Forecast Friday, Toyota Doesn’t Mince Words, NY ❤️s Cali

September 30, 2022
We’ve got that Friday feeling as we give a full rundown of Cox Automotive’s Q3 Forecast report. We also talk about some very clear messaging coming from Toyota’s Dealer meetings happening in LasVegas, as well as NY’s efforts to be like California when it comes to EV rules.
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Toyota shared internal data related to dealers selling over MSRP and also sends clear message of Dealer advocacy in Dealer meetings in LasVegas

  • After a broad study of data from the last year, Toyota said that Dealers selling vehicles over MSRP have doubled their profits, but lost market share
  • Dealers who sold at or under MSRP have TRIPLED profits and gained 16% market share collectively
  • Akido Toyoda also made it very clear that the company will not be pursuing any future that doesn’t involve their Dealer network as the primary method of selling and servicing of their vehicles which was met by a rousing round of applause from Dealers
  • In a press conference following the meetings, Mr. Toyoda said not only is California’s goal of 100% EVs by 2035 not realistic, but added that meeting the 50% mark by 2030 would be ‘very difficult.’
  • Electric vehicles “are just going to take longer than the media would like us to believe,” Toyoda told the dealers during their meeting. He vowed to offer the “widest possible” array of powertrains to propel cars cleanly. “That’s our strategy and we’re sticking to it."

New York Governor Kathy Hochul is in a hurry to follow in Gavin Newsom’s footsteps to adopt California’s plan to require all new vehicles sold to be EV or Plug in Hybrid vehicles by 2035

  • 68% EV or Hybrids by 2030. By 2035 only allows 20% to be plug in Hybrids
  • Hochul said in a statement that she has directed a state environmental agency to propose and finalize rules adopting California's plan setting yearly rising zero-emission vehicle rules starting in 2026 that phases out gasoline-only new car sales by 2035.
  • There will be a public hearing before rules are finalized

Cox’s Q3 Industry Insights and Sales Forecast Call which included ASOTU Alum Chief Economist Jonathan Smoke  and Senior Economist Charlie Chesbrough delivered a barrage of insights into the shifting landscape of the industry heading into Q4. Here are some highlights

  • Consumer Sentiment had been improving until last week
  • Fastest and largest increases in interest rates since 1981 resulting in affordability crisis
  • Dealer sentiment is down after remaining steady most of the year citing declining profits and increased pressure to lower prices
  • Used cars showing relative strength
  • Wholesale to retail gap is increasing
  • Inventory on ground increasing quickly among 35k+ vehicles
  • Used monthly payments +42% from Sept $387 to $551 with $567 projected by Dec
  • Kia, Honda, Toyota continue to have extremely tight supplies
  • Ram, Jeep and Ford incentives ticking up in August
  • Jonathan Smoke brought us the fall playlist

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Kyle Mountsier, Paul Daly

Paul Daly  00:23

Friday, Friday, Friday, calm it's forecast Friday. Toyota is like not mincing a single word in Las Vegas. And New York hearts. California. throw that one out there. Yes. Like New York. Exactly. That is exactly the picture that conjured in my mind when we were making the show notes and we put it in the title. I was like, You know what, we haven't had an emoji in the show title for a long time. And this seemed like the perfect opportunity to do it. Welcome to an amazing Friday. I also,

Kyle Mountsier  00:59

I feel like I feel like we've betrayed phone call Friday by renaming it forecast Friday.

Paul Daly  01:04

Well, I think just naming days of the week this week, for some odd reason. If you go back, I don't know why. It just you know, throwback Thursdays, obviously the OG Oh, but everything else. I don't know forecast Friday phone call Friday, Freaky Friday, like, we'll figure it out. We'll figure it out. We got a lot of great stuff to talk about today, a little bit of insider information, which we're just gonna say this at the beginning of the show, just consider it as anecdotal because we can't cite anything that was just passed along. You know, from, you know, one of the very many Toyota dealers that we know, Toyota dealers are some of my favorite people. They just have a vibe and an energy about them. They're measured, you know what I mean? Like, Ooh, yes. measured? Yes. There's something about every one of them. Yeah, it might have something to do with the leadership. You know, I've heard somewhere before that. Organization tends to reflect the personality, the leadership, funny how that works, whether it comes to positivity, negativity, being measured, being decisive, you know, being exploratory, all that stuff. So we're gonna get into that stuff. Now. Just want to remind you to we hopefully will see you at Nomad next week when we are there. If you're going to the name ed conference in Miami, we'll be there please come say hi, let's talk a little bit let's connect. Let's meet in person if we haven't, if we have to reconnect, reconnect, I'm also we're gonna be at the modern retail conference, leaving a creative track if you're creative or if you have creatives that you're always looking for a way to invest into them to you know, improve your marketing improve your creative send them to us we'll take really good care of them for three days at Brian passes modern retail conference to go to Florida, so

Kyle Mountsier  02:44

well like a really nice part of Florida.

