The Truth About the Auto Market Right Now

Zach Fritz: Welcome back to the automotive informants. My name is Zach and I'm joined by my buddy here, Chris Martinez. And on this podcast, we discuss automotive news, what's new in the industry. And we give you our slightly unbiased, a little biased admittedly, an unfiltered opinion on exactly what's going on and break everything down in a manner that you can understand and apply today in your dealership setting.

Chris, I was kind of thinking over the last weekend, what about this negative equity situation that we're seeing? We're seeing on average. Yeah.

Chris J. Martinez: Negative equity. And I think that's only half of this is negative equity based on the transactions, right? It's not talking about the negative equity that the dealers just can't roll.

I think there was one deal, this had to have been eight months ago when I was still at the store and it was like a Maserati or some high-end car. and the guy was upside down like $95,000 or something crazy like that.

you know, it's... That negative equity is real. ⁓ I do think we're seeing parts of... ⁓ some of what happened during COVID, you know, because there was such a small supply that prices just went up.

I mean, it's supply and demand. It's not that, then some dealers may have been, you know, trying to ⁓ take advantage of certain things, but for the most part, they weren't, you know, it was just one of those things that, ⁓ you know, you either, sell it and make some money or that may be the only car you get all month.

You know what saying? So like, I can see why that happened and me living in it where you saw cars going through auction that were just crazy, you know, 5-10 grand over MSRP. So why would you sell a new car?

for less than what you buy a used car. It's just basic economic supply and demand. So if you have less, you know, you have less cars available, then the price does go up, unfortunately. So it's not, yes, there was some dealers that maybe were, you know, but at the end of the day, there was still a buyer on the other side ready to buy.

And I can tell you personally, like a Porsche, when I was at Porsche auction, Guess how many times I had to keep my hand up where we would buy that car we would I mean and we were paying you know 10 20 grand over stick or two so it's not like we were

Zach Fritz: I do not want to talk about Porsche prices right now. I remember the days where a just a 911 was achievable. Now? ⁓ hell no. Not with all the Instagrams and TikToks and everybody wanting a GT2 or GT3 and if it's not that it's not cool I just... three four hundred thousand dollars for those cars. I... how do you just...

Chris J. Martinez: It's crazy. It's crazy. But you know, it's that's just the world we're in, right? Like I remember they said, I don't know, somebody had an article just recently where the average price of a car 20 years ago, 15 years ago was like 20 grand or something.

And then now it's, you know, forty eight thousand dollars, almost 50 grand. So. Yeah, it's crazy. But the actual article you reference, it says. Negative equity is quietly becoming one of the biggest friction points in auto retail.

According to Edmonds, the average negative equity rolled into a new vehicle loan hit $7,200 in Q4. the highest on record, nearly 29 % of new vehicle buyers with the trade in owed more than their vehicle was worth.

And 7,200 is kind of light from people that I've talked to in the industry that, you know, they're seeing 10, 20 grand negative equity pretty consistently. And those are the people that aren't trading in the cars.

They're just kind of hanging onto them or they're handing back the keys and saying, hey, I don't want to pay this anymore. So it's, it's unreal.

Zach Fritz: this isn't happen on this scale that's what I I just don't understand how do you get to a point where what is the driving factor behind saying hey I still owe money on this car or I'm $7,200 upside down on average and saying I need to go to a dealership right now and get something else is it a reliability issue is it I mean what What is the driving factor? don't get it.

Chris J. Martinez: Well, a lot of people, I mean, they say when you're in a recession, your friends or people you know get fired. When you're in a depression, you get fired, right? Like, so you don't know, there's been a lot of job cuts.

I mean, let's look at it. Let's be real. There's been a lot of job cuts. There's going to be more job cuts. you know, with what's happening in the AI world, you know, how many jobs are being eliminated every day.

⁓ Like, it's just, it's real life, things happen, and unfortunately that's... that's part of the game, right? The game of life that we all live in. I try to be, the one thing that I feel like customers should be aware of that if they're in that position, at least try to sell it to the dealership first before they have to hand their keys back.

