Carvana is a company that sells used cars mostly through an online process. Instead of making you haggle at a dealership, they try to make buying feel simple and straightforward.
CarMax is a used-car seller with lots of locations. In this episode, they’re being compared to Carvana on how well they’re doing financially and how their approach to selling cars differs.
This is basically how much money the company makes on each car sale, before other extras are counted. It helps compare profitability on a per-car basis.
Aftermarket products are extra items you buy for the car after you purchase it—like add-ons or protection plans. They’re often sold alongside the vehicle.
Fixed price means the car costs what the company says it costs, and you don’t have to bargain back and forth. It’s meant to make the buying process feel simpler.
Ancillary products are extras you buy with the car, like add-ons or protection plans. Dealerships often make a lot of their profit from these, not just the car price.
Lithia is a big dealership group. The point being made is that companies like this often make money from extras and services, not only from the car price.
AutoNation is a major car retailer. They’re brought up to illustrate that big dealers often earn extra money from add-ons and services, not just the car itself.
When you finance a car, the lender or dealer may also sell extra products along with the loan. Those extras can add a lot of profit, even if the car price itself isn’t where the money is made.
Reconditioning centers are places that get used cars ready to sell. They handle things like repairs and cleaning so the car can be put on the lot faster.
A third-row seat is the rear-most seating position in a three-row vehicle (like many SUVs and minivans). This segment focuses on how seat position and seat-folding/closing behavior can create safety risks for small children if they’re in the wrong spot during operation.
The Mercedes-Benz GLS is a big family SUV with three rows of seats. The third-row seats can fold forward, and the discussion is about whether that folding motion could accidentally hurt a child if they’re too close.
Hyundai is the car brand involved in the story. They issued a recall, which means they asked owners to bring the vehicle in (or get a fix) because of a safety problem.
A lawsuit is a legal dispute brought in court, often used when someone believes a product defect or negligence caused harm. Here, the hosts discuss the likelihood of legal action and whether it will be settled out of court.
Pinch sensors are safety sensors that try to prevent injuries when a seat or door is moving. If something gets in the way, the system should stop the movement instead of squeezing or crushing.
A backup camera is a camera on the back of the car that shows what’s behind you on the screen when you go in reverse. It helps you avoid hitting things or people you can’t easily see.
A sticky gas pedal means the accelerator doesn’t move back the way it should. If it sticks, the car can speed up when you didn’t mean it to, which is why it’s treated as a serious safety problem.
BYD is a company that makes electric vehicles and batteries. They’re mentioned here because their profits dropped a lot, and the hosts discuss what that could mean for the EV industry.
A “net income squeeze” means the company is making less profit than before. It usually happens when costs rise or prices get pressured, so the company’s earnings shrink.
Market share is how much of the market a company captures compared to competitors. If someone is “going for market share,” they may sell more cars even if they make less money on each one.
EVs are cars that run on electricity stored in a battery. The episode is talking about how fewer people are buying EVs lately, so companies are feeling pressure.
LTV is how much money a customer is expected to bring in over the long run. If LTV drops, it can mean customers aren’t sticking around or aren’t buying as much.
Here, robots are machines used in car repair shops to help with tasks like getting parts to the technician. The point is that it can save time and keep work moving, even if people still handle customer conversations.
Concept
AI
AI means computer “smartness” that can help with tasks. The discussion is about whether AI should replace people in customer-facing roles, versus using it behind the scenes to help the shop run faster.
They’re talking about how much time mechanics waste walking around to get parts. If robots or better systems bring parts to the shop floor, mechanics can spend more time working on cars.
Effective labor rates are basically how much money the shop can earn per hour of technician work, based on how efficiently the shop runs. If techs are away getting parts, that earning time drops.
The parts counter is where you go at a parts store to order and pick up car parts. The hosts are talking about how delays or mistakes there waste customers’ time.
Concept
rate per hour that you're flagging
This is about how shops track and charge for labor time. The idea is that if automation makes tasks faster, the shop might be able to bill or measure less time per job.
A tire changer is the machine tire shops use to take the tire off a wheel and put a new one on. An automatic one does more of the work for you, which can make the job faster.
Overhead cost is the “background” cost of running a business, like paying staff to be there. In the episode, it’s used to explain why companies might replace cashiers with automated systems.
The service advisor is the person at the shop who talks to you about what needs fixing. They write up the work, coordinate with the mechanics, and usually handle the paperwork and payment steps.
Porsche is a well-known sports-car brand. In this segment, they’re talking about Porsche’s business moves and whether it could make cheaper cars to bring in more buyers.
The Porsche Cayenne is a luxury SUV made by Porsche. It’s designed to be comfortable for daily driving but still feel sporty when you drive. People mention it because it’s a premium option that can fit more people and gear than a typical sports car.
This is the big company group behind Volkswagen and Audi. They’re talking about that group trying to sell more affordable cars while still keeping the brand’s “feel.”
The Porsche 911 is Porsche’s iconic sports car. The hosts are wondering if Porsche could make a cheaper version of that kind of enthusiast car to attract more buyers.
The Porsche Cayman is Porsche’s smaller, mid-engine sports car. They’re talking about the possibility of offering it at a lower price so more people can buy in.
The Ford Flex is a crossover-style vehicle with a very unusual, boxy shape. It was designed to be practical and roomy for everyday use. It’s mentioned because it’s not the typical “flashy” car people buy when prices are high.
Tariffs are taxes the government puts on imported products. The hosts are saying those added costs can make new cars more expensive, so people buy used instead.
Car
Toyota Cross
The Toyota Cross is a Toyota SUV. They’re talking about leasing it and then buying it, and how expensive cars have gotten so it’s harder to switch vehicles.
Term
miles for a 30-month-old lease
Leases usually come with a mileage limit. They’re saying their car is about 30 months old and discussing the mileage situation, which affects whether the car is still in good shape and what it’s worth.
