Dealers vent and strategize about a tough, bifurcating market: premium brands in strong geographies still trade at big multiples, while many “mainline” stores are losing profitability and taking longer to sell. The panel ties affordability problems to negative equity, 84-month financing, and stubborn transaction prices after COVID supply shocks. They argue OEMs must “decontent” and package vehicles for real consumer wants, not over-digitized screens. They also debate dealer hate, FTC enforcement letters, stair-step incentives, and Volkswagen’s Scout direct-to-consumer push—warning that direct models risk service, accountability, and fairness.
Welcome to Dealer War Room from Car Dealership Guy — a new series where host Yossi Levi sits down with top operators to break down the biggest challenges in auto retail.
Today I’m joined by Matt Bowers, Owner of Matt Bowers Automotive Group, Todd Blue, CEO of LAPIS, and Andy Wright, Managing Partner of VINart Dealerships.
In this episode, we get into the growing tension between dealers and OEMs — from affordability and negative equity to mandated tech. We also break down the split in the buy-sell market, rising FTC pressure, and why the franchise system is going through a major reset.
This episode is brought to you by:
1. CDG Circles – A digital peer group for top auto dealers. Private dealer chats. Vendor reviews. Real insights. Join dealers representing 3,000+ rooftops @ here.
2. Nomad Content Studio – The team behind the dealers you actually see online. Nomad works in your dealership to build a brand new pipeline of sales driven by social media content. If you want your dealership to be next, head to @ here and book a call.
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Topics:
03:25 Why Toyota Stores Trade For 10X Earnings.
07:25 The California Buy Most Dealers Ignore.
09:15 Why Mercedes Dialed Back EVs Early.
12:35 Why Auto Retail Gets So Much Hate.
16:45 Why Small Country Stores Won't Sell.
21:10 How 84-Month Loans Trap Buyers.
26:40 The Dealer Decision That Forces OEMs To Change.
32:15 Why American Carmakers Killed Cheap Cars.
36:10 The Regulation Destroying Engines.
42:25 Why Follow-Up Became Adversarial.
46:20 The CSI Fix Nobody Will Try.
52:45 Just Leave The Brand If You Hate Stair Steps.
58:45 The Question Every CEO Must Answer.
01:02:50 Why Franchisees Have Zero Protection.
01:08:10 The Margin Obsession Killing Partnerships.
01:12:50 The $75 Million FTC Warning.
Car Dealership Guy Socials:
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Threads ➤ threads.net/@cardealershipguy
Facebook ➤ facebook.com/profile.php?id=100077402857683
Everything else ➤ dealershipguy.com
"What do you mean by mainline? Chevrolet, Ford, mainstream, yeah, right, like good brands, they're not making a bunch"
Ford is a major everyday car brand. In this conversation, it’s grouped with other mainstream brands to explain what they mean by “mainline” dealerships.
Ford is another mainstream automaker used here to define “mainline” dealership operations. The hosts group brands like Ford and Chevrolet together to contrast them with luxury “super premium” brands in terms of dealer economics.
"What do you mean by mainline? Chevrolet, Ford, mainstream, yeah, right, like good brands, they're not making a bunch"
Chevrolet is a big, mainstream car brand. Here it’s mentioned as an example of the kinds of brands that sell through regular dealerships.
Chevrolet is a mainstream automaker commonly discussed in the context of high-volume dealership networks. In this segment, it’s used as an example of a “mainline” brand that sells through traditional dealerships rather than luxury boutiques.
"But at the same time, one in every eight or nine cars sold in America are sold in California... So I think the bid ask spread... depends on geography..."
Where you sell cars changes how easy it is to move inventory and what prices you can get. California, for example, has different buyers and rules than many other states.
Geography matters in auto sales because demand, regulations, and customer preferences differ by region. The segment highlights how dealer economics and pricing dynamics can shift when a market is concentrated in places like California.
"And then of course, I think Land Rover is an excellent brand. I think leadership is great and great luxury."
Land Rover is a luxury SUV brand. People usually associate it with comfortable rides and strong off-road ability.
Land Rover is a British luxury SUV brand known for off-road-focused vehicles. In dealership conversations, it often comes up as a premium brand with higher customer expectations and pricing power.
"Like do you feel like the last, you know, five years of or even decade of all this investment in EVs has come at the expense of product? And now what you actually have available to sell, you both have Mercedes, they put a very big investment in electric vehicles."
EVs are cars that run on electricity instead of gasoline. The speakers are saying the industry spent a lot of money on EVs, which may have changed what cars are available to buy.
EVs are electric vehicles, and the industry has spent heavily over the last several years to develop them. The discussion frames EV investment as potentially affecting what automakers have available to sell and how they manage their product plans.
"And now what you actually have available to sell, you both have Mercedes, they put a very big investment in electric vehicles. What do you think about that?"
Mercedes is a well-known car brand. They’ve been putting a lot of effort into making electric versions of their cars.
Mercedes-Benz is a major automaker that has invested heavily in electric vehicles as part of its broader electrification strategy. In dealership/retail discussions, Mercedes EV investment can influence inventory timing, model mix, and customer demand.
"...we are still seeing a lot of interest from non-traditional players, the private equity investors and family offices and things like that."
Private equity is a type of investor that buys companies with the goal of making them more valuable over time. In car retail, that can mean owning dealership groups or backing companies that run them.
Private equity firms pool investor money to buy businesses, improve them, and often sell later. In auto retail, they may buy dealership groups or invest in platforms that support dealership operations.
"Who's the number one Oldsmobile salesman? It's Bob. Goes has steak dinner with Bob and his wife."