You know what saying? Because they may be able to buy it and you don't have to be, have a repo or a voluntary repo. You know what saying? Like you could literally just say, hey, try to buy it. In a lot of those instances, they've got 7,000 negative equity or they've got some negative equity and they're too far away to try to get there.

Zach Fritz: sure. But I guess for me is it a, I mean seeing it in the dealership setting you're probably way more familiar with it than I am. What's driving influence to go get a new car or to take on another loan versus take your existing loan, refi it, get your payment lower so you can still afford it versus you're just rolling $7,200 into a new note.

that you're going to stretch out over up to what 84 or 96 months, I just, that's where I'm, I can't connect the dots or what the thought process is on it.

Chris J. Martinez: Well, I'll tell you, customers just, they get to a point where they just want to do what they do, right? Like they want to look flashy or they just don't like their car or it breaks down.

There's so many different reasons why they get out of it. A lot of the cases is because the car is either no more, no longer reliable. something about it that they just don't want anymore and they get into those positions.

I've had customers that working at Mercedes that's just been their goal and their dream car and they finally do it and then they have some job changes and things happen and they've got to give the car back or they've got to try to trade it in and try to lower their payments because they no longer can afford the thousand dollar payments.

⁓ So that happens a lot. Like it's it happens more than you think for sure. But it's you know, people get into that mindset where you only live once. And I'd rather just be in that one car that I really like.

And then once they get it, they get it and they're just like, well, it wasn't really what I thought. I didn't really get that fulfillment that I felt like I was going to get by getting this car. You know what saying?

Zach Fritz: Yeah, I think maybe they, know, I personally, I know people who they will swap out of a car every year to two years. And I know that they roll massive amounts of negative and they will purposely save up to try to chunk that negative down as they roll it.

And it comes from a boredom perspective, which for me, I, why would you do that to yourself? I mean, I just, don't understand, but you know, I guess some people enjoy suffering. But then I think there's also a lot of stigma for people who just, again, get bored of a car, but more because of it, they look at it as a social aspect, right?

If it's not a BMW or Mercedes or something new or something, you know, that's hot. And I think there's this defining line though, where people need to understand that sometimes it's more about having a car to drive.

for position that you're in in life versus buying some enthusiast fancy thing that's going to be a status symbol for you but bury you financially. I mean, one's a better path in my opinion. And I think social media has probably been the biggest degradation point when it comes to automotive ownership.

It's the same thing with housing now. People get over leveraged in a house they cannot afford. Yeah.

Chris J. Martinez: they become house poor, right? Like they just get in this too big of a house and they get in this. Yeah. Now I get it and taxes and this and that. Yeah, no, it's a, it, turns into a real thing. But, ⁓ you know, we were talking a little bit about AI. We talked about, you know, how, what that's going to do for jobs and things like that. And like, that's kind of segue into that next story we kind of looked at. Yep.

Chris J. Martinez: So automotive, know, most companies are testing AI, but Cox Automotive just said they moved a hundred deployment development teams into a Gentic AI model. that's, it's their, their chief product officer, Marianne Johnson, she's shifting how software gets built across all the brands like AutoTrader, Kelley Blue Book, Mannheim.

And their goal is speed to value basically. And you know, I can anticipate that if they're going that direction, and what kind of consolidation that could do with development teams and things like that.

Because anymore now, to develop a lot of these things, you prompt it and it creates the code or whatever you need to get done. So it's pretty amazing.

Zach Fritz: I mean, I think it's going to be a very similar situation to what we saw with CarMax recently. same thing with Cox once they get everything up and running but I do think they're positioning themselves in the direction that the industry is going with everything being central to AI and all the backbone being run off it I it's gonna be more efficient more user-friendly and you and I both seen in different businesses where AI can help identify gaps in the business that humans really aren't paying attention to and it's just so much faster

Chris J. Martinez: 100%, like so much faster. when you think about, know, for the longest time when Cox, they acquired all of those brands, right? V-Auto, Auto Trader, Kelly Blue Book, Mannheim, all of those brands, Dealer Track.

⁓ They kept, there was the promise that there was going to be something where they could all kind of work together and they've done some things. Don't get me wrong, they've done a pretty decent job in some areas.

