealers for the most part are still experiencing record, or near-record profits on the vehicles they are selling.
  • The American consumer is proving resilient despite key metrics signaling reason for concern.
  • Fixed Ops continue to be a bright spot in most dealerships, with many stores and dealer groups posting record results.
  • The NADA Mid-Year analysis shows a healthy and vibrant dealer body that continues to feed a significant portion of our overall economy.

Additionally, ADS has a few “Treats” for our dealers to take advantage of:

  • We are hosting an AFIP Certification Course October 4th and 5th in Strongsville, OH. Be sure to check out the information below and register early to secure your seat.
  • This year, ADS is a proud sponsor of Live2Lead in conjunction with one of our favorite charities, Changing Lives Foundation. This is a tremendous opportunity to take leadership lessons from some of the most recognizable names in leadership, coaching, and mentoring. Be sure to check out the information below and reach out to your ADS representative to secure either heavily discounted, or free admission.

Here’s to another great month for everyone!

View the full newsletter https://mailchi.mp/advdealer.com/october-newsletter.

CarMax says inflation taking toll on car demand

Used-car retailer CarMax Inc said on Thursday that an uncertain economic environment was starting to take a toll on vehicle demand, sending ripples through the auto sector, which has largely dodged a significant hit from inflation this year.

CarMax shares tumbled 22% to $66.63 to hit a more than two-year low, after the company reported second-quarter results below analysts’ estimates and underscored the impact of inflation and rising interest rates on car sales.

“Obviously, consumers are having to make decisions … I just think they are prioritizing their spend a little differently,” Chief Executive Officer William Nash told analysts, adding that softness in used-car sales continued in September.

Strong demand for personal transport amid inventory shortages has allowed automakers and retailers to pass on higher costs to customers, largely protecting profitability this year.

But analysts have been warning that the industry will soon feel the pinch of rising interest rates and weakening consumer confidence as inventory shortages send car prices to record highs.

Auto research firm Cox Automotive, which tracks U.S. vehicle market trends, cut its forecast for new and used vehicle sales on Wednesday, citing worsening consumer sentiment, while Moody’s changed its outlook for the global Automotive industry to “negative” from “stable” earlier in the day.

The outlook change is driven by a weakening macroeconomic environment and concerns over affordability, Moody’s analysts wrote in a note.

CarMax’s dour comments and disappointing results heaped more pain on the auto sector, which has been reeling from a broader market selloff.

Shares of General Motors Co and Ford Motor Co were down about 5% in morning trade, while those of auto dealers AutoNation Inc, Lithia & Driveway and Group 1 Automotive fell between 7% and 10%.

(Reporting by Priyamvada C in Bengaluru and additional reporting by Joseph White in Detroit; Editing by Anil D’Silva)

This article was originally shared by Yahoo Finance. https://finance.yahoo.com/news/carmax-results-fall-short-inflation-132024060.html

FTC vs. Dealers: New Rules, New Costs

The FTC has been increasingly focused on dealership sales practices, likely emphasized by the record profits many dealers are realizing in the current economic environment. The agency’s most recent efforts have centered around protecting consumers against undisclosed fees and charges, embodied in a proposed rule promulgated under the Dodd-Frank act.

The rule is meant to drive truth and transparency in the car-buying process and end hidden add-on charges when consumers are shopping for a vehicle.

While on their face these requirements seem like basic standards of doing good business, requirements around implementation and proof of compliance may lead to significant changes in the sales process.

Disclosures and Consent

The proposed rule directly addresses add-on products (meaning any product or service sold to the consumer, which was not installed by the manufacturer, including F&I products) in several ways.

  • Before selling an add-on product, the dealer must disclose the offering price of the vehicle without the product and have the customer decline the purchase in writing, including the time, date, and customer’s signature.
  • If the sale is being financed, the dealer must go through the same process again, disclosing the cash price of the vehicle and the separate finance charges excluding the add-on product.
  • To sell an add-on product, the dealer must obtain the customer’s express informed consent in a written and oral disclosure.
  • Finally, the dealer cannot sell an add-on product that would have no benefit to the consumer, such as a GAP contract where the consumer’s loan does not qualify for coverage.

The rule is very specific about how disclosures must be made, how written consent is obtained, and how long the dealer must retain records of compliance (24 months). A dealer that cannot prove the required disclosures were made and consents were obtained faces stiff repercussions.

The Cost of Compliance

These requirements would compel dealers to maintain several new categories of documents beyond what is typically required today. In practice, a dealer attempting to strictly comply with the rule will likely need to implement a robust software solution into the sales process to track and preserve proof of compliance that would be required.

Sourcing and implementing a solution for compliance may require a large investment for dealers, particularly having legal counsel vet the technology, subscribing to the service, issuing handheld devices to dealership staff, and paying for data storage for years.