That phrase means they’re renting the car for a while, and then instead of returning it, they plan to purchase it. It can be a way to keep the same car without starting over with a new one.
They’re talking about a car that has driven a lot—100,000 miles. The point is that it’s hard to know how much life is left and what problems might show up.
Term
economic supply demand
They’re using the idea that prices depend on how many cars are available (supply) and how badly people want them (demand). If cars are scarce, prices tend to go up.
The chip shortage was a problem where car manufacturers couldn’t get important computer chips. Fewer cars being built can make both new and used cars cost more.
They’re talking about the Federal Reserve keeping interest rates the same. Interest rates affect how expensive it is to borrow money for things like car loans, which can change demand and prices.
Company
Gemini, Google's Gemini
Gemini is Google’s AI tool. They’re using it as a reference point for a statistic while discussing why prices have risen.
Merchant fees are the charges a business pays when customers pay by card. If you look at the monthly statements, you can see exactly how much you’re paying and whether there’s room to reduce it.
Dealership finance departments handle the paperwork and financing side of a car purchase. The discussion implies that they should focus on doing things efficiently and correctly.
Automotive incentives are manufacturer- or lender-backed offers that reduce the effective price of a vehicle (for example, rebates, special financing, or lease deals). Dealers need to align their sales approach with the incentives currently being offered to stay competitive.
Interest rates are what lenders charge for borrowing money. Higher rates usually mean higher monthly payments, so car deals often need different incentives or financing options.
The FTC is a U.S. government agency that protects consumers from unfair or deceptive business practices. The point here is that dealers should follow the rules and not try to trick customers.
LIVE
Chris J. Martinez: All right, welcome back. This is, man, you know, I don't even know what episode this is, Zach. My apologies. I didn't, I wasn't more prepared, but it's, it's we're, we're moving along. But as you know, Zach, CEO, president of Evo One Industries. My name is Chris Martinez, igniteups.ai. And then we've got a special guest today, Michael Herman.
Chris J. Martinez: Why you go and introduce yourself, Michael, and kind of give the audience a little background.
Michael R Herman: Great, Chris and Zach, thank you again for time out of your busy day to have me on the ⁓ So am Herman, and I've been with Herman Merchant Services for nearly 15 years. I got into merchant service business because I thought...
it didn't appear to be the most ethical industry to be in. of similar to the ⁓ about use car sales mentality. So wanted to change the persona or the perception of merchant services. So I've working auto dealerships for 12 years now, to And I fully believe that you have to not transactional sales, but you have to be taking more of a consultative approach, when you're meeting with your potential customers.
What's unique Herman Merchant is I represent more than three companies. So it's the old adage, one does not fit all. So I have a number of different they're US-based support, all merchant service companies.
And we just provide a viable solution. many people call up and talk about I can lower your rates. Well, all that before. How can ⁓ someone like help them with their operations, improve the customer experience?
⁓ So that's how position myself when it comes to services.
Chris J. Martinez: Well, thank you, Michael, for joining us. But let's, let's get right into it. Zach. Michael, I just recently did some research because of the q1 estimates that just came out between CarMax and Carvana.
And after looking at the, the financials, you see that Carvana out earns CarMax by $195 million. That in itself was the headline, right? But then I forgot to also put in the headline. should have added this in the headline.
Imagine being CarMax and you outsell Carvana by 192,000 vehicles. It just doesn't even sound like real numbers, right? Well, you outsold them by 192,000 vehicles, yet they out earned you by $195 million.
So what are your takes on the recent earnings statements? Zach, get started with you first.
Zach Fritz: Mm-hmm. think headline would have read better if it would have said Carvana roundhouse kicks CarMax right in the mouth because that's what we saw happen and what's interesting to me is while we're seeing this let's call it a consolidation across CarMax right with all those layoffs going on and then trying to restructure and the new CEO coming and saying we're gonna put a mint on the seat of every car that's a horrible idea and you're going to ruin a lot of pairs of pants of his whole history in the hospitality industry.
I CarMax has had their head in the sand for so long and is so mismanaged at this point that they gave Carvana a golden opportunity and CarMax is just bleeding money on every car that they sell. I mean, while part of me says, yep, suits them right, there's another part of me that says, the vending are kind of ugly.
Chris J. Martinez: Well, don't I don't know that they're bleeding money on every car they saw right now their front end margin per retail unit was like $2,400 a car so still pretty strong. ⁓ Well, net they netted $210 million. So the only thing is Carvana out earned them but they netted $410 million or some $405 million, something like that. Michael, what's your take?
Zach Fritz: sure, but where's the money? mean, that's question. Yeah.
Michael R Herman: I admit, I apologize, I have not read the articles. ⁓ I'm that both of these markets created a market. And it's because lot of people do not want to go into a car dealership and ⁓ negotiate. for financing the purchase price, the aftermarket products. I see it as a more of a younger ⁓ per that you see advertisers on TV that with Carvana, the cars just right there pulling at your parking lot. ⁓
Michael R Herman: I've purchased cars from, excuse me, I've sold cars from CarMax. And know, one thing or good, good, or is it's a fixed price. You pay whatever ⁓ their price is ⁓ or you go okay. I, when I purchase a Saturn, I know I'm kind of digressing here, I like sitting down with the salesperson because there was no adversarial relationship you purchase a Saturn. They had a 17 % markup, but created a win-win environment for consumers back then. ⁓
Chris J. Martinez: You know, it's funny you say that, you know, the consumer doesn't want to go inside the to buy. And that just shows how powerful Carvana advertising message was. The fact that people instinctively now, like it's just, you know, the awareness they have is that you can buy your car online with Carvana.
and car car max you can't like reality is you can do both right you can go buy a car online through car max and the same thing at carvana the difference is i think carvana executed that play better than anybody on just you know it was a marketing play right like they spent a fortune on marketing in social media right not the traditional you know levers that
Chris J. Martinez: know, CarMax had been playing, you know, let's go to Super Bowl, let's do these other things. They just went all in on social media. ⁓ everybody just thinks, hey, let's buy my car online. that's Carvana. That's not CarMax.