Paul Daly  02:48

Yeah, so you can go to a so forward slash m R c for modern retail conference. Oh, what else? Oh, man. We're gonna be in Atlanta. We're gonna be Atlanta Eglin Lenny's 800% club in October October is got some stuff. Yes exam. Oh, today's

Kyle Mountsier  03:03

today's the last day of September you have 800% club like today on a soda con sessions. We got Alex Flores being interviewed by Glen Lundy himself some energy in that one love. So tons of energy in that guy. Yeah, we get content coming out of our ears

Paul Daly  03:20

as an outro speakers. Yeah. asoto con sessions, search it on your favorite platform. You know, our content producer. I don't even know what his title is. Nathan Southwick came in and he was like, Hey, by the way, that setup, the mics at the live event is gold. He's like great content. It's real time. It sounds good. So check out a soda con sessions. You know, just subscribe on like Spotify or Apple Music or any of that stuff. All right. We have some fun things to talk about today. I don't have a speaking of but let's talk about Toyota for a second. Sorry about Toyota. Let's so I'll do I'll do this one. Toyota shared some internal data related to dealers selling over MSRP. Right, a couple of pinions around there. And they also sent a clear message of dealer advocacy in their dealer meetings that are going on right now in Las Vegas. So they kind of a catered Toyota is a total boss. And there's something about the politeness of the Japanese business people that just it's just buttoned up. It's polite, and they're like, we're gonna say it in kind of a factual and nice way. Because we've been, you know, we've been kind of a little bit laid back on it. So after a broad study, they went and got the data from last year, Toyota said that dealer selling vehicles over MSRP have doubled their profits. Right. Okay. Well, no one's really surprised. For right double their profits going though, but they lost some market share. And then he said the dealers who have sold at or below MSRP or at MSRP really have tripled their profits and gained 16% market share on average. I think that was a double

Kyle Mountsier  05:06

the money, guys, ladies, everyone. Listen, market share in a time of economic distress or change in market conditions is the winner it is the staying power that you have for business and profitability.

Paul Daly  05:27

The profitability things really surprised me.

Kyle Mountsier  05:30

What Toyota has found is that even charging less than the dealers that are charging over MSRP, because of their gain and market share, and the volume increases, have more profit margin difference than the dealers that have sold for over MSRP. That is staggering to me, and should be a story that the industry should tell more and more.

Paul Daly  05:53

But we'll see it'll probably get out some they'll catch up with us, Kyle, catch up, come on this show catch up with us. No, but hey, here's the Yeah, we didn't have we didn't have. And we've said this from the beginning. We are not rendering an opinion on whether or not you should sell over MSRP. Right, everyone's got their strategy and in different markets, different dynamics for sure. What we're really advocating for here is the broad scale dynamic of what happens when customers trust you more is really the bottom line to that conversation, I just want to make sure that's clear out there. We have great friends and operators on both sides of the fence. There are

Kyle Mountsier  06:29

cases where selling over MSRP makes absolutely absolute sense. And it's been going on for years and years. It's not a new thing in it, you know, when you have a tight inventory or limited availability vehicle or anything like that, that is a story. That is that's through and through. And the people that are buying those specific vehicles, especially Premium vehicles, understand that there's a premium to pay on availability. But when the sweeping changes are made across inventory on non specialized vehicles, what we see is a loss of market share overall. And so that that is like a story that I think is relevant data that that I don't think I've heard to this point. No, I have not heard like, Hey, here's what happened when charged over MSRP when kept MSRP or under. And here's my

Paul Daly  07:17

first stability. That's the first that I've heard that without a doubt. Yeah, same same here. What else they talked about also Oh, so they had a very like Heart to Heart moment and Akina Toyota made it very clear that Toyota will not be pursuing any future that does not involve dealers as the primary method of selling and servicing their vehicles, which of course, the reports tell us was met with a rousing round of applause. So I mean, other than what I just played, I'm sure that it was probably awesome, because here's

Kyle Mountsier  07:55

the thing in that room, you have multi rooftop dealer groups that have dealers and other OEMs. And so they're paying attention to all of the dynamics that every OEM is giving them. And for and then I'm sure those dealers like those ones, were the ones that have these multi rooftop and multi franchise dealer groups, were probably super leaned in when he said that because that just like strengthened the relationship and you want to bet the best operators are probably looking at like, where's the blue sky? Where's the opportunity for purchasing Toyota is right now,

