Record Auto Loan Debt, Union Labor and Affordability, Rivians Burning Tires

Paul Daly: 0:27All right, it's Monday morning, we're gonna power slide into Monday today, August 14, we have a special guest today Todd Caputo guest hosting. So we can talk about record auto debt union negotiations and reviens. burning tires. People really want to know who isn't burning them good. When they see me doing that literally burning them, but more like burning through them. We'll talk about it in a second time. Good morning. What's life like? This morning, North Carolina

‍Todd Caputo: 0:53

is very, very, very warm. And I'm not going to complain. No complaints for me. And you know why? No,

Paul Daly: 1:01

I totally don't. Why? Because we're going to have the same conversation. And about three months when there's snow on the ground in Syracuse, and you're going to be still in the 70s. So, you know, you can't have it all. Good morning to everyone on the Livestream. Jason Fleming coming in hot with the first comment today of really enjoying all the live stream comments that are coming in. People like get the sort of group now that gathers we might have gotten a little early for him on Monday. We'll see if they get here. It's a pretty fun thing. But we have a couple of things coming up.

Todd Caputo: 1:30

Do you say early? It's almost nine o'clock early. Well,

Paul Daly: 1:32

you know, we got a national audience.

Todd Caputo: 1:36

You guys know David Long's away. David Long's awake. I guarantee it.

Paul Daly: 1:41

I absolutely He wakes. I don't think he sleeps. Actually. How many hours a night Do you sleep typically, like what's a good night's sleep for you? 5555 hours. Do you feel like rested and ready to go? Yeah, man. I wish I could do that. Also got Jordan in here. Obviously got Ed Roberts on the live stream this morning. Todd, do you know Ed Roberts? No, I do know you. You two need to know each other Ed just wrote a book about the release called myelin leadership. He is the CEO of Bose art Ford in St. Augustine.

Todd Caputo: 2:15

I've been there that's a great store. I've been there. I went there and

Paul Daly: 2:19

oh, they have no Well that's why it's so amazing.

Todd Caputo: 2:22

Yeah, we have a bunch of Ford's garage next door had a best hamburger my life right next door was awesome. Oh

Paul Daly: 2:26

my gosh, I can't wait to see that. Oh, John Follies. And I want to see Todd do his Kyle dance. Every you get you get in it.

Todd Caputo: 2:34

I'll do it. I'll do it at the showroom. It recharges this week, if I come visit him for his grand

Paul Daly: 2:39

Oh, super nice. Well, maybe both can do it at a soda con. Cuz you're both going to be there, I believe. And so if you haven't got your tickets yet, it's September 26. And 27th. In Baltimore, just south of Baltimore, just south of the airport. Todd will be there. I think John will be there. There's going to be a lot of people there if you just go to a so to con.com. Look at the speaker list. We have over 1100 rooftops represented just in the speakers, we got groups like Lithia Bozar, Carter Myers Automotive Group, one auto nation Walzer na da, Mike Stanton, the President's coming in, Jamie butters, the editor of automotive news is going to be there. And so it's really going to be two days of you know, you know, we're going to like do it right with the food in the entertainment. But more than that, we're going to have practical practitioners that are going to be teaching you and giving you their insights on what's going on how the best operators are doing it. And this is going to be across operations, marketing, data, HR and recruiting. So it's really a place where you can meet the other people that are the progressive thinkers, and ask them your questions, listen and learn from what they're doing meet the other people in the industry, because that's what we all know, right? Cut tide, you remember anything you've ever learned at a conference?

Todd Caputo: 3:51

It's all about networking. That's what these conferences are all about. And there will not be a better place to network than your conference next month. There's no question about it, the people that are coming, the content that you're going to have there. A lot of these conferences have gotten pretty lame over the years, honestly. But this concept or this conference that you're putting on is going to be the exact opposite. I'm pumped up, I can't wait and everybody shouldn't be there. And everybody should be telling everybody else to go because it will be awesome. I guarantee it.

Paul Daly: 4:18

That's awesome. Thank you for that. Yeah, to actually Southwest is Baltimore's a hub. So if you have southwest, it's likely you can get to Baltimore actually really inexpensively. The tickets are still discounted through the end of this month. So you can get them out of soda con.com. And if you're within like an hour or two driving distance of that thirst, hundreds of dealers within an hour or two, you should really just be there and bring some of the people that usually can't get out because you can't find the Vegas or something like that. This is truly a national level roster national level show on the East Coast in Baltimore. So

Todd Caputo: 4:48

you can join Isn't it like 20 minutes from BWI? Is that what you said? It's like

Paul Daly: 4:52

BWI. It's like eight minutes from BWI. That's perfect.

