M&A Sugar High Ends, SDV Shifts, and the Quiet Cracking Crisis

Paul J Daly: 0:00 Good morning. It is Tuesday, August 13. This is the automotive State of the Union. I'm Paul Jay Daly. This is Kyle mounts here with the concrete background today, talking about the M and a sugar high ending shifts in software defined vehicles and the quiet cracking crisis. How's that say that three times fast, Kyle Mountsier: 0:20 like a dictionary for all this stuff. You kidding me? I know it's a mouthful, like a little pocket dictionary for all the things I'm supposed to know about the world. Yeah, Paul J Daly: 0:28 I know. Well, that's one of the best bet. You know, people ask, like, Oh, you do a show every day. It's a lot of it's a lot of work. But the one thing is, is like, you just sharpen the AX every it does. What an advantage. Kyle Mountsier: 0:39 It's literally just selfish. I mean, I love that you're listening, if you're listening, but it's really just a selfish ambition to know more about the world. That's all Paul J Daly: 0:47 it is than anybody else, right? They say, if you want to learn something, right, teach it. Talk about it. That's it. I don't know that's exactly right. So you can do that too. We're telling you some stories. Go and share them with somebody today. Actually, it's the best way to remember it. Kyle Mountsier: 0:58 Just tell them exactly what it is, reteach. Tell someone what you learn. Talk about it. Have a conversation. What's going on, Paul J Daly: 1:04 actually, right? Backing into that, but it is the foundational premise on why we started the email and why we do the show every day, is to give teams inside dealerships things to talk about. Because even, as we say, like, even if you're the Porter and you're the lot person and you're watching or listening to this, bring it up with your one of your managers bring it up with a GM, and watch them be like, Oh, huh, oh. How'd you know about that? Would you like this promotion now? Or should I give it to you next Monday? Right? That's how that works. All right. We do have an upcoming another one of our ASOTU Edge webinars coming up next week with our friends at wide whale. It's the 2025, halftime report on the state of dealer reputation. Our friend Matt Murray is going to be with us. We've seen some of the data already. It's amazing to be able to look at the half of the year and see what's trending up, what's trending down. There are certainly a few surprises in there. Allows us to adjust our strategy and address some things that maybe we didn't notice are happening in our stores, or be proactive against some things that are happening in other stores, which is the benefit of learning. So you can go to asotu.com, and sign up for the webinar right there. You can be with us live. You can get the recording after the webinar is done and do all the fun things. Go and press your boss, get a promotion, all that thing. All right, let's talk about some news. Let's get into it. Our friends at Presidio group say the sugar high is over, but the game is still strong, as their latest report showing after a volatile couple of years, dealers are finally catching their breath with M and a stable margins, strong profitability and mergers and acquisition velocity picking back up. It's not about surviving anymore. Now it's being strategic and playing to win. Here's some data from the report. New vehicle margins ticked up in q2 for the first time since 2022 signaling rare pricing stability. Come on. New cars, used cars, F and I and fixed stops are all still carrying the profit torch with public group, net income up 17.7% M A activity matched last year's pace at it was going to slow down. But 208 transactions in the first half of 2025 72% of dealers expect profits to hold or grow, which is fueling strategic investments instead of survival tactics. George, careless president, a friend at Presidio group said, quote, we continue to operate in a seller's market with active buyers widely outnumbering the volume of opportunities. We're seeing more of a flight to quality with buyers targeting top brands and large metro markets. Kyle Mountsier: 3:35 Yeah, I can tell you, I talked to a dealer last week that has three offers on the table, to to to low, three offers to get bought, and multiple offers to buy like buy like that. They that they have that opportunity. So like, especially these emerging dealer groups. This is like a 13 rooftop group right now that's grown the last the last few years. These types of groups are getting this regular energy around these things, and it's not going to go away if profitability still stays up like this, the amount of PE firms that are coming in, the amount of family groups that are growing in their second and third generation, can be Paul J Daly: 4:25 I don't know, Nathan, we live in Kyle little bit unless we go, Oh, we lost you a little bit there. But you're back, I'll be right back, yeah, but you're back, okay, he's gonna be it's, are you back? You're back, he's back, he's back, he's back. We'll get it on the we'll get it in my back. Upload. Unknown: 4:41 Yeah, you're back. Paul J Daly: 4:43 We'll fix it in post. Yeah. What a wild ride. It's been in the M A over the last five years, and everybody's always wondering, like, is it going to stop? Is going to dry up? Obviously, this report signaling we're not stopping. Dealers are making moves, though there's enough oxygen in the space to be strategic and not reactive. We're. Which is good news, I think, for buyers and for sellers, because when we're not in a distressed situation as an industry, we can focus on building in the things that we really want customer experience, better technology and all of those things. Unknown: 5:11 Speaking of technology, stop. Oh, come on. I need to plan Paul J Daly: 5:18 that as the software defined vehicle era is definitely pushing forward. Automakers are realizing that trying to own the whole tech stack isn't just hard, it's inefficient as well. Instead, they're cutting internal software efforts, embracing open source collaboration and betting on smarter, shared development models. Ford has ended its FNV four architecture program. VW has cut 1600 people from its carry ad project, and others have scaled back on internal software teams. And despite sounding like there's a big retreat, this is actually a signal of maturity, as OEMs are focusing on what matters and outsourcing all the things they can outsource. So there are all these partnerships that are growing fast, Fox con and electro