NADA Franchise Report Breakdown, Abandoning Adessa, Manufactures in the Metaverse

April 25, 2022
It’s a beautiful Monday to make some trouble as we give our quick takes from the recently released Annual NADA Franchise report. We also talk about what Toyota and Nissan are up to in the metaverse as well as the impending closing of Carvana’s acquisition of Adessa and what that might mean for the popularity of the country's second largest auction house. 
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Annual NADA Retail Franchise Report

  1. Street purchases up 2x
  2. Cost/sale on the rise
  3. New vehicle supply under 25 days
  4. Over 271M Repair Orders written
  5. 1,055,400 Dealership Employees (avg 63) (pg 17)
  6. $8.9B ad spend (63.6 internet, 12.4 tv, 9.8 radio, 8.2 direct mail, 4.5 newspaper (pg 16)
  7. 2019 $9.25B , 2020 $7.48B, 2021 $8.19B  (pg 15)
  8. Avg per unit: 2019 $640, 2020 $582, 2021 $602

Toyota and Nissan create virtual experiences in the Metaverse

  1. Toyota is leaning toward virtual workspace environments, catering to younger employees
  2. Nissan is focusing on virtual vehicle launches and consumer experiences

Some Buyers and Sellers Abandoning Adessa after Carvana Acquisition 

  1. Lithia CEO Bryan DeBoer, during last week's first-quarter earnings call, believes seven manufacturers recently pulled vehicles from ADESA. Automotive News confirmed that Toyota Financial Services chose to end its relationship with ADESA effective April 1, a spokesman said.
  2. Erine Garcia acknowledged "small handful of both buyers and sellers" have chosen to leave
  3. Adding the ADESA sites would nearly double the volume of vehicles Carvana can process to as many as 2 million vehicles a year, the company said
  4. Deal is scheduled to close in May

Paul Daly  1:04  

Morning. Oh, we rollin. Good morning troublemakers. It's Monday. We got a lot of energy pent up today. You can see his dancing before the show started today we're going through the NAB franchise report talking about dealers abandoning ADESA and manufacturers moving to the metaverse.

I promise someday soon you're gonna drop a rap record and all it will be is the titles from our last like 20 Like someone needs to cut that I think Brian Ortega one day needs to go back on our last one and just like chop it together, like cut stuff up and all the sudden it's a wrap,

right? Moving to the metaverse is the dunk. Got it. Good morning, everybody. We there's like a lot of energy today. Like you can just tell sometimes when we log in in the morning, like we're just ready to go. Today's one of those days. I know why I feel great. One of the reasons is that it is absolutely stunningly beautiful in upstate New York. Yesterday today over the weekend. It's it's the perfect time of year to make up for all that garbage weather that we get. So that just puts me in a good piece. I don't know on Monday, son on Saturday. You're like that is also otherwise known as Nashville. The good weather? Yeah,

this is this is the way we do it in Nashville. Yeah, we had a beautiful weekend. Today. It might be a little bit rainy. But then we get a nice like it kind of cools it was 80s in the weekend. cools it off. We'll be in the 70s we'll be hanging out in spring might actually get a Spring this year sometimes.

So yeah, my kids are like yesterday. It's like 77 and sunny my kids like and we going it's hot. Oh, no. We are so

my son goes out in jeans yesterday afternoon. It's 84 degrees. We're like son put on some shorts, because it's windy.

It's so funny, all of our blood will acclimate. You just saw the trailer. If you're watching the video for our event, the asoto family reunion may 9 in Tampa, it's shaping up to be an amazing evening you have some amazing special guests, we're gonna have so much fun with the swag experience, we're gonna be giving away cash, true cars giving away gas money. So if you're feeling the pinch the pump believable come and get some cash for your guest tank. It'll be a lot of fun. Tickets are available now we did sell out last year. So sooner than later. And we saw this last year, Kyle, it was like a steady ramp up. Right. And once we got like two weeks from the event ticket sales started to go even faster. And then by like two days before the event, I was getting text messages from everybody. And they all started like this. Hey, man, it's good. Good to talk to you. Yeah. By the way, do you have extra tickets so like, we don't mind doing those things, but we might just might not have any left. So get your tickets sooner than later. If you're a dealer, guess what? Our friends at auto phi paid for all the dealer tickets. So you can Oh wow. So much. It was so fun to see watch tickets open up and like 95% of the tickets were dealers registering to cause the best to the event. So it's gonna be an amazing night, make sure you get your tickets. Even if you're a dealer, you have to get the tickets. It's a ticketed event and you can't get in without a ticket. And we go, and we mean it. Right? There's only one way in and out of this place. And you ain't getting in without a ticket. What else? What are we excited about today?

