An Economist’s View Going into 2024 

Paul J Daly: 0:33

Are you ready for the new year yet? It is Thursday, December 28. And today we get to talk with I think some of the most the smartest people that I know when it comes to economics forecasting and just general knowledge that people are really

‍Kyle Mountsier: 0:49

really smart people. I mean,

Paul J Daly: 0:53

I'm silly. Well, I just can't I like it. Here is Ben Affleck in, in Goodwill Hunting like my friends wicked smart.

Kyle Mountsier: 1:02

Wicked, smart, wicked smart. Yeah.

Paul J Daly: 1:05

These these three would easily if you're Boston, these people would be considered wicked smart, wicked smart. Yeah, we got we have a segment from the urine extravaganza. If you haven't seen it, head over to our YouTube channel ASOTU dot b, e a so tube, and you'll get to see the whole program. This is a segment from there, where we talk to economics and forecasting and using data to make sound decisions with Cox automotives chief economist, former chief economist Jonathan smoke and now he's Senior Vice President of world domination. Dr. Alex, your chenko with black book, and the one and only David Spees. Who may be the most interesting man in the world could

Kyle Mountsier: 1:44

be the most interesting man of the world. Yeah, I love this session. Can't wait to let you hear it. Check it out. And we'll see in a second.

Paul J Daly: 1:51

Please welcome David Spacek, Jonathan smoke, and Dr. Alex, your chenko. We're gonna get right into it. Jonathan, I think the most important thing to talk about is your promotion. Oh, congratulations, first and foremost. And secondly, can you tell us what the new role entails? Ah,

Jonathan Smoke: 2:11

well, for the industry, there should be no fear, I still oversee the team that we've created. It's now been almost seven years. And I'll still be focused on auto The main change is that my scope has expanded to oversee similar kind of activity in other parts of Cox businesses. So I'll be trying to replicate what we've done in automotive and other places while still still keeping on automotive, you know, good and strong.

Paul J Daly: 2:43

So who, who's filling your seat? Now that you're taking on another one? Well, through

Jonathan Smoke: 2:48

the years, I've been building up a really strong team. So there's some names that shouldn't be new to folks. Mark strand has been on the dealer Association circuit for a long time and, and did some stuff on set at IHS and NADA. So he's very dealer, retail focus. Jeremy, Rob, is somebody that came from our Mannheim consulting a year ago on my team and, and is is very directly connected to our Mannheim business. And so the two of them will be doing a lot more, but but I'll still be around. Very nice.

Kyle Mountsier: 3:25

All right. So let's, let's get into it. Looking back, Jonathan, we'll start with you. Since you've been chatting already. Looking back over the past year, are there any predictions that you made about the economic outlook or the business in general in auto, that maybe you were thinking, Ah, missed on that one? I know that your report, you're you're grading yourself hasn't come out yet. But But is there anything that maybe didn't strike home the way you felt it was going to? Well,

Jonathan Smoke: 3:52

you know, first of all, I have to defend the perception. We have regrets because we're always working with the best, the best that we've got at the moment. And by the way, you know, economics is the only profession, you can be wrong most of the time and still win a Nobel Prize. So, you know, I'll show but I would say the thing that I think I got most wrong, and my team, you know, got most wrong for this year. And it's to the detriment, I think of the industry in terms of where we are now going into 24 Is that new vehicle sales really grew much more rapidly. Last year, at this time, there was all this chatter about newfound discipline by manufacturers that would forever keep inventories lean. And, well, I think we've settled that story and incentive

Paul J Daly: 4:49

and nature wins in the end.

Jonathan Smoke: 4:52

So and we didn't we weren't big believers over the longer term that that that could be true, but we thought that there would be some link During supply chain issues and, and there would be some conservatism at display in 23. But that's that's all out the window. And we clearly are, are trending towards something that looks a lot like 2019. And before rather than how we thought things might be a year ago,

Kyle Mountsier: 5:20

Alex, you, as a part of BlackBook are tracking millions of data points monthly. And and really looking at the balance between both new car inventories as well as used car valuations. How have you seen this, this change in the new car landscape impact the models on on what's happening in the used car space?