Zach Fritz: I think another interesting one is definitely agree with Carvana's marketing and messaging was kind of right from the start. In CarMax, it's always been the way car buying should be is their slogan. So going CarMax can tweak their delivery process a little bit and make it way car buying is now. I don't know. something there, but yeah, it is all about messaging today.
Zach Fritz: I mean, you get messaging wrong, you're screwed.
Chris J. Martinez: But I think, know, you out, mean, they've already that they're out selling them, right? So CarMax outsells them, you know, two to one, right? ⁓ And I think that if they just, so I went a store and turned it around. And the first thing I did was make sure that I up the income, the margins on,
Chris J. Martinez: on those back end, right? Because they were actually basically, there was like zero margin on that back end. And once I put like what the average dealer markup was the board, and I just said, Hey, let's just be average.
I'm not trying to, you know, be greedy, but let's at least be average. Once we did that, you know, our net income skyrocketed. And think same thing could happen to CarMax. I mean, if they just focused on selling some these ancillary products that, the auto nations and Penske's the world, Lithia, like of the groups go after.
I think they could literally just, you know, double their income overnight.
Zach Fritz: I'm... Yeah, likely, but I think there's too many people in the way to make those changes happen. That was one thing I always noticed working there was there was too many people involved in the decision making process.
Chris J. Martinez: Thank you. There is that. what's your take?
Michael R Herman: you know, what's old expression? asks us more? know, ⁓ down, have discussion, getting yourself, knowing what your numbers are in terms of how much you can afford, things like that.
Again, I've never purchased a car from Carvana, so I can't about past I think created a nice niche market. And I think you said earlier about CarMax, it kind of reminds of Blockbuster. Blockbuster did not adapt to DVDs back in the day.
And they filed for bankruptcy. We'll see what happens with CarMax. think in my neck of woods there may be about three CarMaxes. But people do ⁓ use as a source for purchasing a car if they want to pay ⁓ that
Zach Fritz: The blockbuster comparison is really interesting. Is there something there with the whole blue and yellow as the branding?
Chris J. Martinez: Well, would, you know, I can see that I could, anything, it would be the traditional model would be going away versus, you know, what CarMax and Carvana have done. But I do believe when I look at Carvana's backend finance products, they're averaging $2580 per unit, $2,580 per unit, where CarMax is backend per unit is $572. So if they just, you know,
Chris J. Martinez: raised that or sold some other, you know, products in the back end, they could make money, you know, tomorrow, you know, or today, you know, just by, you know, adjusting where the market is.
And I know that doesn't include all of their, you know, CarMax auto finance income, because the way they separate it, it's more long term. But still, when you look at those numbers, you know, like that, It's pretty interesting.
the when you look at it further, this is just what I kind of posted. But if you look at the the deeper dive, can see that their front end at Carvana has increased. And you can estimate it 3500 to $4000 in the front end.
And reality is what that acquisition they did with the desk, though, with all of those different, you know, reconditioning centers help them actually reduce not only recon expenses, but ⁓ them reduce
Chris J. Martinez: their actual transportation. So and help them move cars faster. So turn time, the recon just improved. So it helped them make more money. And with the Odessa acquisition, it helped them move some of that that maybe they didn't buy right or found some issues that reconditioning and turned around and just unloaded it quicker.
Chris J. Martinez: So there's a lot to look at. You definitely want to go through and do a deep dive, but let's move on to another story that was even tough for me to post. Like I had to really think about even sharing it.
know, I feel like ⁓ was a event, sad as a father of, you know, four children. I couldn't imagine, you know, what these parents be going through. But I think it's still important to bring it to light because now I started thinking about, just one ⁓ know and let me just kind of go through the actual article the two-year-old girl actually tragically lost her life when she was crushed on the third row seat as it was, I guess, closing.
you know, it's sad. was Hyundai. Hyundai actually... did a recall as a result. then you started thinking, you know, I have, I've had Siena's, I've had other third row seats, I have a Mercedes GLS right now, third row seat, those things, you know, fold, fold forward to and I've never tested to see if, if I did, you know, close that if somebody, a small child was there, if something would happen.
But what are your, what your guys thoughts? Michael, we'll go you first on ⁓ you know, this incident and what what do you think is going to come of it?
Michael R Herman: It's so tragic that little toddler got as a result of where it positioned. I think there be a lawsuit. We're in a malicious society I don't know, I'm thinking will get settled out of court.
Chris J. Martinez: Yeah, there's actually already a lawsuit for sure, but I think that it's just one of those things that you're like, man, you think you've got all of these safety regulations, everything, but then something like this happens and you almost got to like relook at the whole playbook and think, okay, well, what are my blind spots?
Like these kinds of things, it's just scary. ⁓ a father, I couldn't even imagine. going through what these parents are going through. But Zach, what are your thoughts?
Zach Fritz: It's because as somebody who ⁓ on systems where there are pinch sensors, are things in place to ideally prevent this from an engineering standpoint, it's tragic because like you said, it's senseless loss life due to a feature integrated in the car, a convenience because looking at it from a higher level, this convenience and I was too lazy to move the seat myself like we used to do back in the early 2000s and late now caused loss of life.
So then it makes you think is that convenience even worth it? And then for it to become a lawsuit if it is at this point, it should never have to get to that point. But then again, what dollar amount makes up for that?
Michael R Herman: Can I interject one thing here? I apologize. ⁓ was thinking about this, the potential OK? And I'm when you ⁓ kind of the abridged version of what happened is I can't putting a two-year-old in the third row of a car.
Because call me old-fashioned, I think the second row or behind the dr- you know. behind the drivers would more practical. But I don't to play Monday night quarterback. It is a very tragic situation. It's happened to this family.
we do take shortcuts because we're running around from one event to next. Not granted, two-year-old. It's ⁓ probably not in a sporting But it's the old cliche. The young parents go back to work so they can relax on Monday.