Oh, man, we're really excited about you know, I for you. You've been an entrepreneur for what? Five, six? Well, no, no, like 12 years, 15 years or so 2020 years. And so for me, I mean, I've always hired people into the companies that I've worked for, for the last, I don't know, 10 years. But just this experience of bringing people into a company that I now own that that I'm partners in and and so we get that opportunity again today to bring a new person in. And really what is really exciting about this person is We kind of threw the call out there to the asotu. Community, part of the story, hey, we are looking to hire a senior graphic design person and an Events Coordinator. And all of a sudden, I got like three LinkedIn messages and two emails within a couple hours. And wouldn't you know, but one of those emails has now turned into our creative content director that starts today. So really excited to at some point, introduce him to everyone on in the asoto world

just I'm so excited and imagining the possibilities because if you've been a part of asotu world, for any period of time, pretty much what you see is what is largely directed and or manufactured by hold your hands up cow, but he's four. And brains in my so having someone to come in and kind of take take the wheel on that is just going to take our whole thing to the next level looking forward to to building out that and creative team. Now I've seen your writer, Content Director, social media coordinator designer, like we're starting to get a little we're gonna need it to start to get a little bit ahead of steam, and we're going to need it because we have some big big swings. We're excited to talk about coming up soon. Yeah, yes.

Speaking of big swings, segue. Look, if you're in retail, automotive, you know, you already know that retail took a massive swing for the fences last year. And we now are getting the exact data points back. So the NADA retail franchise report came out. I think it was last week or maybe two weeks ago, we kind of it's one of those things that doesn't publicize that much. But should be though. I know, right there think we're trying to fix that

right now. Exactly where there's so

many good nuggets. So we just wanted to pull out some specific data points in there that that we thought were really interesting about the retail franchises and inventory and how how, how, how financials and and even employees are going because we think that's important for the whole industry to kind of know like, Okay, what's everyone else doing out there? And how is that impacting me at the store that I'm at? So?

Yes, we pulled out a couple of points as I was going through this. And we kind of parse through it separately and put some feedback in the notes. I was like, man, we should like do a whole discussion on this. Like we could do a clubhouse room or something. Because there's a lot in here, we kind of skimmed the surface to give you some data points today. Kind of want you to take the first the first few and then I'll take the last one since I think that's how we we entered them in here.

Yeah, no. So the first thing that caught my eye and I went right to like inventory, how is inventory going? And the two big things about inventory one, we all know this, but new cars supply is way down almost over half of what the typical day supply is. So meaning the available inventory in the market and how fast it's most likely to sell is now for domestics at 22 days and for for international makes it's 26 days. So really the average is under 25 days of new vehicle supply, which is a pretty stark difference from you know, many manufacturers carrying 9100 100 120 day somebody lies out there. Remember that? Yeah, that's crazy. Like no, nobody, nobody wants to go back there. The other piece that I was looking at was like, all of the variances between new vehicle sales used vehicle sales and how that how that parsed out for new franchises and honestly, the variances weren't that mind boggling to me right used vehicle sales up 4% new vehicle sales down a few percent. But the one thing that caught my eye was that street purchases meaning purchases of acquisition of used inventory from the public from the street was up almost 2x up from 4% of the total used car inventory that that do there's a holding to 8% of the acquisition strategy, which in my mind is still low. Right. I came a lot more cars out there. Yeah, I came actually from a group that was on from a trade and vehicle purchases, which was about a 5050 split. But there's still a lot happening at the auction. There's still a lot happening from Wholesale from a wholesale perspective, not just trades. And and then. So yeah, just some really interesting stuff that that I saw from the inventory side of things, you know,

a couple other things that popped out. Here's one little little snippet from the service service segment, over 271 million Oros were written last year. How many people in the country for something for 450 or 420? Yeah, yeah. So So think about that. 420 and that includes children, babies like all the Think of how many lives an auto dealership touches every

car new You're headed there that

170 million times someone came in was like, something's up, I need some help with this. And it was an auto dealer that had the opportunity to say, I can help you with that.