Oldsmobile was a car brand owned by General Motors. In the past, dealers often focused on selling one GM brand, like Oldsmobile, in their local area.
Oldsmobile was a General Motors brand, and the transcript uses it to illustrate how GM’s dealer sales efforts were organized around specific brands. Mentioning Oldsmobile helps listeners understand the historical dealer-brand structure.
"But going back to your question about ice vehicles and the thing, right? I mean, then that one of your questions was..."
ICE vehicles are regular gas or diesel cars. The phrase is used to contrast them with electric cars.
“ICE vehicles” means internal combustion engine vehicles—cars powered by gasoline or diesel rather than electric motors. The term is used in discussions about the transition to EVs and how automakers and dealers are adapting to changing demand and regulations.
"But just affordability has become a defining issue and the problem is one of the big problems here is negative equity. By the data, let's run through that."
Negative equity means your current car is worth less than what you still owe on it. When you trade it in, that gap often gets added to the new loan, making the new car more expensive each month.
Negative equity is when the amount you owe on your current vehicle is higher than its trade-in value. It’s a major driver of affordability problems because it can be rolled into the new loan, increasing monthly payments.
"The other issue that's in the market is, this is from Edmonds, by the way... $10,000 problem... And that's a record... That's from Edmonds as well."
Edmunds is a car research website that tracks pricing and market trends. Here, they’re being used as the source for the numbers about how common negative equity is.
Edmunds (referred to here as “Edmonds”) is an automotive research and pricing site that publishes market data used by dealers and consumers. In this segment, it’s cited as the source for statistics on negative equity and upside-down trade-ins.
"...rolling that forward, right, that obviously lowers the monthly payments, but guarantees the buyer is under water again on direct trade."
“Rolling it forward” means the extra amount you owe on your trade-in gets added to your new car loan. So you can end up owing more than the new car is worth again.
“Rolling that forward” refers to carrying negative equity from a trade-in into the new vehicle loan. This effectively increases the new loan balance, which can keep the buyer underwater again on the next direct trade.
"line sets, trim levels... the equipment that goes into these vehicles, how can they alter that to bring the transaction prices down"
Trim levels are different “packages” of the same car—some have more features than others. If the automaker changes what’s included, they can make the car cheaper to build and easier to buy.
“Trim levels” are different versions of the same model with varying equipment and features (and usually different prices). By changing trim content—what’s standard vs optional—manufacturers can reduce cost and potentially lower transaction prices.
"we're still reeling, I think, from supply shortages in the used car market because buyers are seeking alternatives that they can afford"
A supply shortage is when there aren’t enough cars available. When that happens, prices usually stay high because buyers have fewer choices.
Supply shortages mean there aren’t enough vehicles available relative to demand, which tends to push prices higher. The speaker ties this directly to the used-car market, where buyers can’t find enough affordable options.
"So it's a real conundrum. We've got to work together with our OEM partners"
OEM partners are the car companies themselves—the ones that make the vehicles. The idea is that dealers can’t fix pricing alone; they need the automaker to help too.
“OEM” stands for Original Equipment Manufacturer—typically the automaker that builds the vehicles. The speaker is saying dealers need automakers to coordinate on pricing, inventory, and product planning to improve affordability and market stability.
"to solve this problem. We'll explain this to me though. If the OEMs view this as such a big issue, why is it that you feel like there's not enough attention, they're not putting enough attention towards it?"
OEMs are the companies that actually make the cars. Think “the automaker,” not the dealership.
OEMs stands for Original Equipment Manufacturers. In the auto world, it refers to the automakers that design and build the vehicles (and often the powertrain and major components) that dealers sell.
"...I've been involved with dealer councils and things like that with my OEM brands. And you know, the last five years, there's been very little discussion..."
An OEM is the company that actually makes the cars. When they say “OEM brands,” they mean the car brands the dealer sells for.
OEM stands for Original Equipment Manufacturer—i.e., the automaker that builds the vehicles. “OEM brands” in this context means the specific car brands that dealers represent under franchise agreements.
"[1994.9s] vehicle, like go ahead and put the safety items in there, put in the ABS brakes and the GPS or
[2001.2s] like sometimes that's all anybody needs."
GPS in a car helps you find where you are and where you’re going. It’s basically built-in navigation.
GPS (Global Positioning System) is used in vehicles for navigation and location-based services. In dealership discussions, it often comes up as a “must-have” convenience feature that can affect perceived value.
"[1994.9s] vehicle, like go ahead and put the safety items in there, put in the ABS brakes and the GPS or
[2001.2s] like sometimes that's all anybody needs."
ABS is a safety feature that helps your brakes not lock up. That means you can usually steer better while braking hard.
ABS stands for anti-lock braking system. It prevents the wheels from locking up during hard braking, helping the driver maintain steering control and reduce stopping distances on many surfaces.
"[2100.9s] I mean, that's it. Economic incentive. That's the bottom line. I mean, so these are,
[2104.3s] you know, these are UAW, you know, like a lot of them."
UAW is a workers’ union in the U.S. auto industry. The point here is that labor costs and agreements affect whether companies build factories in certain places.
UAW is the United Auto Workers union, which represents many workers in the U.S. auto industry. The speaker uses it to argue that labor and economic realities influence where automakers build plants and how they structure deals.
"I always thought carplay was like the biggest honey pot for the industry, right? Everyone's on carplay. You've just commoditized your vehicle even further and further."
CarPlay is Apple’s way of showing your iPhone on the car’s screen. If lots of cars use the same CarPlay setup, they can start to feel the same instead of unique.
