March Sales Marching, Valuations Adjusting, Costco Hot Dog Changes Coming?

March 29, 2024
It’s a magical fifth Friday before a fifth Saturday and we’re ready to roll as we talk about the anticipated strong end to the month. We’re also covering the latest M&A report from the Presidio Group, as well as checking in on our old friend, the Costco Hot dog, Soda Combo. 
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Show Notes with links:

March is on track to be a standout month in auto sales, the strongest in three years, with sales volumes expected to exceed 1.4 million vehicles. This surge is fueled by higher incentives and increased inventories, keeping consumer interest high as the spring selling season kicks off.

  • Sales volumes are estimated to surpass 1.4 million vehicles in March, a 5-6% increase from last year
  • Quarterly sales are expected to hit 3.76 million, up 5.5% year-over-year
  • "Consumers are still shelling out cash for new vehicles," says Jeff Schuster from GlobalData, highlighting the impact of inventory availability and incentives on mitigating price increases.
  • Mixed results are anticipated across automakers due to inventory challenges faced by Japanese brands last year. Toyota, Honda, and Mazda may see 14-22% gains, whereas Stellantis, GM, and Hyundai could face losses.
  • A shift in consumer preferences towards more affordable compact or subcompact models is evident, driven by affordability concerns.
  • Average transaction prices fell to $47,244 in March, a 2% decrease from last year, with electric vehicle days' supply dropping significantly from 159 to 114
  • "We've officially come full circle... But shoppers need to temper their expectations as to the brands that they're going to find deals on," cautions Ivan Drury, Edmunds' director of insights.

According to a new report by M&A firm, The Presidio Group, Dealership values are experiencing a noticeable adjustment as vehicle supplies rise, and profit margins begin to normalize post-pandemic. The market demands increased operational efficiency to sustain profitability.

  • Strategic Insights on Profitability: With a 20.4% decline in net pretax profit across the board in 2023, dealers are encouraged to focus on operational efficiencies, customer experience, and innovation in dealership management to navigate the changing tides.
  • The latest Presidio Dealer Direction Survey reveals a pragmatic outlook among dealers. While recognizing the challenge of declining profitability, dealers also see opportunities for growth and acquisition, reflecting a resilient and forward-looking industry mindset.
  • The report also sheds light on the critical role of technology in transforming dealership operations. Innovations in data management, customer engagement, and operational efficiency are highlighted as key drivers for future success.
  • Even though dealers are in agreement that profits will continue to drop over the next 12 months, they are still optimistic on the reality that profitability is staying above pre-pandemic norms as the average dealership’s net pretax profit last year was still more than 2.5 times 2018’s level, according to a Presidio analysis

In this world where inflation nudges prices upward across the board, we must ask, “Where is the pricing on Costco hot dogs going?”  Nowhere. Costco leaders say the company is holding its famous hot dog-soda combo at the remarkably stable price of $1.50.

  • As the company continues to defy inflation, the combo would cost $4.50 at this point if adjusted
  • Speaking about the $1.50 price of the hot dog deal in a recent interview, Richard Galanti, Costco’s long-standing finance chief who retired this month, said it was “probably safe for a while.”
  • As we’ve talked about earlier, the company has gone through great measures to keep costs associated with the hot dog down, such as switching to fountain sodas from cans, and manufacturing its own hotdogs and buns. They have also raised prices on other menu items at their snack shop.
  • In 2009, Jim Sinegal, Costco’s co-founder, said, “I know it sounds crazy making a big deal about a hot dog, but we spend a lot of time on it.” He added, “We’re known for that hot dog. That’s something you don’t mess with.”
  • Last year the company sold over 130M hot dog combos

Paul J Daly: 0:00

Yo yo, it's like a magic day, fifth Friday of the month in front of a fifth Saturday of the month in front of a holiday in front of a Monday start to the month. You can't ask for any more than this. We're going to talk about March sales, valuations. Hot Dogs, dogs, whatever. Yeah. You gotta check it on that Costco hot dog.

Kyle Mountsier: 0:38

We do have to check in. I was telling Nathan before I was like, wow, this is like our annual check in on the hot dog. How's it doing? Right? You know, it's good. Hey, I don't know if you knew this. You probably know this, because you're looking at the show notes. But I didn't know this when I woke up this morning, either. That this is episode 707 00.