Michael R Herman: That was a bad, you know, trying to tie this in with a two-year-old, let's just take the extra time to make sure that everyone is safely secured and perhaps move child into the second room.
Chris J. Martinez: You know, I don't disagree, but I will tell you that, you know, a father of four children, things can get hectic. You can, you know, I don't know how many kids these people had, but, you know, you a lot of tragedies like this with pools and things like that where you've got, you know, several kids and you're, you know, distracted, you're looking this way and...
Chris J. Martinez: these unfortunate accidents that do occur with children, you know, that's why they installed backup cameras on all the cars, right? Like you think about all of these little things that have happened over the years that happened to little children, but I think you do make a good point.
think, you know, I know looking at, you know, if that was your youngest child or you might've been, you know, parents involved, one parent's putting infant in the second row while the other parents in the back, you know, putting their luggage or whatever.
And two people are doing the same thing. ⁓ two year old that ⁓ you've got multiple children may have gotten in the back. just, it's just one of those things that unfortunately it happened this way.
And ⁓ sorry that it did, but I think about all of the ⁓ and what that happens, you know, when Ford had that, you know, the fire. car the cars blowing up right or the sticky gas pedal like are these things gonna be into a point where this changes just that the sticky gas pedal that like had to be put across every OEM right let them make sure things were in place backup so is this gonna be now a feature that is still gonna be there but now you've got to redo ⁓ all manufacturers and make sure they have those sensors that Zach you you talked about
Zach Fritz: have to clean. it's tough because it adds in another layer of complexity to the vehicle, right? And at what point is trying to out-engineer potential for something bad to happen worth it the cost of building and creating a car, that's the other tough side. mean, it just, it that tragedy has to be the ⁓ mother of innovation That's the really crappy part about it.
Michael R Herman: I have an interesting perspective, I may. Correct if I'm wrong, gentlemen. The sea people knew about the deficiencies. ⁓ Am I I'm doing this from way back. they kept quiet this. ⁓
Chris J. Martinez: ⁓ Now that I don't know about that I didn't I didn't read that on this specific case on other Instances, I imagine there's like when you think about the gas emissions, right? Like that happened that was a big scandal where they were kind of like cutting corners and making it pass and you know, and everybody knew about it Okay, I know about those types are this You know, I wasn't I didn't anything that
Chris J. Martinez: to that in any regard but there are those instances where do know but you know ⁓ but keep sorry
Michael R Herman: No, I guess the point I was trying to make is, from my memory, and I may be totally forgotten this, that I thought the sea level folks did know about the deficiencies and did not want to invest the money to correct the situation until after the fact.
Chris J. Martinez: Wow, if that's the case, that's even scarier, right? definitely will be ⁓ bigger lawsuit if that happens.
Michael R Herman: It's just really a go I'm sorry.
Zach Fritz: You're fine. was going to say at that point, mean, if there's, know, not saying Hyundai specifically here, but I mean, in the case of, you know, executives or people within the company who know about a problem that results in further loss of life or injury, I mean, they should have done to them publicly by the victims what they let happen due to their inability to act or inaction that they didn't take. I Eye for an eye is my...
Chris J. Martinez: Well, mean, it's already gone pretty viral. I've seen of videos online where people are going in the back to just test their Hyundai that they have and trying to see what that actually looks like, you know.
Zach Fritz: It's to be really ugly because I've actually on my YouTube channel I actually have a video coming out soon that talks about a of leases in from Hyundai Cause Hyundai had that killer lease program and people are starting to turn those in and they're starting to become due.
mean, we see an even larger trade in in Hyundai stores. mean, ⁓ it's, going get for sure. And then when do you begin to trust that ⁓ brand or that again? Because they said it was fixed. It was supposed to good from the start.
Chris J. Martinez: Well they have they did do a recall so looking to do that but we can move on to the next i don't know if you got some reverb there
Zach Fritz: We can move on to the next. I'm going to get some reverb here.
Chris J. Martinez: Let's see, we can move on to the next one. And this is BYD reported a drop in net income by 55%.
Zach Fritz: We can move on to the next one. This is BYD reported a drop in net income by 55%.
Chris J. Martinez: Did you hear that, Zach? I don't know if it's you or...
Zach Fritz: Did you hear that Zach? I don't know if you, if it's you or. my audios.
Chris J. Martinez: Okay, I just wanted to see who it was. see. When I ⁓ 55 % net income squeeze at BYD. So net income dropped 55%. I know, Zach, you don't like the EVs. And I think that, you know, I wanted to get your take on it.
The I looked at, and I'll give you exactly ⁓ my You know, this could be like Amazon, when Amazon came on board, they didn't make money for a long time. And right now, maybe they're going after market share.
I don't know. To me, I was thinking about it, I was like, this like Amazon's playbook? Or what does this mean? I know now the subsidies have kind of gone away in the US, China. know some of them are still there, but the subsidies that were being in place in the UK, the European nation, I think that's kind of helped reduce some of that profitability as well.
Michael R Herman: I'm sure if I can give an intel. Sorry. Maybe Zach of, ⁓ applies his insight on this one.
Zach Fritz: That's all right. I'll quarterback it ⁓ fine. So I guess I just look at it from if not bad to Kind of be that pre revenue, you know Amazon esque space right because then it's less about the dollar valuation of the company so That may be good for them but at the same time
Zach Fritz: we are starting to see this massive drop in market share for EVs. So that could also explain it. Well, according to Reuters,
Chris J. Martinez: Well, according to Reuters, their profit fell $600 million and their steepest drop in nearly six years. So while revenue also declined and price intensified, the last part really matters is what I was looking at. So prices are getting cut, margins are getting squeezed, but instead of protecting the profit and they're actually pushing harder, more volume, aggressive pricing, more global expansion.
Zach Fritz: Yeah. I mean, it's, you know, would you rather have a small piece of something that's absolutely massive or a very large piece of something that's tiny, right? You know, maybe that's the theory behind it.