CarPlay is Apple’s system that mirrors an iPhone’s apps and interface onto a car’s infotainment screen. The speaker argues that making many brands rely on the same CarPlay experience reduces differentiation between vehicles.
"stop trying to be like Tesla. I don't want to be like Tesla. You know, to me, Tesla is something that like, someone that used to buy an Oldsmobile would buy."
Tesla is referenced as the benchmark for a screen-and-software-first approach to vehicles. The speaker argues that some automakers are copying Tesla’s model, but they personally prefer cars that feel connected to the road and driving rather than “transportation” as an app-like experience.
"the consumer votes and right now they're voting on your Instagram, your TikTok, your YouTube. Every day you're not showing up with content..."
The speaker highlights social media platforms as the modern “voting” mechanism for dealership visibility and customer engagement. For dealers, consistent short-form and video content can directly influence lead generation and showroom traffic.
"If you want to learn more, go to trynomad.co. That's trynomad.co or click the link in the show notes below for a"
That’s the website they mention if you want to learn more about the company they’re promoting. It’s basically where you’d go to check out their service.
This is the website referenced for learning more about Nomad’s services. It’s part of the episode’s promotional call-to-action for the content-marketing partnership.
"...stair step programs to your pricing. This is an issue which has just continued to bubble up on our platform."
A stair-step program is a sales bonus system with levels. If a dealer is close to hitting the next sales target, they may be able to offer a bigger discount right then.
“Stair step programs” are tiered incentive structures where the amount of support (or dealer discount authority) increases once a dealer hits certain sales targets. They often create short-term pricing swings near the end of the month or quarter.
"...a lot of our OEM friends think that it's the best way for them to increase market share and throughput throughout their retail network."
Market share is how much of the market a brand sells. If the automaker wants to sell more cars, it tries to increase its share.
“Market share” is the portion of total vehicle sales a brand captures in a given market. Automakers use incentives and dealer programs to increase market share by pushing volume through the retail network.
"...I think that it's at the expense of number one, the consumer experience, because if a customer, it's the second to last day of the month..."
This is about how the customer feels about the buying process. If prices change depending on timing, it can feel unfair and make people angry.
“Consumer experience” here means how customers perceive fairness and transparency in pricing. The discussion highlights that end-of-month incentive timing can make two similar buyers pay different prices, harming trust.
"to keep inventory levels at a manageable place or position. And that can be a process, again, where we have an opportunity to collaborate."
Inventory levels are basically how many cars are sitting around to be sold. Too few cars means lost sales; too many cars means money gets stuck and discounts may be needed.
Inventory levels refer to how many vehicles a manufacturer or dealer has on hand at a given time. Managing inventory is central to balancing supply (cars available to sell) with demand (customer buying), while avoiding costly overstock or missed sales from shortages.
"At the end of the day, franchisees have multi, multi-million dollar investments... there's a lot of heartburn there that we put up with as franchisees"
Franchisees are the local dealership owners who run the brand’s stores in their area. They’re responsible for day-to-day operations and follow the brand’s rules.
Franchisees are the independent dealer owners/operators who hold the franchise agreement for a brand. The segment emphasizes that franchisees make large investments and absorb operational and regulatory burdens.
"and line up with our, with your dealer partners and see what we can do for you because I think it could be great."
Dealer partners are the local dealerships that sell the cars for the brand. If the automaker changes the sales model, those dealerships can lose money or control, so the relationship matters.
“Dealer partners” refers to the franchised dealer network that sells and services vehicles on behalf of automakers. When automakers consider direct-to-consumer models, they often need to renegotiate incentives, inventory flow, and responsibilities with these dealer partners.
"you know, Carvana, Tesla, you know, so I think, I think there's a hope to, to be that way."
Carvana is an online used-car retailer that sells vehicles directly to consumers. It’s mentioned alongside Tesla as part of the broader shift in how cars are bought and sold.
"it's said here that new regulators are also monitoring, monitoring aggregator sites, third-party listing sites, not just dealer websites."
Aggregator sites are websites that collect lots of car listings in one place. The key point is that dealers can’t assume only their own website will be checked—third-party listing sites may be monitored too.
Aggregator sites compile listings from many sources (often including dealer inventory) into one place. The discussion implies regulators may monitor these third-party platforms for compliance, not just the dealer’s own website.
Why Toyota Stores Trade For 10X Earnings.
The California Buy Most Dealers Ignore.
Why Mercedes Dialed Back EVs Early.
Why Auto Retail Gets So Much Hate.
Why Small Country Stores Won't Sell.
How 84-Month Loans Trap Buyers.
The Dealer Decision That Forces OEMs To Change.
Why American Carmakers Killed Cheap Cars.
The Regulation Destroying Engines.
Why Follow-Up Became Adversarial.
The CSI Fix Nobody Will Try.
Just Leave The Brand If You Hate Stair Steps.
The Question Every CEO Must Answer.
Why Franchisees Have Zero Protection.
The Margin Obsession Killing Partnerships.
The $75 Million FTC Warning.
Select text to request an explanation
We have a problem that's the result of several years of circumstances that have compounded
to bring us to the situation we're in right now.
If you have such a problem with it, well then just don't do it.
In everything in life, people look for an advantage.
What stops you?
God forbid if we're facing anything bad ahead of us.
How do we effectively explain that to the customer?
Dudes keep them too long and then they die.
I think it's horrible for the consumer.
I don't care what anybody says, the statistics don't lie.
The consumer is going to vote on whether your plan worked or not.
It's a huge opportunity for collaboration.
Nobody's talking about it.