Unknown: 0:59

I think it's weird

Kyle Mountsier: 1:00

back back with me. A lot of people in this community know who Glen Lundy is. And I remember the time when he had like his 1,000th episode. And I was like, There's no way I could live to be nodes of a thing, right? And now 700 I know how, you know, like, 300 days from now, like, that's a possibility. It's kind of mind do

Paul J Daly: 1:23

some calculations here. 700 times probably an average episode of 9100 minutes. So we're gonna go Alright, we got? Do we only have 151 hours? And

Kyle Mountsier: 1:37

that kind of makes me sad.

Paul J Daly: 1:42

Not even close our 10,000

Kyle Mountsier: 1:44

Man. Oh, man. It's all good. It's all good. Well,

Paul J Daly: 1:46

thank you so much. If you've been here from the beginning, just massive appreciation, because that's a lot of podcasting. It's a lot of emails, it's a lot of events. It's a lot of energies, a lot of social media posts. And I just want to thank the team asoto, because the team has changed and shifted over the years. But the asoto crew is so much behind the ability to put on 700 shows and put out social media content, and plan massive industry events like a soda con that's coming up, and be there at NADA, and cover the show on the ground and write articles. So special shout out to the soda crew, definitely to our producer, Nathan who is on the show with us having things ready and making sure you can see us, you

Kyle Mountsier: 2:26

know, actually, so Steve C, I don't know how to say his last name. But a lot of people know him on LinkedIn, he's got a little bit of a snarky bit to two as

Paul J Daly: 2:35

it's got a C and an S and Z and a while a whole bunch of letters

Kyle Mountsier: 2:39

that are all consonants in his last name, right. And he's, he said, he said something like, when I see these guys come through, it's like standing on the edge of a train platform as the train is pulling into the station just whizzing by. And I would say that that's like, that is all because of the asoto crew, it feels like that it feels like this constant motion because of Nathan and Kelly and Christie and Chris. And I could go down the whole list. But it's everyone putting in that work every single day for sure.

Paul J Daly: 3:09

And they believe in what we're doing. They believe in the more than cars mentality, the more than cars mission, because let me just tell you something. It's really hard work. We have a small team doing a lot of things. I've read on a website called 37 signals they invented, you know, Ruby on Rails and a bunch of products like Basecamp. And they said, small teams can accomplish big things. But it's very hard for big teams to accomplish small things. And I was like, oh, that's that's the truth. But our small team accomplishes our art. How many people are on the team right now? I'm terrible. 1212 and 12 and Cirilo. Yeah, 12 probably feel like 30 If you have the amount of stuff that goes up, and from the inside, it probably feels like we're doing the work at 30. But that's, that's right. Give us some love. You see him out there on LinkedIn or social media, please give him some love. Let him know you appreciate them. And all the hard work that they do, because you wouldn't see anything if it wasn't for the team behind us. Hey, speaking of the work that you're gonna get to see experience in person, a soda con is coming in super hot, we are 46 days out. Is that correct? No.

Kyle Mountsier: 4:10

Is it fair to say it ain't so?

Paul J Daly: 4:12

Oh, we're getting? I thought it was like 50 You're kidding me. So, we just announced the agenda yesterday. So if you go to a soda and click on agenda, you can filter it by day, by stage, we have about 80% of the content out there. And I think you're gonna be really surprised at the depth and the breadth of content we have up there. Very practical, practical sessions to help you learn something, take it back to your store, back to your business implement. If you need to convince your GM or your owner to let you go. This is what should arm you to do that if you are a GM are an owner, you should look at this list. Look at the people that are going to be there. Look at the top performing dealers who are a part of the speaker roster and say, How can I rub shoulders with them? Learn from what they're doing best practices? We're talking about fixed ops sales. Marketing. Brian beds sucks giving our closing day one keynote just gave us the title last night it's early to bed early to walk early to rise, wake your ass up and advertise. He said Arnold Schwarzenegger said it, ripped it from Ted Turner, and now it's been stuck. So you're gonna get you're gonna get all the heat if you're there. So go to ASOTU Get your ticket book, your hotel room, like right away, because our full room allocation will be the majority of the hotel like vast majority, the hotel is almost out. So if you're on the fence, get off the fence, get the ticket and be there with us. Yeah, let's get to it. We got some we

