OTD means 'Out-the-door' price, which is the total amount you pay for a car, including everything like taxes and fees. It helps you know exactly how much money you'll need to spend to buy the car.
A transparency index measures how clear and honest car dealerships are about their prices and fees. It helps buyers find dealerships that are upfront about what they charge.
Used car wholesale prices are the prices that car dealerships pay for used cars before selling them to customers. These prices can change based on how many cars are available and how many people want to buy them.
Margins are how much money a car company makes after covering its costs. Protecting margins means they want to keep their profits high and not lower prices too much.
Auto industry inefficiency means that there are problems in how cars are made and sold, which can make things more expensive and harder for people to buy cars.
Retail asking prices are the amounts that car dealers say they want for their cars. These prices can change depending on how many people want to buy the car and how good the car is.
Pre-owned vehicles are cars that someone else has owned before. They usually cost less than brand new cars and can be a good option if you're looking to save money.
The new car market is where you can buy cars that have never been owned before. These cars are sold at dealerships and their prices can change based on how many people want to buy them.
The seasonally adjusted sales rate is a way to measure how many cars are sold, taking into account that some times of the year are busier than others. It helps to see if sales are really going up or down.
The transaction price is how much you actually pay for a car after all the discounts and deals. It's different from the sticker price you see on the car.
The used car market is where people buy and sell cars that have been owned before. Prices can change based on how many people want to buy or sell cars and how much new cars cost.
Depreciation is how much less something is worth over time. For cars, this means they lose value quickly, especially in the first few years after you buy them.
Tariffs are extra fees that the government charges on products coming from other countries. When car manufacturers have to pay these fees, it can make cars more expensive for everyone.
Profit margin is how much money a company makes after paying for everything it costs to make a product. If a car costs $20,000 to make and sells for $25,000, the profit margin is $5,000.
Supply and demand is about how much of something is available and how much people want it. If a lot of people want a car but there aren't many available, the price goes up.
The age of the fleet is how old the cars are that people are driving. If the average age is getting older, it means people are not buying new cars as often.
The Mazda CX-5 is a small SUV that is popular for its good looks and fun driving experience. It's been updated to include better technology and quality.
Cost efficiencies are ways that companies save money while still making good products. For the CX-5, this means finding cheaper ways to make the car without customers noticing.
The steering wheel is what you hold to turn the car in the direction you want to go. It's an important part of driving and can be designed in different ways for comfort and style.
Moody's is a company that checks how likely other companies are to pay back their debts. They give ratings that help investors decide where to put their money.
Out-the-door price is how much you pay in total for a car, including everything like taxes and fees. It's the final amount you'll need to pay to own the car.
LIVE
It's noon here in Venture City, New Jersey, in New York, New York, a city so nice, they
named it twice, and this is Car Edge Live for Wednesday, February 11th, with your hosts,
me, Ray here in Venture City, and Zach hanging out in the WeWork offices in New York, New
York.
How are you today, handsome?
It's fantastic.
Happy Wednesday.
Thank you, everyone, for tuning in.
Today's show is brought to you by CarEdge.com, for those of you that are unfamiliar, boom.
There it is.
Car sites show you free prices.
We'll actually do the work to get you the real one.
Check it out, CarEdge.com, and as mentioned yesterday, we have a new page that is still
in beta.
I want to be very clear here, still in beta, CarEdge.com slash dealer dash ratings.
CarEdge.com slash dealer dash ratings.
Check this out.
We have taken all the OTD data.
We've captured from hundreds and thousands of car dealerships and started to build out
a transparency index.
Learn more about all the information we have back on this page, and please, my ask in sharing
this is to solicit feedback from our community.
Please share that with me in the comment section down below.
Now, Dad, the big story this morning is going to be talking about the used car market.
We referenced it a little bit on yesterday's show, the latest data from Blackbook showing
some really different trends than typically happen at this time of year.
Let's set the stage for today's show.
What happens to the used car market and used car prices in January, February, and March
of any given year, and why is what we're seeing right now, which is appreciation of used vehicle
prices in the month of February, a bit abnormal and a cause for a little bit of alarm bell
going off?
Well, what normally happens is you have tax season and spring selling season.
And the tax season, which is tax return season, a lot of those people use their tax returns
as either a down payment on a new car or a pre-owned car.
So pre-owned cars, typically we see a huge increase in pre-owned sales during tax season,
typically ends up running through the end of April, middle of May.