The consumer definitely is asking for something that we're not giving them.
I'm not afraid of that.
Welcome to the Dealer War Room.
This is a first from Car Dealership Guy.
This is a bit of an experiment.
We kept having these, or I should say, everyone at this table and myself kept having these
really, really good conversations and I said, man, we have to record this.
We need a forum where we can have these true, intimate, authentic conversations with a group
of dealers.
Let's get started.
I want to start with a dealership buy-sell market.
Matt, you brought this up initially in the group chat and I think it's a great place
to start.
The buy-sell market, to me, to the industry tells us a lot about dealer confidence, who's
buying, who's selling, what are deals actually looking like.
Let's run through the data first.
By the data, to start, if you look at last year, about 390 to 600 dealership transactions
closed in 2025.
This is, of course, from the Presidio and Hague reports we took data from both.
That number is roughly 50% above pre-pandemic norms, so volumes were extremely high.
Coming to this year, the year started out a bit slow.
March seemed to have picked up.
We had almost a transaction a day being reported.
We cover all these transactions in CardioshipGuy, cdgbuysale.com is our buy-sell tracker.
If we're looking at another piece of data here, the average publicly owned dealership
generated $4.1 million in adjusted pre-tax income.
That was in 2025.
Unsurprisingly, Toyota and Lexus stores traded at 8 to 10X in most markets over 10X in Florida
and Texas.
Toyota and Lexus continue to be the hot ones in town.
Matt, let's start with you.
You've been very outspoken about this.
I feel like I mean you can have hour-long conversations about the buy-sell market.
What's your general take to start about where we're at?
Yeah, I think it keeps changing, right?
So you had the COVID period, then you had to just post-COVID period, and then today
what I'm seeing, so I'm really seeing two really distinct markets.
I don't think it's like one buy-sell market, I think it's a couple of separate ones.
The super premium stuff, the stuff that you mentioned, Texas, Florida, I'd even add Tennessee
into that mix in some cases in Metro Nashville.
We'll give some love to Tennessee.
Yeah, for sure.
Like super premium brands, great stores, big earnings, great states, those are still doing.
I mean, I'm into parking a lot and somebody asked me if I want to pay 10 and a half times
earnings for a store, not like 10 and a half times 500,000 either, 10 and a half times
like a load of money, okay, right?
That hasn't changed, that's never changed.
One thing I am seeing, a couple of years ago you had brands fracture, and we talk about
them a lot, I get asked them about them a lot.
You had a couple of brands sort of struggle a little bit, which created opportunities
for buyers here and there.
Now what I'm seeing, I'm seeing more brands fracture, okay, nobody's talking about it
though, people feel perfectly comfortable talking about the two that everybody talks
about all the time.
They're really not in that much of a different boat in terms of dealer profitability than
many others out there.
They just don't get hated on as much, so I don't know if that's good or bad or unfair.
So I'm seeing that and then I'm seeing in really competitive markets, Dallas, Texas,
Houston, Texas, Atlanta, Chicago, big towns.
I'm seeing regular mainline stores are starting to break more than I've seen before.
What do you mean by mainline?
Chevrolet, Ford, mainstream, yeah, right, like good brands, they're not making a bunch
of news for getting into trouble, buyers for those brands.
Stores that during COVID would have made two and a half million dollars a year easily
would have traded for 12 million in a week, now are not profitable at all.
Okay, so there is some opportunity for somebody like me who tries to add value through operating
the store, not through a lower cost of capital or I try to go into the store and make it better.
And if I believe I can do that, I don't have to be right, I have to believe I can do that,
then I believe there's opportunity.
I can take something and make it something else.
So that's kind of what I'm seeing out there right now.
I'm seeing more opportunities come up than in the past.
So I think you're going to see a wave, I think this is going to continue.
So why?
It's harder.
It's harder right now than it was one time a year ago.
There's less buyers in the new car market today than there was this day last year.
What about the bid ask spread?
You both recently acquired stores along that process.
Did you notice a big valuation gap between expectations and reality?
You know, it's interesting.
I live in Houston and I would love to buy stores in Houston.
Typically, I would buy luxury.
I haven't found Texas stores on sale yet or Florida stores on sale yet.
On the flip side, I do think California is a good buy.
Now you have to deal with tremendous inertia and complications doing business in California.
You have to be willing to do it and it's complicated to say the least.
But at the same time, one in every eight or nine cars sold in America are sold in California.
So if you look at it that way, you align with certain brands, you're connected with certain brands,
then maybe that's your point of differentiation.
Maybe someone wants out of a state or they want to centralize.
So I think the bid ask spread to answer your question depends on geography,
just like Matt was talking about.
And it depends on brand and if you could add value to your brand partners with whom you're
close or if you're familiar with geography.
Like I went back into a market I used to be in business with four or five months ago.
And I feel like I can add value there because I can get around without navigation in my car.
And if you can do that and you know market well enough, then that might be your point of
differentiation.
So bid ask spread is, I think it's definitely geographic and brand for sure.
Yeah. What brands did you just acquire?
Well, most recently in California, Porsche Audi Land Rover Honda.
I'm very excited about, I know Andrew's Honda, big Honda guy.
And I'm so excited about Honda.
Never had a Honda store before, actually anything that isn't luxury before.
So really excited about taking that on.
And then obviously I love my Porsche relationship and consider that family Audi to a certain
extent because it's obviously in the same group.
And I think the Audi product cadence that's coming, that's another thing I wanted to add.
I think a lot of these brands are beat up.
A lot of dealers are mad at these brands upset for one reason or another because the product
isn't.