Paul Daly  08:25

without a doubt. Also, you know, we've been covering this in the last couple of weeks is Toyota's position on EVs, and at a press conference, following the meetings, this is documented and linked up, Mr. Toyota said, not only is California's goal of 100% EVs by 2035, not realistic but added but even meeting the 50% mark by 2030 is very difficult. And that's the polite way of saying it's not going to happen. Let me translate this

Kyle Mountsier  08:52

one for a really big manufacturer, we have scale specificity, specificity, and we have the ability to understand the market dynamics and the ability to produce. It didn't happen and through not thinking

Paul Daly  09:04

I think he said it just like that, actually. He said electric vehicles and we quote are just going to take longer than the media would like us to believe. Mr. Toyota told the dealers during the meeting, he valued the offer, they would offer the widest possible array of power trains to propel cars cleanly. And he said that's our strategy. And we're sticking to it. A big part of that is their hybrid strategy where they're releasing and having the market already more hybrids than anybody else. cutting carbon emissions substantially. It's like seven 8x over any other manufacturer because of

Kyle Mountsier  09:39

what we recorded 30% of their is 30% of their global sales. I think our hybrid already Yeah, no, you're gonna get he said that hydrogen power is also a compelling and increasing current hybrid power offering that is a faster path to success, interestingly enough, and I think that that's a huge deal to say like, Hey, look, we're exploring and going deep on this other option and And we encourage others to do the same. Now, I can tell you, others that are not doing the same

Paul Daly  10:09

thing. Speaking of Mr. Toyota said unrealistic expectations. This one's close to my heart because I live in New York State. And New York Governor Kathy Hinkle is in a very big hurry to follow Gavin Newsom footsteps to adopt California's plan to require all new vehicles sold to be EVs or plug in hybrids by the year 2035 68% have to be hybrids, or Evie plugins by 2030. And I think California has 50. So they always have to outdo one another. Right? And then by 2035, it only allows 20% to be plug in hybrids. I didn't realize that there's like still a hybrid caveat in there. Right? You have a plug in hybrid, right? It's not fully electric.

Kyle Mountsier  10:59

It's not fully electric, but like,

Paul Daly  11:01

only 2% Oh, yeah, I mean, oh, it's so I was, I was texting, I was texting with some people in New York and like sending the story up, like, hey, I'll fellow New Yorkers. And they were very quick to point out number one, what are all the areas in New York that don't have reliable internet service? Like the North Country? Like, what are they gonna do? Right? There's there's certain things about ads like I didn't even think about

Kyle Mountsier  11:27

internet service, how they're gonna get all this. I didn't even

Paul Daly  11:30

I didn't even think about that. Yeah, and electricity like building the grid when you get into the North Country, right, like expanding the power grid to handle this is this different thing still, like maybe we need to be the meme creator of like a a massive downtown New York City, high rise with like, like, the cords,

Kyle Mountsier  11:52

power cords just drifting.

Paul Daly  11:53

There's, there's there's a strange thing because there are some elements where like, that's almost a little more feasible than if you don't have internet or there's like these big expanses of space and just drive drive range. So either way, Hoko said in the statement that she has directed the state environmental agency to propose and finalize rules, adopting California's plan, setting yearly rising zero emission vehicles, that starts to escalate in 2026, and phase it out gasoline only new car sales by 2035. There will be a public hearing before it's finalized. I wonder where that's going to be? It'd be really fun to go.

Kyle Mountsier  12:28

Is this like? Remember when we had Dr. Nicole Lipkin on and it was like remember, positioning thing that she was talking about? Does that apply to politicians too?

Paul Daly  12:39

All right, move on to the next story. We're gonna get into a lot from this. But speaking of getting out of the story let's go with this. Let's just this this could have been the lead story because it is so chock full of information. It always is. This one is specifically full Cox's quarter three Industry Insights and sales forecasts, which is linked up in the show notes, also included a CIO to alumni chief economist Jonathan smoke and senior economist Charlie Chesbro. I like how we're just going to loop them in and call them a soda. It's actually, it's actually the reason this is important. They delivered a barrage of insights into the shifting landscape of the industry heading into q4. And we put some highlights together for you know this, we have a lot of highlights, we have a lot of highlights. And we have about three and a half minutes to talk about the highlights. We'll hit it.