And historically, what we normally see is wholesale values the beginning of the year
going down to some degree.
They tend to grow or go lower, and this year what we're seeing is a spike in wholesale values
way earlier than what we've seen historically.
That to me indicates that perhaps the dealers understand that the spread between new and used
cars is that spread that's going to allow them to sell the used cars more quickly because people
can't afford the new cars, and so consequently, we're going to see the used car asking prices
go up because the dealers are paying up to buy the cars, and the appreciation we're seeing is
rather significant compared to historical levels.
So that's what's happening right now.
The alarm bell that's going off in the used car market is we are seeing wholesale prices of
used vehicles increase at a time when seasonally they do not in anticipation of what'll be the
spring selling season, which is when used car prices appreciate.
This chart shows you that during 2017 to 2019 this table, I should say,
the average depreciation for used vehicles in the car market was about a third of a point.
Now, last week used vehicle prices actually appreciated, and this week they appreciated
at almost twice that rate.
This is concerning, especially when you come down and we looked at this chart yesterday,
but we're going to frame it up again today.
This black line is showing you the price trends for wholesale used car sales,
and look at the other lines, orange was 24 and turquoise, excuse me, green is 2025.
We are seeing a divergence in this trend here.
We are seeing wholesale used car prices go up today when historically they don't go up for
another, I don't know, six weeks or so.
This is exactly being exacerbated by the fact that new car prices continue to climb higher.
Kelly Blue Book Report, new vehicle prices climb higher in January,
automakers cut incentives to help protect margins.
The reason we see used car wholesale prices going up and the reason we will continue to
see used car prices actually go up is because people cannot afford new vehicles, and at the
same time, new cars cannot be purchased by folks.
The manufacturers are actually choosing to protect their margins and not incentivize them more.
This has got catastrophic potential, man.
Alarm bells being sounded in very obvious ways demonstrating the inefficiency and impracticality
of today's auto industry in the United States.
Yeah, it is, to me, it's alarming because I suspect as dealers are paying more for these
used cars at the wholesale level that we're actually going to see a rather significant,
I predict, increase in asking prices, even though the retail asking prices.
Retail asking prices for those very vehicles.
Now, even though I suspect that retail asking prices on these pre-owned vehicles will go up,
there still will be a significant enough spread between those higher asking prices
and what people would have to spend to buy a comparable new car.
And we know people can't afford to buy those comparable new cars.
So people who were normally in the new car market will now find themselves in the two,
three, and four-year-old used car market, and they will have to pay more for those cars
than they would have in the past.
And I think the dealers are recognizing that, and they're building up their used car inventories
because of that. It sort of kind of reminds me of the 80s when there was an embargo of sorts
on the number of Japanese imports that could be brought into the country.
And I'll never forget my Nissan sales rep, Ralph Yoho was his name, and Ralph said,
you ain't going to get that many new cars, you need to get in the used car business.
And I think that's what dealers are looking at now. They're realizing that new car prices
are going to remain elevated and out of the reach of most people.
And so they're going to turn their attention to their used car operations and they're going to get
into the used car business because that's where their opportunities will be.
This is fascinating to me, Dad, that the decision from the automakers,
as new car prices have become more unaffordable, and as we've seen sales slow down.
Go watch yesterday's show, we led with the fact that there was an under 15 million unit
seasonally adjusted sales rate for the auto industry. What that means is that January sales,
if they were annualized for the year were 14.9 million, the industry pre pandemic was doing
17 and a half million. I want to be very clear here, I haven't seen 14.9,
and I think the six years I've been doing this, it has never been that low.
And in the same exact breath, we have this bullet point, automakers reduce sales incentives
in January. Last month, the average incentive package was equal to 6.5% of the average transaction
price, or roughly $3200 a year ago, incentives average 7.1%. December incentives average 7.5%.