And I think that looking ahead at incoming product, if you have the ability like look
what's coming down the road, if you can wait, I think it's well worth.
And then of course, I think Land Rover is an excellent brand.
I think leadership is great and great luxury.
And so I think that mix is excellent in the market that I chose to go into was
major Metro adjacent, which I like doing that as well.
You mentioned product.
I had this conversation in this studio with Mike Marouni about product.
And do you feel, Andy, you can, this is to you as well, but do you feel like there is
as they say, like a lost generation of CapEx?
Like do you feel like the last, you know, five years of or even decade of all this investment
in EVs has come at the expense of product?
And now what you actually have available to sell, you both have Mercedes, they put a very
big investment in electric vehicles.
What do you think about that?
Yeah, I mean, I think all the OEMs are trying to figure out how to recalibrate their businesses
after several years of investment in EV technology.
So that's absolutely happening.
But if I could just pivot back to what you were saying about the buy-sell market,
I really have a handful of observations and takeaways from the statistics that you cited
earlier, and that is there's still tremendous interest and bullishness in retail automotive.
That should be takeaway number one.
There's a lot of interest still in these stores.
There is very few places that a qualified investor can go and get the type of return
that they can still earn even in a post COVID market
that they can find in a retail automobile dealership.
So for that reason, I think we're going to continue to see
bullishness and interest in the buy-sell market from both traditional and non-traditional players.
And you've had several of these people on your program.
The three of us sitting around this table are the more traditional players,
but we are still seeing a lot of interest from non-traditional players, the private equity
investors and family offices and things like that.
I think we're going to continue to see that.
The franchise system, despite what so many pundits and people that follow the industry
have said, and like to attack the industry, the franchise system is still the best delivery
mechanism for retail automotive that's ever been devised.
I don't care what anybody says, the statistics don't lie.
Franchise dealers have huge tremendous investments in the local communities that they operate in.
Their faces and oftentimes their names are associated with these businesses.
They not only service the community from a retail standpoint, but we also
are supporting the communities with, we've talked about it before, things like Little League and
all the stuff that we do that is not necessarily the most high-profile stuff,
but it adds up in aggregate and it means a lot.
And for that reason, I think that's again why we're going to continue to see
a lot of bullishness and a lot of desire from people that want to continue to grow in this
business. And I think that's a really good thing.
So Andy, why do you think the industry gets so much hate if that's the case?
And in addition to that, there's so much investment being put into competition,
whether it be online auto retailers or direct to consumer, which we'll talk about that as well.
Yeah, I think that's really a function of we have a couple of bad actors that kind of spoil the
bad apples that spoiled a bunch, as they say, right?
That's the minority?
I do. I really do. And I'm blessed to know a lot of people in this business.
We were talking before we came on the podcast here today,
all the people that we know, kind of common friends that we have in the business,
and we all know a lot of people. And I think it's safe to say that the overwhelming majority
are good business people that do it right. And I think that is evident by the fact that
so many of those people are continuing to grow. One last comment about the buy-sell market too,
to what Matt was saying, the other observation I have is, is that there is definitely, without
question, a bifurcation in the buy-sell market happening right now between brands and geographies.
And Matt touched on that earlier. Todd did as well. I mean, the reality of it is,
is that there are certain brands right now, those brands that operate consistently and
stably and have good leadership and good direction, they're still bringing the money,
especially if they're in markets where the geography warrants the type of multiples that
they're getting. The brands that are not are struggling a little bit more. The operators
that are maybe doing things the wrong way and it's manifesting itself in their performance,
their financial performance as Matt was talking about earlier, those stores,
they're going to be tougher sales. When you say operators doing the wrong way,
are you referring to OEMs or retailers? Retailers. Well, really both, but it's really the retailers
that are in markets and that have brands where maybe they've taken their eye off the ball
on certain things. It's shown up in their earnings like Matt was talking about. And therefore,
that's going to be a tougher sell if they're looking to make an exit. But it's an opportunity,
to Matt's point, for people that want to go in and see an opportunity to turn a store around
and maybe pick up something at an investment level that they wouldn't otherwise have to step up to
for other brands in other markets and still garner a return that's respectable. So there's a lot
going on and I think it's going to continue to evolve and I think we're going to continue to see
that bifurcation. Yeah, I'm here less about blended years of earnings now. I'm used to
hear a lot about that. It's like, well, look, if you take the last three years, I'm like,
yeah, okay, how about if we don't take that, right? Even the last 12 months, right, Matt? I mean,
so I'm seeing and look, in the same thing, this business, the heritage of this business is that
in 1960, General Motors goes to Milwaukee or whatever. Who's the number one Oldsmobile salesman?
It's Bob. Goes has steak dinner with Bob and his wife. And all right, look, we're going to put a
Chevrolet dealership and 20 miles outside of town and we're going to make you the dealer, Bob.