⁓ with AI, that opens up a whole new rule book, new playbook that they can actually do some even more detailed things that, you know, their data scientists may have taken months to do. ⁓ Now they can get it done relatively quickly.

So I'm looking forward to seeing what those kind of new things happen because anytime you can create systems and move things around quickly, it just opens the door for many other opportunities. So looking forward to that.

Zach Fritz: It's interesting to me because I think before we started streaming today we were kind of talking a little bit about like work ethic across the industry and it's funny with AI because AI does not care whether or not it's having a bad day or a good day or you know whether it's getting a pay raise it just shows up and it works and when that comes to jobs I mean something I was talking about was new technicians coming into the industry and not not really having the same backbone that we saw 10 or even 20 years ago where it's like, hey, we can struggle through this.

And if I'm not getting paid enough on flat rate, I'm just gonna not suck as bad and work harder so I can make money. Instead, we just see people quit and complain about the industry. Same thing with sales and every other role in the dealership, quite frankly.

Versus AI taking those jobs. Yeah, it's not going to care as long as it's got good information and good data. It's just going to keep working.

Chris J. Martinez: Yeah, you know, ⁓ I did write that post ⁓ the other day on LinkedIn and it's ⁓ built in the grind. I said, and I really, it was a really big call out. Like a real pro doesn't just show up, that's a few deals as a general manager, even as a sales manager.

⁓ hope the team figures out a real pro coaches pushes correct demands more and most importantly is willing to do the work alongside them. And I think what happens is a lot of these leaders ⁓ they come in they think because they desk a deal and they're loading the salesman's lips like that's the extent of the training that needs to happen.

Reality is those one on ones those you know meetings that you have with your team and all of the little things that daily huddles, know, like we still have huddles like every other hour to see where we're at game plan and when you can perform at those high levels and you start building real car people like The managers that say that, there's no more real car people are the ones that are not training and coaching their team every day.

You know what Like, at some point they've got to look at themselves in the mirror and say, look, you know, I can... ⁓

Chris J. Martinez: create a really cool team as much as I'm willing to give to it. So if you're not willing to put in the effort, then you really can't sit there and say that you have a crappy team. I had a sales manager one time tell me, said, Chris, there's no such thing as a crappy manager or a crappy salesperson, just a crappy manager.

Of course, he used some profanity, but. ⁓ And you know, that like stuck with me because I think on the one hand I was thinking, well, no, I've seen some pretty bad salespeople. I've seen some pretty bad, you know, talent that the people that didn't have any talent, I get it.

But if you, you know, don't look at it as the devil's advocate and kind of understand where he's coming from, I can see that. if you've got managers that aren't coaching, training, teaching your team, pushing them to be uncomfortable, not just taking the easy route, because anyone can discount a car.

two grand and make a deal right but you need to be the real pro to be able to articulate hold the line and and move that deal forward regardless of you know people wanting to do that and sometimes it means getting up off your chair and going in on a TO or just pushing your salesperson to do a little bit of try a little harder you know

Zach Fritz: I mean, I think that comes down to just sales in general. It's funny to me, the people that I watch that go into sales, just... I think there's a massive disconnect between expectation versus reality.

Everything that I've always found in sales is it's actually speaking a lot less, and it's more so just about understanding the person and the product you're selling versus trying to offer incentives. I if you can do a good job educating, I mean, that closes most sales.

Chris J. Martinez: Maybe the same thing too in the back end, right? The tech. Sometimes there's a tech that looks at a job and they're like, ⁓ give it to that guy. Instead of, let's look at the opportunity for what it is, an opportunity, and let's find out what's wrong with this.

You know what saying? Because it's amazing where I get a car, this technician will say, hey, 60,000 miles on it, there's nothing wrong. Just needs an oil change. Then I buy that car. And then it goes to the used car team and the used car found used car team found like $5,000 worth of work to it.

Zach Fritz: Oh, they always do. Oh yeah, yeah, there's a difference. There's a difference there. Now the difference being when that car comes in for, you know, 60,000 miles on it and the customer, if that advisor comes back and says, oh yeah, they're just here for the oil change or whatever, simple, right?

You're not gonna upsell it because you might have another stack of work. But I mean, if it's coming out of the dealership's budget, oh, we're gonna hit it for everything, buddy. I mean, it's brakes, it's four tires, it's everything.