Why is the used car market sounding an alarm bell? Because as all these things are happening on the
new car market, the leading indicator we have to your point, Dad, about what will happen to
retail asking prices for used cars is showing us that it is increasing at a faster rate and
earlier in the season than we'd seen in the past three years. Yes. Dude, maybe we should finally
do what we've talked about for many years, go buy a minivan or whatever it was. Remember when
minivan depreciated like 50% year over year? Yes. We could be setting the stage here for another used
car appreciation fest, where used cars become appreciating assets again because the manufacturers
are so stubborn on the new car market. Well, it's not that they're stubborn. Okay, let me rephrase
it. They are stubborn to a degree. Okay. And when the head loan was literally like to preserve
profits, they're not increasing incentives. Okay, but the underlying reason for that is to counteract
the increase in expense of tariffs. Yeah. Okay. So there's only so much margin built into a car,
whether you're manufacturing it or whether you buy it from the manufacturer and you sell it at a
retail level. And so the manufacturers have been trying to eat as much of the extra tariff costs
as they can. Well, guess what? A lot of these manufacturers have lost money because of that
and significant amounts of money. So what do they do? They, the means that they can't
underwrite the sales of these new vehicles with as large of incentives as they have in the past.
Like any other business, they have to look at ways to conserve cash. They have to look at ways to
preserve profitability. So if that's the case and we know it is, then yeah, they're forced to
continue to build high profit margin expensive vehicles that will appeal to fewer and fewer
people because it just cuts the vast majority of Americans out of the market. And new car
dealers are realizing that. And so they're going to get strongly involved in their used car business
again because that's where the opportunity will be. If a person needs a car and they absolutely
positively cannot afford the new one because the incentives are less or the asking prices are too
high, well, where do they turn? They have to turn to a pre-owned car. And what are we seeing on the
pre-owned market? The actual price appreciation is most significant against what segment of vehicles
older and less expensive ones. The squeezing here of value is incredible because again,
where you have the most, it's supply and demand, all aspects of the car market are supply and demand
where you have the most demand are for affordable, reliable modes of transportation. And where you
have the least amount of supply is exactly there. The age of the fleet in the United States is over
14 years old all of a sudden. People are just holding on to vehicles longer and longer. And to
your point, Dad, the new cars that are coming into the function are coming into the dance.
Those new cars are more expensive inherently because of tariffs and obviously because of
automaker decisions to go up market. They are also cheaper in quality. And the reason I bring that
up is look at this headline in automotive news. The embossed that cuts invisible costs on Mazda
CX-5 to protect margins from tariffs restore profitability. Invisible costs. This is hilarious,
y'all. We're just going to read the bullet points. Mazda cut unseen costs in the redesigned CX-5 to
protect margins from tariffs. A steering wheel stitching change is one of many cost efficiencies
customers won't notice. The new CX-5 adds value in customer-facing areas including the center stack
screen and Google connectivity. The CX-5's launch was delayed for quality verification of sophisticated
software system. You literally scroll down one more line here and it literally says we are going to
have a simpler steering aspect to our vehicles, which will help offset the tariffs. So quality is
actually what's going to suffer here. Unseen visible costs. No, you're going to get worse quality.
Well, it's not necessarily worse quality. There are certain things that some manufacturers do to
differentiate themselves from others. Okay, and one of the things that Mazda did was the way that
they stitched the leather on the steering wheel. It was a much more expensive way to do it than
their competitors are doing it. And truth be told, ain't no customer buying that Mazda simply because
of the way the steering wheel was stitched. And there ain't any customer out there that won't
buy a new Mazda because the steering wheel is stitched just like its competitors now. So you
have to make a determination as a manufacturer. Yes, we want to differentiate ourselves. Are the
differentiators enough to move people? And in many, many cases, they're not. So, you know, those
things that you think were important. And I'll never forget when I had representatives from
Aldi wandering through our complex in Scottsdale, Arizona, the Penske complex there. And, you know,
I was talking to these folks and they're pointing things out to me on the accuracy in my showroom
going, well, we would never allow this at Aldi. It's more expensive for us to do it the way we
do it because we would never allow this. It's not anything that would sway a customer to spend
more to buy the Aldi. Okay. And so, these are just things that it's nice to do, but the customers
don't even understand it. It doesn't really matter. So, I get what they're doing. You have to find
creative ways to cut your expenses on these vehicles if you're going to maintain your profit
margins. And they're getting squeezed. And it's not the cheaper things are going in the car, per se.
It's less expensive ways to build it that don't really matter to a customer.