Well, I don't have any money. It's okay. We're going to build it for you and you're going to lease
it from us and we're going to loan you a million dollars. My God, I'll do it. Well, there's a shift
in the generations too right now. So people, one thing as old as time is car dealers keep
car dealerships too long, right? So dudes keep them too long and then they die or get sick or
not quite the same guy that they were in 1960 any longer. And then it's like, it's not how good you
were in 1960. It's how good your kid is right now. And then so that also impacts a lot of these
deals too. And then a lot of people kept the business through COVID intentionally and said,
hey, I'm going to make money. I know I'm not going to get the same amount for it later, but
that was their math. They're like, we're going to keep it. We're going to earn money and then we'll
sell it later for whatever they're selling for. So I'm seeing a lot of that too. So it's more
approachable though than it was. And stores don't sell as easy. Like little country stores and stuff
like that. Man, you used to put a little store out in the country and some 200 unit planning
volume store in the country. You had six dudes behind it. I'd argue that the smaller stores
are almost harder to operate than the bigger stores, right, Matt? I mean, it's just as much
if not more work for less of a return. So that's another challenge and a reality, an economic
reality of this business. That's a reality. The franchise network as it existed in 1960,
those stores were put there for a guy to go to work, sweep the floor, get the bookman keys out,
open the door, flip the sign over, we're open now, selling four trucks today. And that's really not
the reality that people are looking for anymore. Certainly not the consolidators, right? Yeah,
the consolidators. I mean, but I don't even meet dudes like, and I get a lot of people reach out to
me and they're like, hey, I don't know if you ever read these messages, but I sell 200 used cars a
month in Kansas City and I want to do what you did, man. And I got a deal working on a deal in
Squinchahucky, Kansas. It's close to another town that's close to a town that we can draw from.
I'm like, just don't do that deal, dude. How about that? Just don't do it. Why do you advise
I'm not to do the deal? I mean, why are you doing this? Are you doing this because you love it that
much? No, you know, like, you know, why do you want to be me? Well, you think I'm rich, right?
You know what I mean? So it's like, you know, I want to do it to get rich. That's not how you
get rich, right? That's how you own a job. That's probably less than the job he has. So if you love
the car business that much, okay, and you can put an SBA loan together to go buy a car dealership
in Squinchahucky, Kansas, do it. Okay, but if you're doing it to go do X, Y, and Z, that's
that's just not a reality. Yeah. But going back to your question about ice vehicles and the thing,
right? I mean, then that one of your questions was and the manufacturers, I know it's
totally off where we were, but I do think by manufacturer, each manufacturer has addressed
it differently. So take Mercedes as an example. I feel like they've gotten ahead of it a little
bit. They went way too far electric, then they dialed it way back, you know, and I think they
addressed it generally. Now they have some more new, obviously, electrics coming. So we'll see
how that goes. But it's kind of like I used to be in the recycling business before I was in the
automobile business. And people think that if you put an orange bucket out in front of your driveway
that you're doing the right thing for the world and you're recycling and that's a good thing.
Well, actually, that's not good because you're flooding the market with recyclables.
A better impact on the environment would be to purchase
something that's made from recycled materials because you're creating a market. So obviously,
we did everything backwards by flooding the market with electric vehicles and then hoping
people would buy. Now, thank God they've dialed it back. Other manufacturers definitely have not
dialed it back fast enough the way Mercedes has. EV production. EV production and they hopefully
are going to adjust to the consumer. And I think a lot of the topics we're going to talk about today
are consumer related. I'm concerned about the consumer, really. Amen. A lot of these things.
And so this forcing of things, whether you force someone to recycle in an orange bin,
it's way different than purchasing something made from recycled products. I don't know if I'm
making that. So before we keep going, something's been on my mind since before we even hit record
today. The four of us grabbed lunch together earlier and I'm sitting there listening to Andy,
Todd and Matt just go at it. Buy, sell strategy, what markets are breaking, how they're thinking
about OEM relationships going into the back half of the year. Nobody's posturing, nobody's selling
anything. It's just three serious operators who trust each other thinking out loud. And I remember
thinking this is the thing that most dealers just don't have. Not the information, the people,
a real peer group you can be completely honest with. That's what we built CDG circles to be.
Confidential text based peer groups curated by level and store type. So you always have someone
to call or text when a decision actually matters. No one trying to sell you anything, no travel,
no stage, and everything stays between operators. CDG circles complies with all antitrust and
competition laws. So you never have to worry about what's on or off the table. Just operators helping
each other out. So if you want to learn more, go to cdgcircles.com. That's cdgcircles.com or
click the link in the show notes below. All right, let's get back into the conversation.
Well, you're heavy on luxury and we've talked about the case shaped recovery in the country.
I know how incomes have diverged. And let's go into the next topic, which is about
affordability. Andy, you raised this one specifically. But just affordability has
become a defining issue and the problem is one of the big problems here is negative equity.
By the data, let's run through that. So today, nearly 30% of trade ins toward new vehicles
were underwater in Q4. That's publicly available data. And that's the highest share since 2021.
So it doesn't look pretty there. The average amount owed hit an all time high of $7,200.
The other issue that's in the market is, this is from Edmonds, by the way. The other issue is the
$10,000 problem, we call it, where over 27% of upside down trade ins carried $10,000 or more
in negative equity. And that's a record, all time record. Now, you should expect that to rise
with inflation, but also, you know, that's nonetheless, that's a new record. And nearly
one in 10 owed more than $15,000. So it's not trending well there. That's from Edmonds as well.
And lastly, 84 month loans. So are you guys, do you guys, are you guys doing many 84 month loans
right now? We do them not a lot, but we are not. Yeah. Well, over 40% of new vehicle purchases
involving negative equity are now financed with 84 month loans. Somebody's doing them.
Yeah. So rolling that forward, right, that obviously lowers the monthly payments, but guarantees
the buyer is under water again on direct trade. Andy, so you flag this, just like said the table
for us, where do you think we're out on the affordability cliff? Well, we have a problem.
And we have a problem that's the result of several years of circumstances that have sort of compounded
to bring us to the situation we're in right now. So we had a COVID market where we had
manufacturers shut down production. That limited the supply of vehicles, drove up transaction
prices. You know, it's a pretty standard fundamental supply and demand market situation, right?