You're trying to get my heartstrings here on a Monday

act annoyed and pressured. And like, that's also 271 million opportunities to give the wrong impression. Right. So to think about service as this backbone relationship opportunity, and like Jordan, several million that wasn't all individual people, right? Some people have come in multiple times. Right? So unlike sales, where it's like, you get to see one person every three to five years on service, you've probably seen that same person multiple times. So I thought it's important to point that out. Let's talk about people employed 1,055,000 1,055,000 people employed by dealerships. That's just a few. That is just a few. And we're not talking about, you know, entry level positions, either. Right? So thinking about just the impact that automotive has. And I couldn't help but look at the advertising section. Obviously, we have a heart for marketing and advertising, right, right here. Here's the interesting thing. Like as you track, Isaac, you put the graph up, as you look at the $8.9 billion ad spend, and how its allocated out. I'll go from from top to bottom, you got the pie chart one so 63.6 was spent on the internet 12.4% On TV 9.8% on radio 8.2 direct mail, I was surprised by the direct mail percentage APR because all you got

to do is send one piece a year and it's 8.2%.

Newspapers coming in at four and a half percent. I think it's time to like the 63.6% spent on the internet. I was like, I think some subcategories are important now in these reports just on the internet, right? Because I

agree, because if I had to guess internet is now inclusive of like streaming services,

Ott, right, you're gonna have OTT and search and SEM, you're gonna have like anything you spent that was deployed on the internet, which is Facebook, right, which is pretty much all of life. So I think we get the point. The point is that, okay, digital is in charge.

Right. Now, here's, here's the question, because there are a ton of dealers that are executing the majority of their budget in digital, but there are still a significant amount of large dealers that are that are doing a lot on the traditional side. And so it's still crazy to me to see that spending on the internet is 63.

Prisons. Yeah. Well, because you said you would expect a lot more would be TV and traditional.

Yeah, it's it seems like there's still a lot of spending on the traditional,

probably indicative of the fact that there are just very large and very savvy groups that have just gone all digital 100% You know what I mean? So it's like disproportion, I would argue that probably the smaller groups, and the more individual stores benchmark much more heavily toward a higher percentage of traditional spend than digital. And then the probably right, the more sophisticated the marketing spend gets, the more digital it is, and I think they're just more dollars in that pot. So that's going to skew the whole thing. Total ad spend in 2019, it was 9.2 5 billion in 2020, it went way down to 7.4 8 billion now. And in 2021, we're still a significant were a billion plus lower than we were in 2019. So 2019 was 9.25 2021 is 8.1 9 billion. So do you think that's because people got more savvy with how they spent their money? Or it has mostly to do with the fact that there's less inventory? What do you think

it's still less inventory? Because, like, in just our conversations with a lot of dealers, it's like, we haven't brought back our full budget, because we don't even have the new car.

So what are we going to talk about? Right?

Yeah, so I think that I think that there's still just like, restrict, because here's the thing. I think if dealers had the inventory right now, they would be spending at the rate of profit that they're that they're managing to Right? Like you would probably see that come back up to an average per unit in the mid sixes, instead of down at six, which is where, which is where it at $600 cost per sale. So I just think that I think it really is predicated on the volume of new cars on the ground, right?

Well, looking look at the next slide down the average per unit went from 640 in 2019, down to 582, in 2020. And now is back up to 602. So the average per unit is still lower. But that could also have a lot to do with the fact that like there's not a lot of competition for advertising your inventory. If you have a car to sell, guess what? Everyone's gonna find it. So you have to spend less money to get there. It will be interesting to see watch what happens as the curve goes back up. But you and I know from clients we work with and things we've seen Dang $602 is a lot of money per car and that doesn't even factor in personnel. Yeah, right now, like we're big believers, and we've seen it in place that you literally can get between 20 250 and $400. A unit, including your Human Resources expense. It exists, but I mean, there's just a lot of waste, which means there's a lot of opportunity. Let's talk about something else for a second. Let's go. So Toyota and Nissan did something. They went into the metaverse, and you know what they saw first. They didn't see this image, but it does look like the metaverse they went. They both they both went into the metaverse and they saw Brian Kramer sitting on a lounge chair, saying like What took you guys so long?

Kyle Mountsier  15:38  

Hey, guys.