Kyle Mountsier: 5:36

got some good stuff to talk about this morning. This was one of those good show days. Sometimes it's

Paul J Daly: 5:40

just scraping the bottom of the barrel. Today's the day march is on track to be a standout month in auto sales the strongest actually in three years with sales volumes expected to exceed 1.4 million vehicles in March. So fueled by higher incentives, higher inventories. Keeping consumer interest high as the spring selling season, as we know is in full swing. So volumes estimated to surpass 1.4 million, which is a 5.65 to 6% increase from last year. quarterly sales are looking at around 3.7 6 million, which is up the quarter over quarter, five and a half percent. So Jeff Schuster from global data says consumers are shelling out cash for new vehicles. Talking about the impact of inventory availability and incentives on that inventory. mixed results are anticipated across automakers due to different inventory challenges. Obviously, Toyota Honda and Mazda Macy 14 at 22% gains this year over last year, if you remember, they were having more inventory issues last year than the domestics. And the average transaction price is going down. Fell to 47,000 to 44, which is a 2% decrease from last year and check this evey day supply even the EVS one down to 114 from 159. So

Kyle Mountsier: 6:56

a lot that's, that's a massive market day supply change. Well, and you know, could be because there's being a little bit less manufactured and pushed into the market. But yeah, because everyone's like, the money on the hood is helping out a lot of those. We're hearing that conversation. This is right in line. And you know, from the dealers that I'm talking to march is, is moving and was two more days like to end on a Friday, Saturday before Easter, I knew some people were even ending on the Sunday on a Sunday, you can't write it, you know, on a march. And when we had a little bit of a down February, like you can't write it better than this. So I can't wait to see what the actual numbers come out with. I can't wait. I'm sure like LinkedIn and Facebook are going to be flooded on Monday and Tuesday with like we broke records, posts, which always just gets me and so I you know, I'm just I'm just excited to see that. And also to see that consumer confidence is high, right that that consumers are buying and ready to buy and the there's liquidity and assets out there. It's good news for our economy. And I think a lot of other industries will point to what Otto has done in March and say hey, look, we're good. Yeah,

Paul J Daly: 8:10

speaking of hey, look, we're good. Yeah,

Kyle Mountsier: 8:12

we are there it is. A softball Causton to that one.

Paul J Daly: 8:17

So, so this week, we're gonna talk about a new report from the m&a firm Presidio group, I just want to mention that at ASOTU CON, which we just talked about, you're going to have I think it's the first ever we're going to have three of the top m&a panels, or three and the top of the top m&a firms represented on a single panel. So the Presidio group, Peg partners, Kerrigan advisors are all going to be on the panel. At the same time, we're gonna have a great conversation about the broad scale, m&a landscape. But basically, dealership values are experiencing a noticeable adjustment as supplies rise and profit margins begin to normalize post pandemic. So here's some insights from this. What's the report called? I shouldn't know this. It's the quarterly Presidio Group Report. We'll have it linked up in the show notes. But basically, this report is saying a 20.4% decline in net pre tax profits across the board in 2023. Dealers are focusing on operational efficiencies, customer experience and tech innovation. To navigate the changing tides. The latest dealer direction survey reveals a pragmatic outlook amongst dealers and recognizing the challenges ahead. It also says the role of technology in transforming dealer operations is really making its way to the forefront. This makes a ton of sense right operational efficiency to sustain profits. And even though dealers are in agreement, that profits will continue to drop over the next 12 months. They're still optimistic that profitability staying above pre pandemic norms is going to happen. profits last year are still more than two and a half times what they were in 2018.

Kyle Mountsier: 9:51

That's pretty like I think just a lot of people need to just remember that. And remember, please where we came from. There's still a lot of good in the profitability of the industry. I think, you know, one of the questions that I heard come home a couple of times last week were or earlier this week, gosh, it feels like last week was when we're at the auto automotive forum in New York at the beginning of the New York Auto Show, is this conversation around how to walk employees through the change in their personal incomes due to the profitability because I think dealerships by and large, are still going to be profitable. Many of these owners were their pre pandemic, so they understand what it takes to operate with that level of profitability, or, and still even more, but it's going to be the employees that were hired on in the last three years that you struggle, or need to coach through how to manage finances when things have changed dramatically from what they did the last two or three years. But hey, I like like we just said in March, things still good fim?

