Dealers Pessimistic Outlook, Japan’s EV Battery Push, The OG Mustang

Kyle Mountsier: 0:03

All right. We are almost through the first week of September. We got Steve Greenfield. He's back at his house after being in uh indie. We're talking about dealers outlook, Japan's EV push and the OG Mustang. Here I go. The people really want to know little Jay Leno coming in the show this morning. No need to repeat, how, how was it yesterday? I don't we didn't get any feedback. Nobody guessed where you were, unbelievable, right? Oh, yeah,

‍Steve Greenfield: 0:31

well done. The Indianapolis super speedway. And if you haven't been up there to see a race, you got to get there to see a race. They were doing the autonomous vehicles, and these vehicles now will average that that track at 180 miles an hour without a driver. You're kidding me, yeah. So they take one of the Indy class vehicles, race cars, and it's where the driver is, they put a bunch of computers and electronics in, and while they did have a crash the day before, so they wiped out a couple of cars. So they still do crash, but you know, it'll be interesting. I was talking to some of the guys that work there and say it's not too long from now where the autonomous cars will be faster than the human drivers, because just from a consistency, they're so aware, yes, yeah, they'll figure out the track and the ideal line, and then they'll just be consistent. Every single lap will be exactly the same, which I think will be boring for the people watching. But in terms of doing lap times, these autonomous cars may actually start lapping faster than humans, which is sad, like, if you were to f1 you know, fan, it's like, imagine, like a robot out there beating, you know, Verstappen or something

Kyle Mountsier: 1:36

just crushing. Yeah, that's really interesting. Like, the value of human error. You know, I am a big sports guy, and like I the more and more we get even var or, like, video reviews introduced or, you know, automated reviews. I love soccer where they they can, just like, tell within inches, whether or not someone's off sides and that, you know, camera calls it, or a goal happens. It's like there's a little bit of value in human error that I think we have as a society that says, like, you know what, there's a push and pull to being a human and that's okay. So really interesting. You know, that kind of is a good segue into, you've gotta check out. We've we posted yesterday on our LinkedIn profile, on our social media profiles, a little behind the scenes, if you don't know, everything that goes into creating a podcast, getting the guests there, all of that. Our producer, Nathan, when we're on the ground and name at NAD, did a little vlog, gave his insights. He produces all, I think, six of our shows right now, seven and eight coming out. He Yeah, we've got little podcast expert there. I don't know if he put that together on the show today that that's a little tongue in cheek from him. But let

Steve Greenfield: 2:55

me while you're on Nathan, I mean, he does a lot of this work behind the scenes. If you haven't met Nathan. He's like, literally, one of the nicest guys in automotive. So try to make it a point to find him at one of these conferences coming up and meet him. And just says, genuinely nice dude. Ah,

Kyle Mountsier: 3:10

agree. Yeah. It just a good guy. We celebrate him. We celebrate him a lot around here. All right, let's get into it this morning. A little bit different tone than the celebration, but franchise dealers are growing a bit more pessimistic going into q3 Cox automotive poll revealed concerns about interest rates, the economy and the election uncertainty. Of course, dealer Sentiment Index fell below 50 For only the third time in its seven year history, indicating negative expectations for the near future. Dealers rated their three month outlook at 49 down from 52 the previous quarter. The top concerns obviously interest rates, economy and political uncertainty. There's also just a variance from what Cox automotive and Jonathan smoke, who we both know well, has been talking about where the demand for vehicles. Says the SARS should be around 17 million. However, looks like it's going to still sit at about 15 point 4 million, even after August smoke said to say the profits are today worse than they were before. I think is thinking beyond new vehicle gross margins and thinking about other expenses that dealers have that are still being impacted by inflation and higher costs and higher interest rates, which make it very expensive to hold inventory. So it's not just profits down, it's margins down altogether because of holding costs. Yep,