Alex Yurchenko: 5:47

Similar to Jonathan, we were surprised that inventory grew that fast to these levels, we were expecting some more gradual growth and more and more discipline. And with that, we were expecting a little bit slower growth in new sales with all of the increases in interest rate with all of the headwinds, retail new retail sales and just grew at the healthy rate and only use site. I think the what, what surprised me is that retail use prices were not declining as fast as wholesale prices, dealers were dealers were able to keep those prices higher than we expected. That bet for consumers against better for dealers. But the affordability question Will will roll into 2020. For us prices are used cars are too expensive for a lot of consumers.

Unknown: 6:49

So David, you're somebody who spends a lot of time with dealers who are fighting it out on the front line every day and kind of looking at things from an overarching strategy perspective across all departments of the dealership. Um, so you obviously rely on the data and insights produced by Jonathan and Alex on a regular basis. What is your perspective on how those are getting their way to the frontline decision making

Paul J Daly: 7:11

right now?

David Spisak: 7:14

It's a great question, Paul. And I was sharing with both of these gentlemen, I really do rely on their data each and every month, I look at the weekly insights with BlackBook. Religiously looking for trends there. I rely on what Jonathan and his team puts out each and every month. I'm actually surprised. I am I'm not. You know, there's two things I've said about retail automotive, you could learn. You can go to classes, guys for a lot of things. And you could you know, learn how to do f&i more effectively, fixed ops, the nuances of a financial statement. But we should all take note that there's never been a any classes that will help people and retail automotive lift their self esteem is not needed. This is this. This, there's two things you can find in reach automotive in a big way. One is self esteem, which just means that confidence, that bravado and it's really helpful, because when we did go through the these tough times, you know, were a so to really launch from where you were you originally created that the brilliant concept of let's let's all come together and unify during the pandemic. We it was just proven to us, as it always has been that retail automotive dealers are incredibly resilient. The other thing that you'll find in droves is irrational optimism. And so even though there is extraordinary data that that's available, by by the team at Black Book, and by Jonathan and his team, there's so much irrational optimism. It's almost as if some dealerships you could look up and say the sky is blue, and they'll tell you, it's black. They see what they want to see. And the reality is, is that I've been saying all year that use cars are about as predictable as cryptocurrency you need to exercise a much higher level of discipline and process if you're going to win. And I've been showing, as I've shared with Jonathan, I literally share with dealers every single month because I know they're not going out and really looking at his economic data. And this, what I keep saying, guys, is that nobody should ever feel bad about being embarrassed about being surprised by an earthquake, right? I mean, you think about it, Jonathan, you're talking about the fact economic economists can be wrong most of the time and still win a Nobel Prize. Seismologists study every single day, every hour, and they have no idea. It's good to hear where it's gonna hit how big it's going to be, you have no idea that just you might as well be playing some kind of seismologists version of pin the tail on the donkey on a map. Right? But, but you should never be surprised by a hurricane. You know, we could see a hurricane forming two or three weeks out, for God's sakes, right. So what we're starting to experience, depending on brands, and if you go to one end of the spectrum, you've got to Lantis most notably dodge, which most dealers are drowning in chargers and challengers, without the support that they probably should have on it or need to have on it. On the other end, you've got Toyota Lexus Honda, surprisingly, Kia has exercised a pretty fair amount of discipline. And interestingly enough, their level of discipline is different than Hyundai's level of discipline. Right, you've got those big five, you've got Toyota Kia, Honda, Lexus, and Subaru. And if you look at it, and I broke down Jonathan state, and if you look at both the multiples, as well as what we're seeing year over year in profitability, they're either flat up up somewhat or down a little bit. When you start to move towards the other quartiles in inventory, you'll see that that line starts going more and more progressively down. And by the time you get to that fourth quartile, that's over 90 days, it is in some of them are an absolutely freefall. And so it's it's it's, it's extraordinary, I think what we're seeing at the retail level, in, I believe in 2024, we're going to need significantly more disciplines, specifically in use cars, and new car asset management, for dealers to be able to be as profitable as they can be, and should be. So