Paul J Daly: 10:58

They still good? Two and a half times is 250%. Imagine if 2018. You're like, hey, profits are going to be 100% higher in six years. Everybody be like popping champagne. Yep.

Kyle Mountsier: 11:10

today. Well, speaking of things that aren't 100% higher in six years,

Paul J Daly: 11:13

it's not even close.

Kyle Mountsier: 11:17

Not even close. Not even close for your yearly Costco update because hey, we got to bring you the story cost update. Yeah, the Costco hotdog update in a world where inflation not just prices, upward prices upwards across the board. Were asking where's the Costco hotdog going? Remarkably, it stayed flat at a buck 50 a pop. If the company was to obey inflation and move that combo up as inflation went, we would be looking at a $4.50 cent cost if it was adjusted, which is still crazy low, but they've kept it at a buck 50 price. During a recent interview Richard Golani Costcos long standing finance chief who retired earlier this month, said it was quote, probably safe for a while they've done a few things with this combo. Things like moving from cans, to fountain sodas, manufacturing their own hotdogs and buns so they're not buying them wholesale from someone else. And they've raised prices on other menu items to balance the cost of that item. In 2009, Jim Senegal, co Costcos co founder said, I know it sounds crazy making a big deal about a hot dog, but we spend a lot of time on it. He added we've known we're known for that hot dog. That's something you don't mess with. Last year, Paul, the company sold over 130 million hot dog combos that a couple were to my family.

Paul J Daly: 12:48

Mind to that is literally when we were going over the story in the morning. I was like I want a Costco hotdog combo right now.

Kyle Mountsier: 12:55

It's it's one of those it's it's like getting cotton candy at the at the park. You know, I mean? Yeah, same type of feel. Well, I

Paul J Daly: 13:02

mean, this is this just another great example of a customer of a company who understands their brand. They understand where the profit comes from, and where you don't have to make it come from. And this is kind of tying me back to like, we'll get deras book unreasonable hospitality he has There's a story in there, where he was managing, you know, all the food service at Museum of Modern Art in New York, he had this gelato cart, and he spent way too much money on these he would call them Perfect Blue spoons. And he caught a lot of flack for because they were very expensive. And obviously a spoon that a lot is like a throwaway item. And he said there's a deal. If you manage 98% of your budget really, really well. And you can be extravagant with that last unreasonable with that last one or 2%. Right? This is Costco I think doing the exact same thing and it's become a brand icon and figuring out how to make it work. And I think Costco is doing okay,

Kyle Mountsier: 13:53

you know what I think the related thing in auto is, is like so many people when they look to quote cut expenses, look, and this will blow your mind, Paul, but they look to like the snacks and coffee in the waiting area first. It's like nah, get out of here, drop the coffee down to the Folgers blend. And it's like, Hey, if you manage the 98% of expenses that are much broader and much larger and the rest of your business, how extravagant Could you be with the thing that just like sets the tone in the service department

Paul J Daly: 14:27

I deploy and literally, I follow the same playbook here at congruent in our headquarters here where we just have like this nice it's kind of like fancy bottled water comes in and aluminum can and it's more expensive than a plastic bottle. But everyone comments on it and it just sets the tone for the experience that you're having here because there's been another 50 cents right now we're not moving like 100,000 bottles of water every year but at the same time I will not have plastic would be okay but I won't have like the supermarket

Kyle Mountsier: 14:56

for natural spring. What yeah water yeah. Not all support in your hand makes you feel angry though but

Paul J Daly: 15:03

at the snack bar, it's a perfect example like what are the little things like overall it's a very little amount of money but it makes people feel like oh, like they're taking care of me.

Kyle Mountsier: 15:11

That's right. Take care of you. Hey, look, we

Paul J Daly: 15:13

hate you get out there today. Whatever you're doing, take care of one another. We got a busy Friday, busy Saturday. Busy Sunday for some people. Some people are gonna be celebrating Easter on Sunday. So if that's the case, celebrate Well, we will see here next week.

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