I will say if it's that, then it's probably the other as well. I bet you there's a mixture of
we're finding things that don't actually add value to customers and we're finding ways to make things
cheaper. One of the ways I could drive this as a proxy argument would be we've seen recalls
increase significantly ever since the COVID pandemic. I think that is a function of, obviously,
ways of working evolve during the pandemic, but also a flight to poor quality. It was a matter of
we could just get components to even produce vehicles. We're going to produce them. So,
I do as a consumer dad have concerns that in this new world that we are operating in where
automakers are producing new cars that are unaffordable for people and they are not willing
to offer many of them. Some of them are, but many are not willing to offer incentives like
they used to to get people to purchase these vehicles. The government has also demonstrated
a lack of willingness to subsidize the purchase of certain types of vehicles that they are going
to find ways to make them cheaper. Two of the ways that they will do that will be removing
features that no one even found valuable. You are Mazda, let's see right now. I take your word
for it that the stitching did not influence your decision to lease that vehicle and they're probably
also going to find ways to make the stuff cheaper because now there are tariffs and even if there
weren't tariffs, it's capitalism. Maybe we got to figure out ways to make some cheaper and we
can make more money. I do want to pull up here dad. Yes. Something that has been shocking
to you and me in all the years that we have done this and more respect to the people that
continue to keep this market afloat. Popular full-size pickup trucks that the average MSRP
in January for a full-size pickup truck was again above $70,000 for the fifth consecutive month.
150,000 F-150s were sold, or 150,000 full-size pickup trucks were sold.
Subcomprax vehicles, average MSRP less than $26,000, only 4,000 subcompact cars were sold last
month. I simply wanted to bring this up because we do this to ourselves. There are some options
limited, but there are some options that are more affordable. For many of us that are out there who
cannot afford a $70,000 pickup truck, although the latest data we have that demonstrates and
shows what's going on with regards to credit, it very clearly depicts here loan term length,
the share of loans that were with terms greater than 72 months increased from 27.5 to 28 and
is up 400 basis points here over here. At the same exact time, the proportion of borrowers with
negative equity increased by 220 basis points a month over a month to 56.3. That's 470 basis points
year over year. Even though there are people out there who can't afford using air quotes here,
$70,000 pickup trucks, because again, the data that shows us that they can afford it is longer
loan terms and rolling over more negative equity, they are sustaining this operating environment
to make 150,000 full-size pickup trucks instead of the more affordable subcompact cars.
Crazy to look at that landscape as well. Okay, but here's the interesting
thing when you discuss that. What is the percentage of vehicles offered at the $70,000 price point
as compared to the percentage of vehicles offered at the under $30,000 price point?
My guess is, and this is a guess, that there's probably 8 to 10% of all the vehicles that are
available will fall under $30,000, and that probably 50% of all the vehicles offered will
fall in the $70,000 range. So we've got $272,000 sub $30,000 new cars for sale in the United
States of America right now, $272,000. Okay. And then you said, what was it, over 70?
Yes. $500,000. It's double. So yes, there's the percentage of lower priced vehicles
that are being offered, excuse me, is significantly lower than the percentage
of $70,000 plus vehicles that are being offered. Well, if you have less availability
and my guess is on many of those that are in short supply, dealers are asking for more,
then it becomes even harder for those folks to be able to buy one. There isn't as much availability.
So what it points out to me is that the manufacturers understand that the size of the
swimming pool is getting smaller, but that those that are still utilizing the pool have
the wherewithal to buy $70,000 plus vehicles. But they're doing it on extended credit terms,
and they're rolling over more negative equity, which is something we've been talking about
for a long time. This industry just continues to kick the can down the road of problems that
they're going to face. At a certain point, there's no more road to kick the can down.
Okay, because you've just, you've run to the end of the road, and then you have to look at real
new ways in order to be able to maintain any type of growth whatsoever.
So we can't continue to have people increase the amount of negative equity that they're carrying
with every purchase. We can't really afford to have people continue to extend the term loan
rate or the term, the loan term length, because that'll just exacerbate the negative equity.
And at a certain point, it just comes to a halt, and then you have to address the underlying
issues. And the underlying issues for many of these manufacturers right now is figuring out
ways to recoup their losses from their EV bet. And I saw some comments yesterday, and people were
saying, well, it's the government's fault. That's why all these manufacturers jumped as quickly as
they did. Well, I don't know. I'm going to think of the largest manufacturer in the world. They
didn't jump quite as quickly, and that's Toyota. They were biding their time when everybody else
was investing billions upon billions upon billions in the EV bet. And they were saying, well, you
know what, we think it's going to be hybrid. So regardless of how much pressure there might have
been or the manufacturers thought there was from governments, the biggest one said, well, you know
we're going slow. So I get it, but I don't get it. You have to understand your positioning
before you jump in. Now, Dad, you mentioned this, and then I want to switch gears. The EV
underwriting has really hurt many of these legacy automakers. The Lancet's credit rating was actually
cut by Moody's. So their credit worthiness has been downgraded by one of these reviewers, Moody's
here. After the Lancet's had to write off $26 billion, Ford Reno had to write off $19.5 billion.