Todd Caputo: 4:55

That's a gift because it's very close to Washington, you're done. So that's a no brainer. Why So get to and it is cheap. You're right southwest goes over nothing.

Paul Daly: 5:04

All right, so let's get into some news today. Got a couple stories that really do go together. So a record $1.5 trillion in auto debt is now looming over the US. There's never been this much Autodesk in the history of the recording this, with over 100 million Americans having some sort of auto loan are continuing factors like the residuals of the pandemic and the supply chain, Feds increasing their rates, economic shifts have all escalated the cost of car ownership as we know, and so there's increased concerns over lending practices and consumer dissatisfaction. So get this in 2023. The average monthly loan payment for new vehicles is now$725 A month up. Remember we were saying it was high back in 2022. It was 650. Well, 725 now used cars year over year rates are also up several percent percent to 516 a month. According to CNN new auto loan delinquencies are also rising, they reached 7.3% in q2 up from 6.9% in q1 and Moody's is warning that this could continue to rise peaking around in 2024 They're predicting it's going to peak around nine or 10% default rates. Todd, you have a lot of experience. You've seen a lot of ups and downs you lived through recessions, operated stores, what are your thoughts on this current situation?

Todd Caputo: 6:22

So the first word I think of is water how much water is out there and that debt at the end of the day because it's all about water. People can have a lot of debt that's one thing but if they can make their payment that's fine, unemployment is low. You can't still can't find people I don't care what anybody says it's very hard to get good people to work people have jobs will make their car payment because I gotta get back and forth to work the question is what happens if unemployment goes up and then how much water do people have how much negative equity with people having that really at the end of the day is all that matters? People will make the car payment if they have a job

Paul Daly: 6:53

there's you know, there was a lot of talk about the unemployment rate a lot of talk about the new jobs report less jobs and last time however like you said, it's hard to find people and the car payment is going to be one of the last things they skip right you have your house payment, your car payment credit cards, they get pushed so once you start seeing auto loan delinquencies you know there was one person that was mentioned in the article they were saying they really wanted to get out of this vehicle but like you said, they're like I am like $10,000 upside down on it. And that's probably going to be a continuing story I'm guessing

Todd Caputo: 7:25

it will be the continuing story for years there's no question about it and we still have yet to see leasing come back either bother is still virtually very very little leasing going on at all. So you know 782 Which is $780 new car payment the average Yeah, that's insane. Yeah, that's insane. So maybe you'll see leasing come back if the new car business slows down.

Paul Daly: 7:46

So what what from your perspective like as a dealer? What can you do to be proactive about this? It does feel a little bit like there's nothing you can do but what steps would you be taking if you're leading a new car department right now

Todd Caputo: 7:58

I would continue to mine my database really more than anything else to find people that are in a good equity position that you can trade up or trade out? You know, there's just there's not a lot of us cars and there won't be for a while so I don't see us car prices really going down all that much. It is gonna fluctuate. But you know, what do you do in new cars, whatever the factory gives you at the end of the day, whatever the factory gives you to sell whatever they give you for incentives, you just do the best you can with what you have. Not much else you can do other than that and start advertising again start prospecting again and get back to the basics.

Paul Daly: 8:28

You go back to the basics. Speaking of basics and finance, kind of segue affordability. That was a weak segue with speaking the basics of affordability stamp us the Lantis ambitious goals to produce a $25,000. Evie is colliding headlong with the United Auto Workers demands for better wages and benefits and industry as industry experts are weighing in on the feasibility of a $25,000 price point and tensions are rising over balancing affordability and profitability with paying workers in the Evie market. So Salanter CEO Carlos traverse emphasizes the importance of a$25,000 Evie for job protection he say hey, if we get an affordable Evie it's going to help protect jobs and absorb costs while UAW President President Shawn fain is saying still Lance his business model is broken. That's the reason that they can't get to a $25,000 Evie and until they fix it they'll never hit it. Some other industry experts like Doug Betts and JD Power say achieving a$25,000 Evie would require significant cost reductions and minimalistic design similar to Tesla interiors. And then us definitely brinly from s&p global mobility and Sam free few save Sam fury Yanni, from auto forecasts believe that producing a profitable Eevee at the price point is a long term goal and is possibly a decade away. So Todd here we have one hand, new car loan rates super high. On the other hand, we have still Anta saying hey, we need to make more affordable II BS for people and then you have the union saying, Well, you can't your business is broken. It seems like a kind of big conflicting mess. What do you make of it?