But then in addition to that, we saw leasing drop off a cliff back during COVID because
the manufacturers didn't really need to support leasing because they were selling all their
production to us and we were in turn, you know, selling that production to the retail customer.
There was scarcity. It just wasn't needed. So we don't have that pool of buyers
that are coming back into the market every year at the rate that they were leading up to COVID.
You then saw transaction prices go up because of inflationary pressures, whether that had to do
with suppliers or just simply manufacturers complying with regulations, a variety of different
reasons. So when the transaction prices went up, that's when we started to get into 84-month loans,
things along those lines. So that's why I said we have a variety of factors here
that have compounded into the situation we find ourselves in today.
So where do we go from here? I think we're already starting to see, at least I am,
with brands we are, we're starting to see our manufacturers have serious conversations about
line sets, trim levels, however you want to characterize it. Different brands have different
ways of characterizing it. Basically what that means is the models that they build, the trim
levels or the line sets, meaning the equipment that goes into these vehicles, how can they alter
that to bring the transaction prices down, the price points down, so that they're hopefully
building a vehicle that not only performs the way people want it to perform from a size standpoint
and all that other type of stuff, but also from a technology standpoint, what's included in the
vehicle, they have to look at that stuff. They have to make sure that they're building the right
cars at the right time, at the right price, and they're set up to effectively compete in the
market for the consumers where and when they want to transact. So that's the beginning
stage of what we really need to be doing right now. The problem is, in my opinion,
it's not happening fast enough. We continue to see average transaction price creep up
instead of creep down. I mean, we've had a couple instances. I think Cox had cited some data
where there were a few months where average transaction prices fell like, well, like 40 bucks.
It was de minimis, right? It was, yeah, it was nothing. So we need to see some
meaningful shifts in transaction prices, I think, in order to hopefully engineer some sort
of a soft landing here so that new cars become more palatable to consumers because the used car
market because of the COVID shortages, we're still reeling, I think, from supply shortages in
the used car market because buyers are seeking alternatives that they can afford in the used
car market and they're just not there in the numbers that they need to be. So you would think
that would make new cars more attractive, but it's not because those transaction prices are
staying stubbornly high. So it's a real conundrum. We've got to work together with our OEM partners
to solve this problem. We'll explain this to me though. If the OEMs view this as such a big issue,
why is it that you feel like there's not enough attention, they're not putting enough attention
towards it? Because we've been talking about prices rising for four or five years,
it's been the case. We came down a little bit, came back up. If it's such a big deal and there
aren't alternative ways around it, more creative financing, why aren't the OEMs doing more about
it? I mean, this could be existential for their businesses. Yeah. Well, I mean, I'd love to hear
with these guys think I'm personally, the reason I think we haven't gotten there yet is because
dealers are still taking the allocation. The average day supply that is on dealer lots right now
is elevated. We're incurring higher and higher floor plan expenses at some point as margins
continue to compress like Todd was talking about earlier, excuse me, with margins compressing
and the net margin ultimately compressing because of grosses going down, expenses staying at or
above the levels where they've been, dealers are going to have to start making decisions. When
dealers start making decisions about the vehicles that they stock and the cost that they incur to
stock those vehicles, that's going to impact production schedules and the vehicles that
manufacturers build. They're going to have to respond. I mean, I don't know what you guys think.
No, no, I agree with you. I agree with you. I would say that again, focusing on listening to the
consumer, this is a product related thing, like this digitalization of these vehicles, these
screens, all this equipment that I got to tell you, many consumers don't even care about.
They care about certain safety features. They want things to work, but customers still want
toggles and buttons and switches and knobs. We've spent all this money on screens because,
to be honest, the Chinese market led that, especially for most of the German manufacturers,
and they thought that's what China wanted, and so they thought that would be the right product
for the rest of the world. Maybe it is, maybe it isn't, but if it's way more money and the consumer
says, I don't want to pay for that, then I think that's something that's an issue. Now, can you
deal with it? The other issue is, and I want to hear from Matt, but the other issue I would say,
even at the highest levels, remember COVID was whatever, six years ago now,
five and a half, six years ago, the consumer was especially at the highest level, the highest
luxury and performance cars. They're like, what do you mean I have to lose money on this car
when I traded? They literally don't understand that cars typically don't make money as something,
and I'm not even kidding, especially the younger people in the marketplace,
which we can talk about later, but the consumer is confused a little bit because COVID confused
everybody, so a readjustment of values and all that stuff isn't necessarily bad, and yes, you're
the underwater nature of the cars in the system, that correction may need to just happen to wake
up the marketplace and then readjust. It might be taking some pain in the short run in order to
get things back, but I would love to hear Matt about that. This isn't the only industry, the
watch industry, the plane industry, all these things, but I think it's a thing that we haven't
during COVID, what you heard was, what I heard was consumers want what? Content. I want content.
I could tell you this safely. In the stores I have, they ain't one person that walks in the
door and said, all right, I need content, like a load of content in this vehicle right here.
Ain't nobody said that, okay? People said, hey, I need to buy my son a car for graduation. I don't
want a new car. I don't want a new car. I want to buy a pre-owned car for him, okay, right? You
acknowledge them. They want safety. Yeah, yeah. I mean, but like it's like as an affordability
thing, getting back to that. In my life, the safe harbor for affordability in the American car
market has been the American car manufacturers. I was a sales manager to Ford dealership. We
leased ranges for $150 a month. We've approved everybody, okay, at 10% tier four special rate
Ford credit at $300 a month. That's all gone. During COVID, it's funny that the American car
manufacturers got rid of their most affordable vehicles across the board to add higher end
vehicles that they made money on, okay? And so now you're learning that this is just an unwinding
of what that was. Like when that happened, I was like, so it's the great rebalancing,
it's the great recalibration that needs to occur here. I don't think there's anything
they can do about it. It's just like, okay, why doesn't it out of your Porsche or whoever?