Kyle Mountsier  13:32

I encourage any dealer dealer personnel to read through this and just understand the movement. I think, you know, awareness is half the battle here. It's just kind of being understanding where the market is shifting, take a measured approach, like we encourage and are impressed by the Toyota dealers that we know take a measured approach to the data, because you can see some swings, but there's still some like leveling off. That's happening back to 2019. So there's some swings. There's some gaps but but take a measured approach to it in the way that you approached your business don't like pull up on everything today. Here's just few of the notes. Consumer sentiment has been improving up until last week. So that that's a new move. The fastest and largest increase in interest rates since 1981. are creating this affordability credit crisis. So interestingly enough, the new car loan interest rates are similar actually in averages to 2019. But the dramatic increase in interest rates are what are causing this affordability crisis and with a lack of cash influx from government programs. Dealer sentiment is down after remaining steady most of the year citing declining profits and increased pressure to lower prices, which

Paul Daly  14:43

is a definitely been feeling pressure. Yep. We've been feeling that on all of our private phone calls to right yeah, there's

Kyle Mountsier  14:49

a lot of people saying hey, like some of my competitors are starting reduce prices starting to go under MSRP there's some people offering vehicles at invoice so we're starting to see that trickle in to the retail Landscape used cars are still showing strength, it looks like used car prices used car. Wholesale values are still on on an increase. So not nothing going there. The whole total retail gap is increasing, though. So what happens there's like wholesale corrects before retail. And so retail still going up Wholesale is either staying steady or slightly declining. Oh, this one is a big one. There were a couple things on both used car and new car inventory increasing quickly, especially among higher price vehicles. So on used cars, the dramatic increase in $35,000 Plus vehicles on ground. It was actually quite shocking like that that graph in particular to me kind

Paul Daly  15:43

of blew my mind. Yeah, well, because that was the only one where you saw the increase. And all of a sudden there's this big blue bar, you're like, What the heck is that one? Well, it makes sense, right? affordability crisis, interest rates going up, people are looking for cars that are between 15 and $25,000. Right? Yep. They're hard to find low supply. And the ones that are more expensive are sitting there. So I know. Sure. Dale Pollack has some advice on that when it comes to how to price those vehicles.

Kyle Mountsier  16:06

You know, one of the things that we don't have on here, but it was interesting to me to see like cdjr vehicles, as an average on new new car on ground have close to 100 day supply. That kind of blew my mind that there's actual

Paul Daly  16:19

that makes sense. When you look at you look at one of other points and saying like the cdjr incentives are starting to go up higher than everybody else, right, like NZ, which makes sense because even one of the dealers we spoke with yesterday cdjr dealer saying like hey, we've noticed that some of our kind of our our neighbors are starting to discount vehicles. Yeah, right. Exactly. Oh, the times they are changing. So used car monthly payments are up 42% From year over year. So last year, they were $387 a month on average. Now their 551 projected to go up to 5/62 567. By December, holy cow, Kia Honda Toyota continue to continue to have very tight supplies. What we're hearing from our Toyota dealers is the fact that Toyota is saying like, Hey, is going to be tight supply for another year. Right? So we don't see that changing very much. We just talked about RAM Ford, Ram Jeep and Ford incentives are all ticking up in August everyone else is either down or flat. And John Johnson smoke did actually contribute a full playlist to this legit playlist.

Kyle Mountsier  17:30

He's got he's got a force that playlist about Hey, break my soul talking about the resilient customers still purchasing rise we may or may not be playing that here in a couple of minutes on all things used cars are about wherever rates keep rising. And then under pressure love that last week of for affordability hurting demand is the relationship there. And then this this one's a little cheeky from this. This last one's a little cheesy, but it's he related it to the Fed and interest rates and the song is none other than Benny Blanco BTS and Snoop Dogg's bad decisions.

Paul Daly  18:07

You know what Jonathan smoke is such a such a renaissance man when he can be so such a badass at economics and then be curating songs that include BTS and Snoop Dogg on the same track, relating them to the Fed? Like, he's America's, I think I think we should rebrand him as America's economist. Jonathan smoke should be America's economist from the auto industry. Like, we're just gonna start calling him America's economist and see if it sticks. We only have a minute here to go. We do. We did list his top 10 predictions for 2022. We'll read them quickly. Vehicle demand will remain robust use vehicle values will depreciate. Oh, the actually, I'm not going to read these down because he's actually got a grade score next to them. These are the predictions. They what they were going into 22 and this is how they're doing on 24 two, so yeah, yeah. And number six was a man will Yeah, at least a man thought it would improve a game so you gotta love America's economist, who was willing to great himself like, Hey, here's what I said. Here's what went well. Here's what I totally missed. I love it. But hey, look, if you know anything about the asoto community, it is about being honest and transparent, not taking ourselves completely serious, but being incredibly serious when it comes to the business of selling and servicing cars, especially the business of loving people.

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