Todd Caputo: 10:09

I'd be watching the UAW very, very closely if I still own car dealerships right now, I got a feeling you'll be talking about a strike on your show, probably within three weeks to a month, if not longer, there will be a strike, I'll pretty much guarantee it. I don't know who it's going to be. But I got a feeling there's going to be a strike common and it's going to mess up supply. So I thought was a dealer, I would maybe consider hedging that just a little bit. I don't know if it's going to be GM or it's going to be Solana. So it's going to be Ford, but it's going to be one of them. This guy from the UAW at least appears to not want to play around. He definitely isn't negotiating using, let's call it Trump ideology, right? Let's ask for everything all at once on one side and hopefully end up in the middle. I'd be watching for that. And you know, look at TVs, right? They're great, but they're just not for everybody. I don't really care how cheap they are. It doesn't make any difference because there's no infrastructure doesn't make any difference at all. I was at a hotel last week in Raleigh, I could not charge my Tesla that I drove there because the Evie charger was broken. The guy literally had to go out with a, I never even got to tell you this. It's just hilarious. The guy at the desk at the at the Hampton Inn had to go out with a rubber mallet and whack it to get it to work. I'm not making this

Paul Daly: 11:22

up. So he videotaped, I

Todd Caputo: 11:25

was I couldn't because it was a rainstorm. This is no joke. That's what he told me at the counter because we have to hit it with it with a rubber mallet to get it to work. So until there's reliable infrastructure, I don't care how cheap EVs are. Everybody's not gonna buy it. There needs to be hybrids, hybrids is the answer.

Paul Daly: 11:40

They're showing that evey adoption rates a different story, but it's really plateaued at 7.2%. Now that kind of the early adopters have gotten theirs. And yeah, I agree with you in the sense that this, this Evie conversation and getting affordable EVs. It's a texture to the Union conversation. However, it seems like it is just one little sliver and it will be interesting. I believe the contracts expire on September 14, it's August 14, so we're exactly one month away from the contracts expiring and you wouldn't be the only one I don't think that's predicting there's going to be some kind of a strike and disruption. So yeah, EVs are just part of that. But while we're speaking of EVs, segway. Really interesting, since you're a Tesla owner, what your perspective is on this. So the rivian are T one and r1 s pickups that have this progressive styling and a lot of power, are receiving rising complaints on many of their driver forums about the rate at which they're burning through tires with some owners, saying they have to replace these Pirelli tires that are rated for 50,000 miles at 6000 miles. If you're not watching on the screen. Right now we have a picture from a user forum, where it shows the inside band, the inside literally the steel belt is showing on the inside of this rivian tire after 6000 Miles while the outside edge of the tire looks completely fine. So experts are saying the excessive wear is linked to reviens conserve drive mode, which basically switches from all wheel drive to front wheel drive, and it lowers the ride height. So what this does, now you have I think, like a seven or 8000 pound vehicle, putting all the torque on the front wheels, and it's it's crushing the inside of these tires. And they're saying, Well, you know, you could do to mitigate that as rotate your tires to you know, have even wear but that does still doesn't mitigate the fact that these tires are wearing out at 6000 miles. Todd, have you had similar situations or any experience with that since you drive Tesla's? Oh, do we lose Todd Caputo? We lost Todd Caputo. So we'll we'll see if we can get him back. Nathan, maybe you can get him up on the stream, we lost him. Here's the deal. So these reviens are these EVs in general, we've been talking about this excessive weight, the batteries weigh a lot. And now like cars that used to weigh four or 4500 pounds now are weighing 7000 pounds, especially the larger vehicles, the larger battery packs, and the torque of the electric motor moves that 7000 pounds so fast and pull so hard against the rubber, so hard against the road, that it's naturally going to dig in deeper on the tires, this specific mode in the rivian. Now it puts all that pressure and all that torque on the front wheels only meaning the front wheels, the friction that's created when that truck has to go is absolutely going to dig into the tires. This is something you know, I wonder why this didn't come up earlier. I mean, it's coming up now but why the engineers wouldn't have maybe tried to mitigate this a little bit with suggesting tire rotations. But hey, you have EVs they no longer need things like oil changes. So maybe just replacing the tires every 6000 Miles is another reason to bring them into the service department. There's no way this is going to people are going to stand for this long term. There's going to have to be some kind of some some kind of some kind of exception sometimes I have, you know, a step forward from the manufacturer getting into this. But it'll be interesting to see how this plays out because there's no way people can replace, you know, probably these tires probably also cost to 200 plus dollars a piece, I'm just estimating so there's no way you can put, you know, for $800 in your vehicle every six months, so, so I mean, that's gonna be what it is. But let me tell you this, regardless of what is going on, regardless of what is happening with affordability, or auto loans, you still have a lot of control over what happens in your business. If you need some help as Todd he'll help you out.

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