Steve Greenfield: 4:37

yeah, it's interesting times I mean gross per car, front end and back and have been drifting down, if you've been tracking that, which means dealers are making less, less profit overall. And you look at the profitability per rooftop to its down and continue to track down. We're still way, way above, you know, pre, pre covid levels, right? So dealers should be happy there. But if dealers are looking at the last. Last two years and say, oh my goodness, every quarter. You know, my margins are slowly but surely drifting down, for all the reasons that you said when you recounted from Jonathan smoke. You know, there's no there's no relief in sight here. You know new car inventories are mounting. They're going to continue to mount. And you know the OEMs are coming in over the top with incentives to help dealers move the vehicles, but the same time, the margins are getting skinnier. And then you throw in it being an election year and all the uncertainty. Frankly, I think no matter who's in the White House, nothing's really going to significantly change for dealers. But there is that uncertainty, and hopefully we get a little bit of a blip upwards in both confidence from dealers, but also confidence from consumers after the dust settles, after the election, consumers get back to buying, etc. But for the time being, I think, if I'm a dealer, just realize, you know, we're getting back to a post covid normal in terms of profitability and yeah, costs are inflated. You better get them under control, because don't expect that we're going to get back to these higher margins anytime

Kyle Mountsier: 6:00

soon. Yeah, you know, one of the things that your fund actually has been targeting for a long time that you and I have talked about, is finding places where automation can reduce expenses, whether it be with AI tools or with tools that, like, allow humans to do more of the work that only humans can still do, which is, you Know, something that I think every dealer should be looking at when it comes to margin compression is, is, how do I automate some of the high cost, whether it be on personnel or high cost on time, so that I can leverage the humans that I have the, you know, typically the first largest expense line that I can leverage them to do the things that they absolutely do best. So I appreciate that, that your fund is after that, and I know that there are a lot of software companies that are that are working toward that as well.

Steve Greenfield: 6:52

Yeah. I mean, to your point, 80% of a dealer's cost structure are humans paying humans. And you know, the promise of AI in the short term is more of this co pilot concept where you've got, you know, a helper that helps increase productivity no matter what the role is at the dealership, right? There should be some persistent helper that augments their intelligence, makes them a little smarter, makes them a little faster, gives them the data they need when they need it for their tasks and duties, to do bit more, a little more productivity. Phase two of AI, and the promise we aren't there yet for automotive will be more of an agent which can work while you're sleeping, basically right, like double your effectiveness, triple your effectiveness, and then ultimately remove humans from the equation entirely when it when that agent gets trained up and is good enough. So I think in the short term, if I'm a dealer, I'd be looking more into the first bucket, like, what tools can I get, or pushing my existing vendors to say, how do I increase productivity or yield per employee? Today, that's what you should be focused on the first time. Forget replacing humans for the time being. But I think we're going to see this wave of innovation. And to your point, we're looking at some of these companies that can just sort of help your employees get smarter, faster, better, and therefore you can be doing more work with fewer humans. Yep, speaking of

Kyle Mountsier: 8:08

doing a little bit more work, stop segway, So Japan is heavily investing in a bit more work on their electric vehicle battery supply chain, offering up to $2.4 billion which is 350 billion yen in subsidies, the funding will boost production for companies like Toyota, Nissan, Mazda, Subaru, Panasonic, aiming to increase the nation's storage battery capacity by 50% the combined investment from the four automakers, along with Japanese government subsidies, is totaling over $6.58 billion so Toyota is obviously leading Japan's EV battery push, not just for full battery electric vehicles, But for their hybrids and developing their next gen solid state batteries. Subaru and Mazda also are partnering with Panasonic for cylindrical lithium ion battery production on Nissan plans to produce lithium ion phosphate batteries for mini EVs by 2028, Ken Saito ministry, a Minister of Economic. Sorry, not economy, economy, trade and industry stated, We hope these efforts will strengthen Japan's battery industry. So batteries coming out of Japan, not this just the US, going to continue to press the EV landscape? Yeah.