Chris J. Martinez: well, I don't know. So look at Carmax, right? They Carvana, they beat them by 192,000 units ⁓ like them. But right now, ⁓ they're saying that's a volume plan. They're going for market share, right? They're just ⁓ I'm at from the optics that they got they got crushed. They got outperformed.
Zach Fritz: Well, I don't know. Yeah, I mean, Michael, what are your thoughts on all this? You know, I'm embarrassed to say that I can't make an
Chris J. Martinez: My Michael, what are your thoughts on all this?
Michael R Herman: You know, I'm embarrassed to say that I can't make an intelligent comment on this.
Chris J. Martinez: Well, think about this. you had in your business, if you if your income dropped, know, half, 55 percent, how could you? ⁓
Zach Fritz: you operate? Well, would be much more proactive about
Michael R Herman: Well, I would be much more proactive, obviously, and being much more, don't make cold calls anymore. So would be in more active marketing versus marketing to correct the situation.
Zach Fritz: Well, I think another thing that we need to look at is where are they actually losing the money? Has CAC gone up, your customer acquisition cost? Has LTV, lifetime value of their customers, has that dropped? Have they stopped selling anything aftermarket or any add-ons? Where are they really bleeding income from is my question.
Chris J. Martinez: Yeah. Well, looking at the actual data, basically a knife fight in pricing. everybody, all the competitors in are literally just, you know, who can sell it cheaper.
Zach Fritz: you that everybody's trying to beat each other on price and it's whoever can manufacture at the cheapest well eventually you just bleed each other out ⁓ the reality it sucks but you know when you've got 50 factories making the same damn thing in the same mold and zero protection for IP or copyrights or patents what do you expect
Chris J. Martinez: Thanks I agree. Well, let's move on to the next one. So we've got, robots there. They're here. So I know, ⁓ Elon Musk was supposed to get the optimist at the end of this year. but someone moved in on the automotive space and is putting robots in the, the tech What are your thoughts? Well, let's we get Zach's thoughts, Michael, let's get your information. Like, what do you think about the robots?
Zach Fritz: I agree. Well, let's just move on to the next
Michael R Herman: Well, nothing like going into a fast food place and having a robot taking your order for a burger, fries, and a drink. But when it comes to the automotive space, I think it takes away from the human aspect of establishing a relationship with the consumer.
So I know robots are here to stay. AI kind of scares the heck out of me. There's a movie, what was called, iRobot with Will Smith. So it's kind of a deep movie in terms of what takes place. You guys probably don't remember 1968, 2001 Space Odyssey, where Hal took over the whole computer setup in outer space.
robots have its place, but whether it should replace human interaction, I'm going to say no.
Chris J. Martinez: It is. Yeah, you know, in this scenario, this, this isn't actually taking over in the like the face face consumer standpoint, this is in the tech bay where they're just running parts ⁓ from, you the parts counter to the technician so that they're not having to walk. Because when start
Chris J. Martinez: adding up the dollars. you know, tech spend 60 to 90 minutes a day leaving the bay. That's five to seven and a half hours per week, 20 to 30 hours per month, if your effective labor rates $150.
That's 3000 to $4500 per tech per month and lost production. So when think about it, if you got 10 techs, that's 30 grand $45,000 a month in lost revenue just because they had to stop what they're doing and go get parts.
I know Zach, you know this very well. I think robots have a really nice niche to stay in. I agree with Michael that, you know, from a face to face standpoint, not sure that's the right move. If it gets there, when it gets there, I think they're going to try to get there with especially McDonald's has tried.
Zach Fritz: actually love this. mean, probably expect me to say that because I'm very much against the robots taking our jobs, but I do like this because the amount of times that I've gotten in an argument with parts right at the counter because the moron behind the counter doesn't want to down his phone and stop texting or playing whatever the hell he's playing Candy Crush to get me my parts or they can't do it in a timely fashion or they forget something that's on the ticket and I have to run back and waste the time.
I love it for that. It's just gonna, it's gonna allow more accountability, consistency, and reduce that interaction that 90 % of the time does not go great. I mean, it just doesn't. Now the adverse here is what it's going to do to hours in the shop.
Cause you're talking about production times, but if we then look at it, this may be a point of leverage where they can say, well, we've helped you out with this. So now we can reduce the rate. per hour that you're flagging.
you're a store. It's these little convenience steps that I've seen be implemented at different shops that I've worked in that, you know, say we get an automatic tire changer, they can now say, well, rather than a half hour per tire, this tire changer, it's now 0.2, 0.3.
Chris J. Martinez: I think you're right. think that, a good thing. I probably wouldn't have, you know, tried to bash my parts guys. Cause you know, I have a really good with a lot of them, but you know, I think there's a ⁓ place for sure to help not only move things along for them and so they can focus on, you know, other parts of the business. but in addition, it helps texts you know, disgruntled texts like yourself that. you know, can actually get to their job.
Zach Fritz: actually get to their job. Yeah, I mean, yeah, hey, I'll always bash the parts counter because that's, that's what we do. bash each other back and forth. So it goes big cuts both ways. Trust me. But think it's, it's nice convenience, right? It's a nice to have. But also looking at costs, you know, looking at reliability, I mean, we'll see how kind of flushes out.
Chris J. Martinez: Thank We'll see. Michael, you got anything to add?
Michael R Herman: Yeah, I just going to ask if I may. right. you guys noticed a trend, and I'm going to tie back with the robots, is cashier's positions are being removed? And ⁓ reasons. is overhead cost, paying the cashier, say, 20 bucks an hour.
And secondly, they discover that if a consumer asks a question about the bill, it goes back to the service advisor. Now, the service advisor, what I like is, and I've been trying to implement this more and more, having the service advisor go over the records, the repairs, and taking the payment right there versus walking them over to the cashier.
But what you said much earlier is that if the robot is basically replacing the amount of time ⁓ or she in parts having to go in ⁓ and out an item and then coming back. I'm all that.