bit, BMW and Bosch, Eclipse Foundation, rivian and VW, that's a big one. Are all working on shared software develop software driven vehicles or platforms together. Analysts are saying open source platforms are now becoming an essential part to all the progress. Toyota, Hyundai, GM, others are already building around Linux based ecosystems. Here's a quote from Prashant gugliotti, CEO of SDV, SD verse, that's pretty great. He says quite a few companies are realizing now that not everything can be done by themselves, to which we say, angels Kyle Mountsier: 6:37 are rejoicing, loud shouts of Paul J Daly: 6:41 acclimation, Source Software Defined, vehicle angels are not, Kyle Mountsier: 6:47 you're not, however much automakers attempt to be tech companies. They're not tech companies. They're R D arms. They're they are, they are real estate management companies. They are process driven manufacturing builders. And I think that partnering with technology companies that understand how to build technology and software and systems and can do that into the hardware that they're producing, even potentially not even producing some of the hardware, right? Like they already, this is what's so interesting to me, that they didn't start with this. Automakers are already driven by a supplier model, right? Why were they attempting to bring a non supplier model, model to the software side of the business? That seems crazy to me. So this is basically going back to the basics of being a manufacturer. Is we get suppliers and we aggregate suppliers to deliver a vehicle, whether it be the transmission, the floor mats or the tech. Paul J Daly: 7:42 Wow, that's a great insight. Come on. I think everyone just thought they could do it. Oh, how hard can it be? We're not building it. How hard can it be typing in things, Kyle Mountsier: 7:51 just gonna vibe code a map SAP. It'll Paul J Daly: 7:54 be, actually, it'll be interesting to see that vibe coating of maps app actually, in the next 12 to 24 months, once you have, actually, but the strange part is, there might be a migration back to internal once vibe code right there? Like, yeah, we take care of this internal you know what? I'm gonna put that out there. I bet in 18 months from now, they bring more resources in house because of vibe coding. Wow. I mean, you think Kyle Mountsier: 8:16 that could be wild? You think, I don't think 18 months it's going to be ready for that level. Maybe maybe not. But you never know you're like two to two to three years out. Okay, left and right by AI Paul J Daly: 8:25 lately, just, I'm just gonna put it out there. I did. I did yesterday I watched marques brown Lee's review of Apple CarPlay Ultra. He it's, what is it? It's on an Aston Martin. It's the one that was in when Apple announced the CarPlay Ultra. They use this vehicle. And he reviews it, and he it's really interesting look on how the Apple CarPlay Ultra takes over the infotainment system and all the vehicle operations. So you can it's not linked up in the show notes, but maybe we can try to get it there when we post it. So if you don't listen to the audio version of this, you should. You can go subscribe. You can check the show notes link through the marques brown Liza review of Apple, CarPlay Ultra. I don't have a segue for this one. We're just Kyle Mountsier: 9:05 gonna have to go. There's no segue. This is just this, just a weird one. So move over. Quiet quitting, if you've heard of that. The latest workplace challenge is something they're calling quiet cracking, where employees are keep showing up with the checked out, stressed and silently struggling, meaning, in our words, they're not thriving. Quiet cracking is marked by disengagement, burnout, even employees. Employees aren't actively underperforming, so there's maybe employees that are performing, but they are disengaged with their work. A lot of workers right now are staying in roles due to fear of layoffs or poor hiring prospects. Global employee engagement fell to 21% last year, costing the economy an estimated 430 8 billion just in lost productivity because they're just not engaged with their work. Frank GM Petro EY, America's chief wellbeing officer said a lot of folks actually are stuck where they are. They don't have other choices available to them. That are better, Paul J Daly: 10:01 you know, which we said we have cars. We have an idea for an industry. This is, this is both a warning sign and a big opportunity. We're feeling this firsthand, as in the ASOTU, more than car side, we have a few job openings right now, and one of, I think, we've received a total of 1100 applications. So that tells us that, number one, there are people that are looking for a job. Number two, it tells us that people are enthusiastic about a place where they feel encouraged and excited to work. The other side of this equation, quiet, cracking. People are afraid to make a change or a transition, so they're sitting as this. What a reverse of what it was three or four years ago, right when people are backing out. So I think this is more important than ever for companies to be in touch with how their people are feeling. It is not enough to say, Oh, I'm not hearing anything, so things must be good, no, and it's not that I'm not hearing anything. Are they quiet, quitting? Now it's like, Are they okay? Are they healthy? It still affects the bottom line, but more importantly, it affects how they're doing and how they are and how they're interacting with the rest of the team. And if I know anything is that when one person feels away and it's not addressed, that will spread silently, and as a leader, you won't know it until it's an actual issue. And so if there's ever a time to pay more attention to people and make sure that they're feeling, they have a they have a place where they can, like, express how they're feeling, and you can ask questions, you can probe, that's how you make it better for everybody, including your business and your Kyle Mountsier: 11:35 bottom line. So we got this thing. It's called, love people more than you love people. They'll take care of the rest. They'll take care of the rest. Paul J Daly: 11:43 I mean, I don't think there's anything else to say today. Love people more than you love cars or tech or any of the other things, and that means care about them. It doesn't mean forget profit. No. But guess what? You need healthy people to have healthy profits and a healthy organization. Get out there and build one. We'll see you tomorrow morning. Everyone.