Unknown: 11:46

I think we figured out Jonathan, when you walked into your masters, in economics classes, they wrote the words irrational optimism on the board, and then they just drew a big X through it. And they said, You're never allowed to do this way. Right. And dealers have the opposite. So, you know, I've always liked Jonathan always brings a sense, I would say of rational optimism, yes to the industry. Alright, we

Paul J Daly: 12:06

just have we just have a minute left. We'd like to give each of you the opportunity to give us one prediction, like a 15. Second prediction for 2023. David, we'll start with you. And then we'll go to Alex and we'll end with Jonathan. I'm sorry, 2024. Did I say 2320 24 this time around?

David Spisak: 12:27

Nothing like making a bold prediction for 2023 at the end of the year. Listen, I'm going to cheat. I'm going to say two things. Number one, EVs are going to come to a tipping point as it pertains to the business model for dealerships. And the second thing is I fully expect OEMs to finally come around and feel the pressure to bring more OEM incentives, more compelling consumer offerings, and more compelling OEM to dealership offerings. They've been very slow to come back to the table, even though they've been very fast to lose their discipline on inventory production.

Paul J Daly: 13:04

Okay, Alex 2024, what's one prediction?

Alex Yurchenko: 13:10

US prices are going to continue to drop, but they still going to be elevated by any historical level.

Paul J Daly: 13:20

Jonathan, you get the final word, what's going to happen in 2024?

Jonathan Smoke: 13:24

Well, we're not going to have a recession, but the economy and the industry are in for a very weak growth year. And that means another year of declining profits for dealers. So when I see you all at NADA, one of the songs I'll be playing for the year is c&c Music Factory is gonna make you sweat.

Kyle Mountsier: 13:44

Came in DJ smoky smoke. There it is,

David Spisak: 13:48

as long as you don't break down and start dancing to see Oh, I

Paul J Daly: 13:51

hope so. Gentlemen,

Kyle Mountsier: 13:54

thank you so much for joining us. We can't wait to see what happens in 2024. And to watch how you all encourage us through the year.

Paul J Daly: 14:03

I love the idea of irrational optimism, because that in a phrase explains auto dealers in this industry is across the board even though right now there's like a little little pessimism going on, right? A little No,

Kyle Mountsier: 14:18

it's always like, you know, you get between the buddies in the car business and you're like that, you know, it's gonna be rough. And then like, for some reason, there's like this switch that flips and you get to the showroom, and it's like, we're just

Paul J Daly: 14:29

all 300. And, but but the levity between that like Jonathan smoke, always someone who I think brings a very rational optimism to his economic reports and his approach to economics and automotive in general. Then you have black book data, showing the indices and then you have David's feedback on the front lines. And you realize like, we actually have a lot of reason to be optimistic.

Kyle Mountsier: 14:52

We do. Yeah, all of them said, hey, look, it might be a little bit tougher. You might have to look a little work a little harder, but there's some optimism around the corner. Are you seeing stuff with interest rates potentially be pulled back? I saw some stuff last week where there's manufacturers offering 0%. Again, which is not

Paul J Daly: 15:10

tax season supposed to be great to tax season and average tax returns gonna be high used

Kyle Mountsier: 15:14

car prices are coming into a more affordability you know, a more affordable spot and yeah as far as price range. So the optimism is up. We're a little bit irrational in the car business. But isn't that what makes us resilient? That's

Paul J Daly: 15:27

what makes us a family. Everyone loves an irrational optimist as we do in this industry. Hey, we'll be having an amazing Thursday, only a few days left in 2023. So make them count new clothes.