Zach Fritz: And the parents, they have to go in and...
Chris J. Martinez: Yes, think right. think there's robot, AI, think all of this stuff has a place in automotive for sure. think that remove some of the that we have, things that don't really take a lot of thought, real just the same things that need to just of go away.
And I think as long as... dealers are looking at from that perspective, the ones using those tools for those reasons, they're going to, you know, take things to a whole different level. I've heard some people going the extreme opposite and just want to replace everybody and just be completely like McDonald's, those standalone, you know, computer McCafes or, you know, things like that.
But I don't know, what are your thoughts on that, Michael?
Michael R Herman: I just see this as a trend which I'm not happy with. It's all about the bottom line, okay? Forget about the potential customer experience that he or she might have experienced. It appears to be a much more cost effective way as a whole whether you're selling at a food joint or you're using a computer to simplify getting parts or or even changing tires or whatever. So gonna be an interesting world we live
Chris J. Martinez: really is. Zach, what do think?
Zach Fritz: You know, at what point do the robots turn around and they offer you the screen and say, it's just going to ask you a couple of questions. do we start getting the robot tipping culture?
Chris J. Martinez: Yeah. I'll tell you, let's it a different direction. So I remember shopping for my daughter and I was trying to find her something nice. It might've been her 18th birthday or 17th birthday.
I don't remember when, but I went ⁓ a store and the rep, Hey, okay. And this was like, it was a really nice store, right? Like high-end, you know, kind of stuff. And I remember going in there and asking them, hey, well, what you, you know, what can I get for her?
I'm trying to get them to give me some suggestions, recommendations. And instead of going to the product and demonstrating the stuff that's on display or showing me some things they might recommend, guess what they did?
They pulled out the iPad and started going like a catalog salesperson. And I said, well, then if, that's all I need to do, I'll just go back home and do that. But thank you anyway. And I just left. I was just like, you know, like, to me, want to have that I felt like, hey, look, help have someone help me, you know, recommend some stuff, and then, you know, show me some stuff, but not, hey, well, let's see, well, what do they like, and then going through this catalog, and I'm just like, you know, that's the case, then why even have them if that's what the mentality that they're not even training their people to do.
Zach Fritz: down. Mm-hmm. 100 % right. I mean, I feel like today we We have to tip for ⁓ service, right? It's expected, you know, if somebody takes your order at a restaurant You know, let's call it fast food a little bit different than a you know, sit-down restaurant and Then they turn it back around to you and say well, would you like to ⁓ it your job like I just ⁓
Zach Fritz: I don't understand when it became, hey, I'm going to pay $7 already for a cup of coffee to, hey, now I'm going to tip you 20%. And I feel bad whenever I don't. I feel like you're going to, what, spit in my drink or do something or think I'm a total, you know, douche for not tipping? I hate tipping culture so much.
Chris J. Martinez: That is. I agree. The tipping culture has gone out of hand. It seemed like just in the last couple of years that it's just blown up like everybody. even, to a spa and the spa, they like when they go to charge and they turn it around, like we were already like tipping it. Like that was just part of what we were gonna do. But.
Chris J. Martinez: like they did the preemptive thing. Hey, yeah, we just need you to, you know, and I was just looking at them like, man, I was gonna work, you know, that's part of the process here, I think.
thought it was appropriate here anyway. And so then you go like to Dutch Bros or, you know, any of these Starbucks or where's the that I just went to recently and I just thought the ones at the mall, I think I was at the mall and I went to go eat at the food court and it was just, hey, it's gonna ask you a question.
Chris J. Martinez: This is unreal, you know? Michael, what do you thought?
Michael R Herman: Well, tipping has gotten way out of, out of sync. I think everyone should be a food server in their life. I spent seven years as a food server way back when.
Michael R Herman: And you know, back then 15 % was the customary, 20 % was exceptional. Now it's 20 % up or down, okay? But yeah, when you're getting a coffee drink, okay, you know, it's a buck there, whatever. Maybe some people throw in and lose coins. You're tipping at your spa, number of different things. I mean, here's an example. I have a membership of Massage Envy.
Michael R Herman: and I pay $75 a month in my neck of the woods. They have a sign there saying for a 50 minute massage is customary $37. But I'm $75 for monthly membership and I'm giving the massage therapist, I'm giving her 20 bucks because to me it's more than 20 % off the $75. So, and you see.
Chris J. Martinez: Also, they just bumped it themselves. Like, no, it's customary for a $37 tip, not 20, but 37. Man, now that's another level. I hadn't heard that one.
Michael R Herman: Well. And I could see if you're a quote unquote a non-member getting a massage there because the price for the massage is going to be higher. let the customer guide in terms of how much he or she wishes to tip for services, OK? And not saying I'm going to stiff the person for giving me a 50-minute massage, OK? But it goes, it's kind of enough is enough. I see so many articles on this through my news feed. And it's like we're constantly out of pocket for
Michael R Herman: things that we normally didn't tip maybe five years ago.
Chris J. Martinez: Yes, you know, it's funny though, Elon Musk on his robot taxi, like once ⁓ ride was over, he said, you he said he put like a joke on the app where it says you got to leave a tip. And then he like shortly after it says just kidding, you know, it's you know, it was the robot that drove the driving. But I know we kind of went off on attention here, Zach, but quick, I wanted to do one story. And the story before we shut it down is Porsche sells What's your, color is Bugatti?
Chris J. Martinez: I don't have one sir, I'm not at that level.
Zach Fritz: I thought you were talking about my Hot Wheels cars. Okay, I got you.
Chris J. Martinez: Okay, okay. What do you think they sold 45 % to Bugatti, their 45 % RIMAC and then 20.6 % to the RIMAC group. They had an estimated valuation of $850 million to $1.1 billion. So 45 % stake, that's pretty big. Sounds low, right? Well, because you hear all these big numbers now.