Steve Greenfield: 9:33

I mean, I think this may be a case of too little too late. You know, the Chinese, over a decade ago, made these huge strategic bets to lock up the inputs to batteries, critical mining assets, the ability to refine, they refine more than, like 90% of all the battery components on the face of the earth. Build up competency in building batteries, and then, as we've seen recently, build up competency in building really high quality, low price, EVs. So as Japan's. Looking at this, and I believe that nine of the top 10 battery manufacturers in the world are Chinese. It's gonna be really hard for them to throw a few billion dollars at this and fix the problem, because China has very methodically locked up all of these resources. So hopefully goodness comes of this, and Japan can get more independence, because it's a dangerous situation where you got Chinese effectively taking over a lot of the markets in the world with exports of really good, high quality, low price, either EVs or ice vehicles. Japan's gonna be looking at this and saying, This puts us in a precarious position, but I don't know, by throwing a couple of billion dollars at the battery supply chain, it's gonna make much of a dent in Chinese dominance. Interesting,

Kyle Mountsier: 10:42

yeah. I mean, everybody's kind of after this. You know, we want to be the producer, including the US. But like you said, a 10 year head start is, is a is a pretty dang big head start.

Steve Greenfield: 10:53

It is, yeah, yeah, no doubt,

Kyle Mountsier: 10:55

speaking of a few years stop segway, you're going to want to check out the trip down memory lane that Bill Ford and Jay Leno took in a classic piece of automotive history. You know, in relation to the fact that, Steve, you were at the Indy 500 is kind of cool. They took out the original pace car from the 1964 Indianapolis 500 this car was built in the first hour of Mustang production, and Bill Ford recently became its fourth owner after a friend spotted it at a show. Bill's uncle Benson Ford senior drove the pace car in the 1964 Indy 500 making it the first time many people ever saw a Mustang. Interestingly enough, Jay Leon Jay Leno, in it, shared a personal story about how Bill Ford's Uncle Henry Ford, the second helped him get a job back at a dealership, and then after being fired for dropping hubcaps, Jay Leno wrote to Ford explaining his family's loyalty to Ford vehicles and his desire to own a Mustang one day, two weeks later, the dealership owner reinstated Leno, saying, I don't know who you know in Detroit, got your job back So Jay. Jay has a little bit of a Ford blood in him, for sure.

Steve Greenfield: 12:07

Nice, nice. Yeah. I mean, when you think about iconic brands in automotive, well, I'll ask you, how many brands have been relevant now for like, 60 years, that are still in high product, high production volumes today. I mean, Mustang is one of them, I would I would argue Corvette is another one. Beyond that, I can't think of another brand that is doing significant volume today that was as relevant now as when it was introduced, like 60

Kyle Mountsier: 12:32

years ago, no, at least not model, right, potentially a couple makes, right, but, but model, oh,

Steve Greenfield: 12:37

yeah for sure. But models that have had this kind of staying power and relevancy, although there were years in the 70s when those Mustangs were pretty pathetic and ugly and small displacement. And those ones have not become collectibles yet, and I don't know that they ever will so, but it was a bad it was a bad decade for cars in general, with oil embargoes and things. But beyond that. I mean, I think that, you know, the Mustangs brand with consumers is as strong as it was. You know, when it got introduced 60 years ago?

Kyle Mountsier: 13:05

It's amazing. Yeah, you look at that, and you look at like Ford being kind of the ones to really, really be. And obviously, because of the executive's leadership, desire to kind of talk about EVs, but this muscle car history is definitely deeply entrenched in who they are and what Ford has brought to kind of the American feeling we talked yesterday about, like, whether or not, you know, an electric vehicle going around a track actually gets people out to the track because of the sound not Being there. But yeah, you think about, you know, a Ford Mustang starting up. And you know what that sound sounds like, you know, right? So kind of cool. You're going to want to check out the video if you haven't do it. It's a good one for auto, just because you know whether, whether you're a Subaru or a Mazda or a Ford person, it has a little something for you.

Unknown: 14:00

So cool. Very cool. Love it.

Kyle Mountsier: 14:02

Well, that's all the time we got for today. Thanks for hanging out with me the second half of this week. Steve, hey, you got a good weekend ahead of your first weekend in September. Make the best of it. See you next week.

Unknown: 14:22

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