So yeah, the EV decision in many ways has not served these automakers. Again, at the outset of
today's show, I shared a new project that is still in beta, caredge.com slash dealer dash
ratings. Now, one of the things I want to show here, Dad, is you can find dealers who are adding
add-ons and dealers who are not. So I'm going to look here at grade D dealers for a moment. And the
way that this works is very simple. And I am again, bringing this up in service of getting feedback
from our community. What I need you to do is come onto this website and search around, find a dealer
and see what they're doing. So in this case, we've got some used vehicles that this dealership's
selling, some new ones as well. We can actually view, let me pull this open really quickly,
the original out the door price worksheet that will then show you what this dealership is doing.
So you can see this particular dealership, Dad, adds dealer prep with LUX membership.
Oh, I've always wanted a LUX membership. And you can see here on this dealer page,
what packages they're adding. So they also add the Grubbs protection package
and load jack and decision upgrade. I just want to know if that's regular LUX or Nova LUX. I'll
know that's a lot. Exactly. Please, y'all, this is again in beta. This is brand new. And this is
the first way that we've been able to bring all of the information. So to be clear here,
this data is coming from our AI agent that is reaching out on behalf of CarEdge Pro customers.
It is reaching out to thousands of dealerships. We've actually had multi-round negotiations
with over 8,000 dealerships. And what that actually yields in terms of savings,
that agent has saved over $14.7 million on average $2,596, 70% of the time,
actually nice. And it's successful in its negotiation. Almost 20,000 hours saved. And you
can see the persistence pays off when the agent has these negotiations. It saves some serious money.
It doesn't work every time. About a third of the time, the dealership did not actually decrease
their price when the agent negotiated. But you can see when it works, it works. And so I bring
this up because this data, I think, Dad has the potential to really, really level the playing
field for consumers and for good dealers. So again, this is brand new. This is in beta,
CarEdge.com slash dealer dash ratings. Look forward to seeing more feedback. And hopefully,
we can help people work with good dealerships. That's the intent here is find good dealers
and avoid the bad ones. And you know what the other intent would be is to get the bad dealers to
finally realize that they need to be good and everything else that it's now costing them.
And they need to change the way they operate. It is an attempt to bring dealerships kicking
and screaming into the 21st century and finally providing customers with the way they want to
buy cars as opposed to the way the dealers want to be able to sell them. So I think this type of
information will be both valuable to customers and to operators. And operators that want to ignore it
eventually will find themselves out of business because you can't just bury your head in the
sand and not know what's going on. I completely agree. I'm really passionate about this project.
Again, it's in beta. So small audience here, a couple hundred of us. I seek your feedback.
I seek your input. My email is Zach at CarEdge.com. Please send me feedback there directly as well.
I think this has the potential to really change some things for the auto industry and obviously
for our community. So please share your feedback. It is greatly appreciated. Now that's called a
show for today. We'll be back with more CarEdge live tomorrow. I am certain there will be something
we will want to talk about. For those of you who are unfamiliar, check out the website, subscribe
to the channel and share this with a friend. We appreciate and only are capable of doing this
because you choose to show up and spend time with us. Thank you so much. Yep. Thank you,
everybody. Have a great day. And we look forward to seeing you all back here with, well, all your
friends tomorrow at noon Eastern. If you liked the show, please take a moment to rate, review,
and subscribe. It really does help the show to grow. Thank you for listening.
About this episode
The used car market is experiencing unusual trends, with prices appreciating earlier in the year than historically typical. Hosts Ray and Zach discuss how rising new car prices and reduced dealer incentives are pushing buyers toward used vehicles, leading to increased wholesale values. They highlight the implications of these changes, including potential affordability issues for consumers and the impact on dealer strategies. The conversation also touches on the aging vehicle fleet and the quality concerns arising from cost-cutting measures by manufacturers.
Today on CarEdge Live, Ray and Zach discuss the latest trends in the used car market. Tune in to learn more! Hosted by Simplecast, an AdsWizz company. See https://pcm.adswizz.com
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