Dealers should begin doing their diligence on these issues now in order to be ahead of the game in the likely event that the rule is enacted later in the year.

Andrew Seger is the chief legal officer for Portfolio, a leading provider of reinsurance and F&I programs and products.

This article was originally published on Auto Dealer Today. https://www.autodealertodaymagazine.com/368972/ftc-vs-dealers-new-rules-new-costs

September Newsletter

September starts off with a long weekend to recognize many of the individuals who built this great country… The Laborers! The holiday is rooted in the late nineteenth century, when labor activists pushed for a federal holiday to recognize the many contributions workers have made to America’s strength, prosperity, and well-being. Without the efforts of the millions of American laborers, we certainly wouldn’t be the country we are today. Although the jobs being performed may look different today, it is still the labor force that keeps this country moving forward. 

To learn more about the history of Labor Day click here.

ADS has some great events planned and some exciting news… 

https://mailchi.mp/advdealer.com/september-newsletter

ADS and GCADA Partnership

The Greater Cleveland Auto Dealers Association and Advanced Dealer Solutions are teaming up to offer dealers F&I Training and Development

In the month of August, The GCADA announced ADS as the Preferred Provider for F&I Training and Development and awarded them the coveted GCADA approved badge!

Words from GCADA

‘We look forward to providing our members with a comprehensive resource for F&I training and development.’

Words from ADS

‘At ADS we are proud to offer dealers an unbiased approach to their F&I decision-making process.’ – stated Ryan Nelson, EVP of ADS ‘There are so many options for dealers today it sometimes becomes difficult to discern what is best for their specific and unique business. ADS enjoys the opportunity to present dealers with a variety of options which are all catered around exceeding the dealer’s goals and objectives.’ Nelson added.

‘We were impressed with the amount of due diligence the GCADA performed on our team, sales process, training platform, and the relationships we have with our dealers.’ – says Bob Mancuso President of ADS ‘To be awarded the Preferred Provided status for F&I Training & Development validates what we have been doing for our dealers over the last eight years.’ Mancuso went on to say.

About GCADA

The Greater Cleveland Automobile Dealers’ Association (GCADA), represents over 265 new motor vehicle dealerships in a 21-county region of Northern Ohio, including franchised new car and truck, motorcycle, and recreational vehicle (RV) dealers.  GCADA provides products, programs, and services to its members and produces the Cleveland Auto Show.

About ADS

Advanced Dealer Solutions is a premier dealer development agency specializing in F&I training and development, product structure, and reinsurance management.

Women In Leadership

Gina Cocking is the CEO of Colonnade Advisors and represents the 2% of women who are CEOs at financial institutions. She brings 20+ years of experience in investment banking and executive leadership to the table including experience as a CFO in multiple companies.

When Gina was recently interviewed by Ryan Nelson of the Advanced Principles Podcast, Ryan asked Gina what advice she might have for other women looking to enter the competitive and male-dominated industries like automotive, technology, and investment banking.

Gina (23:00)

“I think 15 years from now, 20 years from now, the guys better watch out. Women are going to college at a higher rate than men. Something like 60 to 65 percent of the incoming college class is female.” 

The pandemic was extremely challenging to the women’s leadership movement. With schools closed and much of the infrastructure for working women disrupted, many families had to make tough decisions and compromises. Homeschooling became the norm, and many women had to shift their schedules.

So what is Gina’s top advice for women that want to make it to the top echelon of the career ladder?

Gina: (28:00):

Marry well. And I don’t mean marry wealthy.

Find a partner who supports you, who gets that your career is just as important as his career. 

Throughout your lives together, know that you’re going to have to make trade-offs. There are some things that are not going to be fun, but you do them together.

If your partner supports you, you can get through it. It’s important that your partner does not feel like their career path is more important. That is the number one key to success.  

About the podcast episode featuring Gina Cocking

Advanced Dealer Solutions is a premier F&I development agency specializing in the automotive, RV, and powersports industries. Advanced Dealer Solutions works to maximize the purchasing experience as well as increase F&I sales and profits as well as increase service sales and retention.

Advanced Dealer Solutions has assembled one of the most sought-after F&I training platforms in the industry. We have a passion for increasing dealer profits by providing industry-leading technology and implementing an F&I selling system that is guaranteed to elevate performance. Advanced Dealer Solutions is driven to provide dealers with products and solutions that result in increased production, profitability, customer retention, and most importantly, customer satisfaction.

Advanced Principles Podcast was created to be an outlet for like-minded individuals to share in the broader conversations on leadership, retail market updates, and incredible success stories.

Colonnade Advisors has deep experience in the automotive dealership services industry. Please see the pre-event interview series here for more information about Colonnade in the industry, M&A drivers, and more.

Colonnade Securities is a leading investment banking firm that has completed over $9 billion in M&A transactions for clients in the business and financial services industries.

View the full interview here, Episode 34 With Gina Cocking.