Chris J. Martinez: And you know, I used to joke with my team. I'd say, look guys, this is what we're going to do. Every used car I buy, I'm just going to run them through the advisors and you know, we'll be good because all the cars are clean.

know, they never need another, you know, outside of an old change, they're ready to go. So, you know, it's all jokes, but you know, the seriousness around it is those opportunities are there and they just need to, you know, be shown that information or, you know, educated to help.

Zach Fritz: same thing from the repair perspective too. You know, as a technician myself working with advisors, I never really had that much of a shortage of work and very few customers denied work because a lot of what I focused on was whenever I storied out a job saying you know vehicle needs this because of this, I made it a priority to speak to the advisor and say hey here's how you should explain that to them and what it could cause or what could be the issue.

and let them make a decision because the more they're educated, the easier it is to get them to say, hey, you know, that makes sense. That's reasonable. You know, I understand.

Chris J. Martinez: So how would you grade yourself A through A or F ⁓ on transparency when you were doing that?

Zach Fritz: It depends. Is Car-Edge doing the great ink?

Chris J. Martinez: Well, hey, it's funny you brought that up. I did talk about another post, which from a high level, I understand it. looks good. The information, CarEdge, Zach Shefoska, I think is how he pronounced his last name.

⁓ They're building something cool over there, kind of similar to True Car or all these other. Listings not it's not really listing sites more of like a broker It almost feels like a brokerage site right like we're gonna teach you how to negotiate your price Let me give you you know what we rated this dealer So it's interesting how they kind of graded their their dealers So the post or the he posted this just I want to say yesterday or day before and he said that they graded 9,300 car dealers a through F based on how transparent they are not Google reviews not Yelp stars not vibes thirty six thousand five hundred verified out-the-door price quotes and Here's what the data says and so what they said was was he said, let me just click this here, said, so 52 % of the dealers, so they verified 36,588 quotes across 9,300 dealerships, right?

And 48 % of them didn't have an add-on. So it's weird is the grade distribution. So of all of the dealers, 45 % actually graded an A. that, you know, to me, I looked at it and said, okay, so what you're saying is if they didn't have an ad on that's being transparent.

realistically for me, doesn't sound, transparency is no, if they come in and whatever the price is on the website, they come in the same price that they're being presented when they come in. And to me, that's what I felt.

He sent a follow-up message and saying, this is what their actual grading criteria was. But before we roll into that, what do you think about that specific statement he said from the beginning?

Zach Fritz: not a fan. I'm not a fan of the whole concept. So I think I'm a little biased. But go ahead and break down his grading. I want to understand more how they got to those scores.

Chris J. Martinez: So this is what they do. You find a car, browse inventory on CarEdge, bring your own deal from any listing. And then our AI agents contact the dealers. CarEdge AI reaches out to the dealers on your behalf and requests a real itemized out the door quote.

they analyze the dock fee add-ons gap, and then every dealer gets graded. Transparency scores are published, and then they buy with confidence, right? And what they do is they verify the quotes, they have a consistent methodology, and their scoring components are...

you know, is their dock fee under $500 or is it over $500 or is it over $1,500? So that they score it based on how much you price your dock fee. So that's one, that's 30 % of the weight. And then the add-on behavior, that's 30 % of the weight.

So if you don't have any ads, you can get 60 points. If you have low ads, it's 40 points. If you have high mandatory add-ons, like five grand and above, you don't get any points. And so then dealer markup, if they've got a dealer markup.

and it's greater than or under 3 % then you get a full good score. If it's under or if it's over 3 % then you actually can get a bad score or lower score and then if it's over 15 % you get zero score.

And then the data quality based on percentage of quotes with complete information, complete out the door listing based on how you get the, how they receive the quote, then you can actually get a better score.

So A, you get a score of 90 to a hundred, B, 80 to 89 and F, all the way to F is zero to 59. So I don't know. So they have a lot of the weight on a doc fee and on how your ads are. So if you don't have any ads, you can outscore better.

essentially that's how I read it. 48 % of the dealers didn't have add-ons and 45 % of the dealers scored an A. So there was some correlation there. knew it. And so that confirmed it.