Chris J. Martinez: Think about it, Like Tesla's gonna be worth a trillion or more than two trillion or whatever it is now. A billion seems like they stole it, right?
Zach Fritz: Yeah. Yeah. I especially when you consider the price of the cars and all the hype surrounding them. know, I would almost wonder maybe that almost seems like a, we need some liquidity type of play from Porsche, especially for what we think is cheap.
Chris J. Martinez: Yeah, you know, they make a lot of money. They make a lot of money. I don't know. I think if anything, they're just trying to focus on their core brands. I mean, you think about the McCann, the the Cayenne, like those things. mean, you can't make they can't make enough of those.
Zach Fritz: them. Yeah. It's interesting to me, right? So you see, know, like Volkswagen Audi group, right? We start to see a lot more stuff being pushed for, you know, a lower level of a vehicle, right?
Meaning cheaper, you know, cost to get into them, but still maintaining, you know, kind of that brand DNA. I've I'm actually kind of fascinated by this because I've always thought that if Porsche could come out and do what the 911 originally was, right?
Or the Cayman, but bring it back down to a, you know, 35, $40,000 entry level price point enthusiast vehicles, they would kill it, right? Like think like what like the 350Z was from Nissan and what Toyota Supra was supposed to be whenever they partnered with BMW.
It might be interesting to see what they're trying to do here. Why it if they didn't need to? That's what I'm kind of wondering.
Michael R Herman: I like your perspective on that. Real quickly if I may, my parents, 1957, I'm dating myself, bought their home a five bedroom, four bath or whatever brick tutor home for $57.50. Now Porsche is probably what, $125, do you ever take? Which is a... Okay.
Chris J. Martinez: Yeah. Yeah, depends on depends on the model, right? So
Michael R Herman: It's just amazing how high end has become. And it comes down to the affordability ⁓ in of, we keeping with our next-door neighbor to have a real fancy shiny car and having a pavement on it, assuming they're not paying cash for that type of luxury ⁓ vehicle.
Chris J. Martinez: You know, I don't know that that's going to be that may be going away. I think about, you know, consumer price of new cars are hitting the all time highs like ⁓ new car payments are almost a thousand dollars a month now. I think that this this era kids just are people are just not drinking alcohol like they used to. Like those profits have gone backwards because people just aren't doing that anymore.
Chris J. Martinez: I think we're going to come to a point where people just aren't trying to flex because everything has gotten so expensive. Think about these like Venezuela, Cuba. Now they're different markets.
Don't get me wrong, but they don't really have any new cars, right? They fix a lot of their old stuff. And we headed into that space today because of tariffs and the price of new cars are just so high that now ⁓ everybody only can afford used cars.
know, the vast majority, I would say 80 % of the population can only a used car now. What are your thoughts?
Michael R Herman: Can I ahead? I posted on LinkedIn, I think last year the average used car sales price, price was $32.5. Now it's probably gone up this year, okay? ⁓
Chris J. Martinez: Yeah, it's new average new car right now is like $47,000 almost 50.
Michael R Herman: Who could afford to have something like that? driving my Toyota Cross, which I'm going to turn a lease into a buy, because could be my last car. I've got miles for a 30-month-old ⁓ lease. I it's ⁓ And I don't getting another car after that, because they're so well-made. But ⁓ the affordability the thing, even for a pre-driven used car.
Michael R Herman: in terms of, know, do you want to buy a car that has 100,000 miles on it? And I don't know what the life expectancy is on that car. It's ⁓ going be interesting.
Chris J. Martinez: I agree. Zach, what are your thoughts?
Zach Fritz: I'm in the exact same boat. I couldn't agree with you more. look the space that I'm in, especially with the YouTube channel, right, and talking about vehicles and, you know, drivability, I completely agree.
vehicles I have now that are, you know, paid off and damn close to it, I'm keeping those. I'm not buying anything else because it's not affordable. I mean, I can't... justify the price of anything right now and in fact I look at some of these older late 90s early 2000s vehicles as you know we've even seen those prices start to climb up I mean whenever I look at a 98 Chevy that's selling on marketplace with 300,000 miles for 15 to 18 thousand dollars something's broken here that was a $2,500 truck three or four years ago so where where did we go wrong
Chris J. Martinez: Everything is just talk about where we went wrong. think COVID we pumped. Was it what was the estimates during ⁓
Zach Fritz: Everyone got their STEMI checks and went nuts.
Chris J. Martinez: Well, not only that, they printed so much money that hyperinflation was what was it what was gonna happen? Like, what do you think would happen? Right? Like, they said 40 % of all money ever printed happened in the last five years, right?
Or some other I forget the exact number, but was a big number. Right? And so you think about it. I think like even my my daughter, and we talked about this last time. Thinking about housing prices years ago.
⁓ In my neighborhood, you could get a really nice house for 150, 200 grand. Now those same houses are 600 grand and you're looking at them like, that's not a $600,000 house.
Zach Fritz: No. No, not at all. That's a, I literally just sold a house that I don't even think it was a $400,000 house in my honest opinion. And that house sold for over 700. And I'm like, in what world, in what universe is somebody going to pay that price?
But yeah, if there's 40 % more money in the economy, mean, yeah, 40 % over on price because I just. It's baffling. We're turning into, what is it, like the yen where you just see all these different digits behind it and it's like it turned out it was $2, right?
Chris J. Martinez: or the peso right michael i know ⁓ you've ⁓ you probably live longer than we have what are your what are your thoughts on all this
Michael R Herman: just think it's just astronomical. mean, Zach, you mentioned that you sold a house, you made a killing on it. Would go around and buy that same house today? Doesn't look you would because the inflated but in oversimplified, it's the old rules of economic supply demand. mean, whatever the market is to bear, the consumer will pay for it.