Paul Daly  15:42  

I've been waiting for you. A Toyota and Nissan just create a virtual experience in the metaverse with two very distinct purposes. I was surprised to read this. So Toyota has taken a line saying they are working in the metaverse and developing their Metaverse experience to really cater towards their team members and provide a place for primarily younger employees to come in and say like, Hey, this virtual workspace avatar based, right, and I've seen some of that stuff. It looks really cool. While my son, on the other hand is leaning into like new vehicle launches and consumer experiences. So I saw they both got the metaverse like okay, and then I read it and I realized that like two different trajectories. Make sense? I'm just gonna throw this out there. Oh, here we go.

It's scary. But the way to direct to consumer without having to mess with franchise laws is obviously in a virtual space. Oh, yeah. Watch out. Yeah.

I mean, well, the playground exists. Yep. Right. You don't have to go anywhere, and you can actually interact. So what we're saying there is dealers don't sleep on the metaverse. Right. Like I understand. I understand that hesitancy. We talked about it all the time. Just yeah. Without a doubt a little bit.

Yeah, everybody's going that obviously we have plenty to do and work to do in the showroom experience and the online experience, right, but we just can't sleep on it. You just can't be like, No, it's never coming. You can't reject it. Started learning where and learn learn about it.

Same advice we have with crypto just get get a little bit you actually don't even need VR goggles to to operate in the metaverse, right, you can just be on a desktop and you move around. Like if you have a kid just ask them to see what it is to play Roblox. The game are ROBLOX, and it's kind of like that. Alright, we've kind of gone a little long here we got one more story that we think it's important to talk about. So basically, everybody knows Carvana acquired ADESSA that the transaction isn't actually closing until May. And it seems that a lot of people are starting to pull back from committing to sell and buying sell their cars. at a desk from the automotive news article Lithia CEO Brian de Bourgh says during last week's first quarter earnings call, he said he believes seven several manufacturers recently pulled out of selling their vehicles from Odessa and automotive news confirm that Toyota Financial Services did indeed choose to end its relationship with ADESA effective April 1,

you that's a lot of inventory, leaving a major source for vehicle acquisition in the US, and one that is owned by a direct competitor to us vehicle sales. And we know what all the manufacturers are doing, which is doing a used vehicle sales opportunity and CPO vehicle sales opportunity. If I had to guess Toyota is probably working in the background to something very, very similar to what GM has instantly answers. Yep, already.

We'll keep it Keep it keep it in the walls. Right, we'll keep it within the walls of our store. And, and you know, it makes sense that the auction industry in general, would be taking a massive knock from the way things are going and this great reset auction is not going to be what it was before. Probably companies like ACV, right filling in a big gap. But I think a lot more is gonna be manufacturers, like you said, saying like,you know what, we have this asset of certified prions. Right, we have these new sales models, like let's keep them in the walls and let our own franchise dealers trade, you know, trade horses within within our walls before we have to spend the time, energy, money and attention to get outside. Ernie Garcia, CEO of Carvana did acknowledge that a small handful of both buyers and sellers have chosen to leave. He said we didn't put this in the shownotes. But he did say this is within or less than the fallout that we've expected thus far. So Wow. I mean, I guess you have to expect it.

You have to expect it. I mean, like, I know that multiple dealers that were like, yep, never going back there immediately. But then there's still going to be plenty that say, Hey, look, it's just it's an Acquisition Source. And we were still gonna find vehicles, whoever owns it, they own it. Right. I think that the more interesting story is is just around the voting machine of Carvana. Starting to get down voted stock standpoint. Yeah, from a stock standpoint, and this is just another tick in that and to see what actually happens when the act was This takes place will be interesting as well. Here's the thing, we talk a lot about supply chain management from a new car perspective, we haven't talked about it from a use current perspective. And manufacturers are looking at supply chain not just on the new car side, but on the used car side. So it'll be interesting to see what other manufacturers do with things like a desert in Mannheim, in the future.

It will one of our asotu investors, Brian benstock said, Yep, they're taking these knocks, but they got a lot of really smart people over there. So I'd be watching to see how they pivot and transition and use this to try to leverage it and slingshot them. Don't count them out is what he's saying. Let's be honest, ADESSA acquiring ADESSA has really doubled the volume that Carvanha can actually process from 1 million to 2 million vehicles. So at the very least right they've doubled their capacity to be able to process their product, which are indeed used cars. Your product for today is a full Monday ahead of you where you can do anything you choose to do so we hope you will serve people innovate regardless of what's going on in the world. Get out there and like make some progress.

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