Zach Fritz: Alright, well, so a couple issues I have. One, is the entire deal worked through Car Edge? from the per to the person getting the keys, signing the loan and driving away with the

Chris J. Martinez: It looks like all they do is they try to negotiate the price for you and then I don't know maybe the customer has to pay them a fee for negotiating the price. don't don't really know how to

Zach Fritz: ⁓ so that's pretty simple then. And they're going to complain and grade transparency off of dock fees. But then they chart the broker fee to use AI. ⁓ that makes...

Chris J. Martinez: Doc fee and. Yeah, don't know if they charge a broker fee, but it sounds like, here it is. You gotta sign up $49 a month.

Chris J. Martinez: to use their platform as a consumer.

Chris J. Martinez: So, but you know, they had 36,000 people come in and verify their quotes. So that's, they definitely got a market for it, but I guess that they're calling it a subscription fee. I call it a brokerage fee, but I guess the way they word it, they can get around it. Cause my understanding, like in certain States, you couldn't have a brokerage, a car brokerage. You know what I'm saying? So.

Zach Fritz: It's a brokerage, but okay. I think the big thing for me is that's a pretty easy defeat on the dealer side because dealerships to just boost their scores just submit a low dock fee and just do all the things that they grate on and make sure whatever the AI is reaching out to get the quote on reflects good so they score good. So don't feel like scores are gonna be consistent or easy to stay consistent with unless they have a physical person.

Chris J. Martinez: But here's the problem that I have with the metrics. So they're transparency guidelines. So if I'm a dealer and I tell the customer, you got, this is your doc fee. This is your ads.

This is the car out the door. I'm being fully transparent. But because they rate, if I have my doc fees over 500 bucks or my doc fee or my add-ons, like if I've got a lift kit, right? I've got a truck that's got a $5,000 lift kit.

Like that's considered not being transparent in their eyes. And to me, I don't view it that way. I view it like if you're disclosing everything on the website, there's no...

Chris J. Martinez: hidden, there's no smoke and mirrors, like this is it is what it is, this is where when you come in that's what you're gonna pay out the door, there shouldn't be any, I mean that's being transparent.

Maybe if they called it something else like I don't know, I don't know that the word is probably the correct word to call it. But I mean, they've done a good job, I guess, fear mongering with some of the clients and kind of continuing to push down everybody's throat that all dealers are bad.

And when I look at it, I'd say like 90 % of the dealers are good. And there's going to be bad apples in any industry. And that's just part of the game of life. ⁓ there's always gonna be some bad actors and we see the wars that are going on and not to get down the political path, but there's just not, there's just, look at the world in itself and us included, what are we doing?

There's things out there that you just can't. It needs to be a different word at the end of the day. think it needs to be not say this is the transparency score, but this is the courage score. This is how they grade it based on people.

Because then it turns into true car where it's a race to the bottom. They're telling their dealers, hey, you can't make any money. And only the dealers that don't make any money will get the lead or get the job.

Zach Fritz: It is. It's Amazon. It's what Amazon does with sellers. Where Amazon, your FBA and FBM, your Amazon sellers in general, the more that you can fall in line and conform, the higher you're gonna rank as far as search, right?

Like there might be 50 sellers for one item. But there are certain ones that get prioritized because they make Amazon the most money or they play by the rules. And I think the other thing is going back to your transparency score.

I mean, maybe they would also score better if they were transparent and just said, we're a brokerage. We're a middleman that doesn't need to exist and we're just going to fear monger deals. I just, I don't, I don't get it.

I'm not a fan of it. I think it shouldn't exist. I mean, this is. This is going to just tie up salespeople even more. It is.

Chris J. Martinez: that. It can, like for sure. I think about it and I'm just like, well, you know, it's an interesting model to say the least. They've got an AI tool that's going to negotiate the price and I get it. mean, you know, the consumer, I think they should try to get the best price that they feel is the best. Because here's the thing.

Chris J. Martinez: There's some deal, some customers are going to beat you out of everything, make help, you make no money. And they think because you didn't make any money and you just kind of facilitated the transaction that that should be enough.