Michael R Herman: I I reached my Toyota Cross, this is the tail end of the chip shortage, and bought it ⁓ on ⁓ I to wait four weeks to get the car, and I not negotiate on the car. But the value the has been outstanding. So I've been extremely pleased with it, but it's also my sixth Toyota. But ⁓ I don't know how young can do this nowadays
Chris J. Martinez: I don't even they can't look at the answer is they can't you know I look at my daughter she doesn't have any kids yet she's 29 and she's with her ⁓ and I look at what you what they have to go through and I'm just like man how do they they're just it's it's a tough situation and look here's the worst part so the Fed just 20 hours ago left all rates steady so he's not gonna lower arm, he's not doing any of that, because we're still in a position that the economy is still thriving, people are still buying.
imagine if he lowered rates, what would that do to prices even more?
Zach Fritz: they would just shoot up. you've got people with more power, right, who are going to be enthusiastic about this new opportunity to buy more than they could afford yesterday with these lower rates.
And that's the direction it goes. And how do we, how do we break that cycle? How do we stop that trend and get things back to being affordable? mean, it is, it's impossible to live right now. I think interesting point that I'll make because I've been following the housing market personally, we have an entire generation who pretty much control, what is it like 70, 80 % of the real estate, right?
And all of their net worth is tied up in real estate assets. we've got a younger generation that just constantly rents can't afford to buy, it's going to be really interesting to see the flip whenever that older generation is no longer here.
Chris J. Martinez: Yeah, that's great. Hey, real quick, and just to correct my head a fact check myself. So based on data from the Federal Reserve, approximately 80 % of all US dollars in circulation were created between 2020 and 2021. 80 % it wasn't 40 % I was like, you know, I think it's even higher. And so I had to just fact check myself real quick. And 80 % of all you according to Gemini, Google's Gemini 80 % of all dollars in existence were printed in 22 month period.
Zach Fritz: So it could be twice as bad as we thought it was. I mean, I'm just gonna stop complaining now because it gets worse, I guess. us.
Chris J. Martinez: Well, this was a lot of fun. Michael, I'm glad you came on board, we want to just tie it up. Get your last thoughts. How can dealers, operators, in industry learn from what's How can they tune it out and focus on the fundamentals?
Chris J. Martinez: or what they can do to win in this market today.
Michael R Herman: Well, sometimes the old adage, it ain't broke, don't fix. I think if people just, they understand how they're spending on their merchant fees. They really don't have a clue on that. They just ⁓ another operating and they live each day in, day in and day out.
And if someone would willing to just have a conversation with me, me engage a five minute see what they're doing, see how I assist them. ⁓ for no cost, no obligation, send me a couple of months merchant statements.
Let's take a look and see if we could eliminate some of that fluff. I was going to save a dealership in Indianapolis area, $121,000. The reason why they didn't want to work with me several years ago is because I was not a local agent.
But I serviced my customers. That was their rebuke to me. So if they don't want to save $121,000 annually, shame on them.
Chris J. Martinez: Yeah, some people some people will look at things and they just don't they just need more information to move. Zach, what do you think?
Zach Fritz: I mean, I couldn't agree more. mean, think right now it's important to first off, do the right things for the right reasons, right? And take care of your customers, Hyundai. And then also, I mean, kind of to your point, it's where can we save money? Where can we cut costs, but do it the right way without sacrificing quality, standard of service, and for the love of everything holy.
Chris J. Martinez: You You know, I'm surprised haven't done that in the finance departments or service advisors. You know what saying? Like ⁓ would ⁓ funny. ⁓ the very least be a joke. You know what I'm saying? Just to make light of a situation.
Zach Fritz: Right? I mean... Yeah, it sucks because this morning my wife made me a cup of coffee and then she hit me with the iPad.
Michael R Herman: I thought she was expecting a tip. brought you a cup of coffee. ⁓
Zach Fritz: was. She did. She brought me cup of coffee and said, all right, it's just going to ask you a few questions now.
Chris J. Martinez: That's funny. Well, I'll tell you, think that I think you're right. I think to point, definitely want to cut costs where you can because there's a lot of little things that in the in our business that, you know, there's so many moving parts. There's so many different businesses within our business that you can really make money on as long as you know where to look or where save. so definitely want to keep.
Chris J. Martinez: you know, talk to the right people, at it, inspect it. And more importantly, in this market, you're just going to have to you're going have to be aware of what's going on. If interest rates are the current talk where they them unchanged, come up with the incentives the manufacturer shooting for right. And, and being able to be a position you're not
Chris J. Martinez: you know, being unethical like the FTC just find that one dealer we talked about last week. you want to make sure you're doing it the right way. So I a lot companies, a lot of businesses are winning today in automotive. Just look at, you know, the net income in Carvana 40 % up year over year. And even Carmex was showing a than expected. I think they were up like 9 % or 11 % or something like that. Not the 40 % was but still.
Chris J. Martinez: they're still winning in this market, right? Prices are on all time high and people are still winning. understand that, you know, if you're in a position that's you're operating a store, know that it doesn't matter what market you're in, someone's winning. So why not that be you? So I appreciate you guys. It's time. Thank you. Let's do it again next week. Thank you for joining us, Michael. Thank you for spending some time with us. Until next week, Zach.
About this episode
Carvana’s earnings strength becomes the opening lens for a broader look at how auto retail is changing: back-end finance, reconditioning efficiency, and leaner operations can outweigh raw unit volume. The hosts then move into a sobering safety story involving a Hyundai third-row seat tragedy and the recall that followed. From there, they debate where robots and AI fit in dealerships, while also circling back to pricing pressure, used-car affordability, and the need for cost discipline in a high-rate market.
The conversation covers a range of topics including the comparison of CarMax and Carvana's earnings, changing consumer behavior in the car buying experience, a tragic incident involving Hyundai's third-row seat, financial performance of BYD, and the impact of robots in the automotive space. The discussion also delves into marketing and messaging strategies, profitability, legal implications, corporate responsibility, and safety concerns.
Takeaways
Changing consumer behavior is influencing the car buying experience
Marketing and messaging play a crucial role in consumer perception
Corporate responsibility and accountability are essential in the automotive industry