Stop making all the electric cars, they just make gas cars tomorrow. That's what people want.
It's just not that simple, right? You know what I mean? Like it's not that simple. Like once you
start to train in motion, it's got to get almost slow the train down, you know, and then going
backwards and then redo it all, you know what I mean? So I think there's a journey to get there
and I think there's going to be some pain for that. I think there's a win-win here for
dealers, for OEMs, and for consumers. And that is if we can work with our OEM partners to help
advise them on the products that they need to build, contented or packaged the way people
want them packaged at the right price points. I think there's reluctance on their part because
they got to, they went down the path of building these vehicles that were very profitable for them
upfront when they wholesale them to us, but they're having to give more of that back now
in the form of incentives, right? So the opportunity here for the win-win is really
if we can build the right cars in the right quantities and the retail channel can turn
that product at the rate of velocity that is ideal, incentive costs will come down,
naturally profitability should go up, and the consumer will have a vehicle priced at a point
that they're saying they want to transact, right? But it's going to take courage on the part of
OEMs working with their dealer partners to identify what the vehicles are that we need to build,
how they need to be packaged and where they need to be priced so that we can meet that consumer
where they want to be met from a pricing standpoint. So I think the brands that can do that are
going to have a leg up and they're going to ultimately win in the near term.
I think the simple answer is there needs to be balance, right? It's extreme this way or extreme
this way, you know what I mean? And so this is industry that's not super famous for having a
ton of balance and not really. Balance with what? Balance of products, balance of everything, balance
of OEM to dealer relationship. We'll touch on all of this thing, but this is a thing that's a thematic
thing to me. You just don't stop making the least, the most affordable cars and make the
ones with the most content, you make the most money because it leads to some moment like this
and then now you have to unwind it. So you should make a little something for everybody,
okay, in the case of stuff like this happening. Because I know this, whatever's happened in the
past will probably happen again, no matter what they say when it's happening during COVID. It was
like, that's it, no more car dealership. But in the last five years though, Matt, I mean, I've been
involved with dealer councils and things like that with my OEM brands. And you know, the last
five years, there's been very little discussion about like dealer product forums and there hasn't
been a lot of dialogue around like, what do we need to build? How do we need to build it? Because
basically they were building what they build and they sold it, right? It wasn't an issue.
It wasn't an issue to your point. So which creates a lot of exposure. Correct. So what do you think
about this? As you're talking, I'm thinking one of the conversations I had with another dealer
the other day was I asked them about Chinese vehicles. If you go back 35, 40 years ago,
you had the entrance of, you know, the Koreans, the Japanese, they brought all this new competition
of the market, dealers benefited and kept OEMs on their toes. Today, the biggest difference,
you are at massive risk of upsetting the apple car. Because you mentioned blue sky valuations,
I mean, dealerships, they're saying your, you know, your grandfather's dealership, this isn't
3 million, 2 million, 50, 60, 70, 100 million. So you have a lot of money at stake here.
Right. And if you do bring out these external forces, which could be beneficial for dealers
and consumers long term, you're putting a lot of blue sky at risk potentially. What do you think
about that? Are you talking about in the context of the Chinese entering the market?
It is, I'm sort of shifting to that, but I'm talking about in the context of
getting to this equilibrium of competition that you're talking about. And it feels like we're
not getting there. It feels like, you know, it's been a, it's been a very slow process.
So if you kind of take in the aggregate, what everybody said, including you, I think what's
missing in the marketplace is a decontented, not an increased contented, if that's even a word,
vehicle, like go ahead and put the safety items in there, put in the ABS brakes and the GPS or
like sometimes that's all anybody needs. It's kind of like when we sat on the Porsche dealer council,
they were like, we want to get rid of the manual. And I was yelling and screaming, no, we can't get
rid. They're like, well, we only sell 10%. I'm like, that's because you only make 10%. If you made
more, you could charge more for manuals. People are, are so over screened and over digitized,
if that's a word. So then the marketplace is saying, offer them something that they don't have.
But again, to answer your question, I think, remember, this is 2026. So that would be
44, was it 44 years ago, Honda 1982 came to the United States and Ohio. That's 44 years.
Not just that they came to America, that they built a plant. So obviously,
I think we should continue to encourage construction, manufacturing of vehicles in the U.S.
If the economic incentive was so strong, how is it that not one OEM has done it already?
What's the catch? Or is it, should I, should I decontent the vehicles or should I just provide
leasing that, you know, sub-vents? Well, I think some of the content, contenting is
unnecessarily government required. Correct. Like the on and off switch at the,
at the stop lights, the dumbest thing ever, no, deregulation. Yeah. I mean, because that actually
bad for the engine long term to turn it off and on, off and on, off and on. I mean,
and so hopefully, but anyway, could be some of those things. It's a mixture, but I would encourage
the manufacturers to offer a decontented vehicle and see what happens. The younger consumer,
I think, is looking for that. They have a hard time building them and making money.
I mean, that's it. Economic incentive. That's the bottom line. I mean, so these are,
you know, these are UAW, you know, like a lot of them. And so if a car manufacturer,
any car manufacturer comes into United States of America tomorrow, I mean,
do you think he's going to build a car manufacturer facility in Illinois and sign up with the UAW?
Do you? No. Yeah. Yeah. No. Of course not. Well, I think, look at what they're doing.
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