And, you know, at the end of the day, dealers are there to make money and, know, they've got families to feed. There's, there's things that need to happen for them to, to facilitate transactions and nothing's free, you know, and that's, that's why I like it.

Zach Fritz: Yeah. Well, it's the fear-mongering too, you know, I, with my YouTube channel, I see a lot of other people out there who will do automotive brokering or try to negotiate deals for people across different dealers and their headlines are always, dealership caught in a lie. ⁓ I need to go into the dealership. Duh. I just, it's, it's so silly. It's the same concept as people who

Zach Fritz: blast out lowball offers on Zillow on houses. It's the same concept. You're going to get tons of time wasters and now at this point, especially with CarEdge and these AI agents reaching out to dealerships to negotiate prices, at what point does a salesman even bother to send a quote back? If that customer is not right there in front of you, why are you going to respond to AI emails or agents? mean, it's like spam.

Chris J. Martinez: That does happen, unfortunately. ⁓ But, you know, it's definitely going to be a different time for sure. Like you're going to see things change. They're going to be different. ⁓ But I think it's going to be a good thing. I think the future is still going to be bright. I think that no matter what, the best operators are going to always figure out a way and the ones that end up going by the wayside or the ones that don't know how to perform in this type of environment.

Zach Fritz: 100%. 100%. I mean, I think some of the big things are we've got to stop the fear mongering across the industry, right? We've got to train stronger salespeople for sure. And we've got to help people make better, more informed decisions when it comes to their financial choices on vehicles, right?

Chris J. Martinez: You know, it's funny you say that. I'll tell you a story. I had a customer when I was back on the sales floor and this customer, so you have to think when I was at CarMax, they almost taught you.

like you got to get people within their budget, right? So I was always like, hey, look, let's do it, you know, Ben Franklin on them. Let's look at your expenses. Let's look at the budget and let's see, you know, where you're at from your payment income or what your debt to income ratio looks like.

And let's make sure that you make a sound decision and this is the right vehicle for you. And talking from a consultant standpoint. And there would be customers that based on their income, based on their debt load, I would be like, ma'am or sir, I don't think you should be buying this car based on what you just told me.

You can't afford it. Like I personally wouldn't do it. But, you know, if you want to go, let's do it. And of course. Back then, it's all super green. The customers would leave, and then like a week later, they'd call me and say, Kary, I know what you're saying is the right thing, but I ended up buying the car.

And so all it took was one customer to tell me that one time. And then I just said, I'm not going to lose any more deals. What am I thinking? Why am I doing it? then, yes, I would still guide them. But then at the end of the day, I'd still just offer it them.

Hey, this is where you're at. If you want to move forward, please leave your signature here. And before you know it, I start selling way more cars and it works. So you can tell a lot of people not to do something, but sometimes, like your message last week, sometimes the only way to learn is through the storm.

Zach Fritz: It's being the buffalo, right? I think a better analogy for this is some people are just salmon and they're just gonna swim upstream.

Chris J. Martinez: 100%. 100%. But OK, so that's I think that kind of tied it up pretty nicely. You got any final thoughts?

Zach Fritz: still reeling over this dealership transparency scores. It's just silly. I would love more explanation on it. That's really what I think I would

Chris J. Martinez: Well, if you don't have a five, if you have over a $500 doc fee, you're not being transparent, sir. Or if you don't have, if you don't have, what was the other one? If you have add-ons, you're not being transparent. So that's, that's the story.

Zach Fritz: I feel like if you have a $49 a month subscription to Shop For Cars.

Chris J. Martinez: Well, it's a brokerage fee from the way I look at it, but they got to say subscription, I guess, for legalities, because not all places you can have them, it's illegal to have a brokerage in auto, which it's kind of, I guess the blue claws and stuff, but that's what we got.

That was our show for today. Keep tuning in, subscribe. If you like what you hear, we'll bring it to you every week. Zach, as always, it's been a lot of fun. I love having these conversations of ⁓ real ⁓ examples of what happens in the dealership and how we can actually apply what we're listening to out there and give some real feedback to our listeners.

So thank you guys. I appreciate your time, Zach. As always, look forward to it next week.

The Truth About the Auto Market Right Now

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