In this episode of the Used Car Dealer Podcast, Zach interviews Jeremy Robb, Senior Director of Economic and Industry Insights at Cox Automotive. They delve into the dynamic shifts in the automotive market, focusing on the trends and challenges of 2023, the evolving landscape of used vehicle values, the critical role of data in decision-making within the industry, and 2024 predictions.
Zach: Hello, Zach here and we have an awesome guest on the podcast today. Very timely, Jeremy Rob, who is a senior director of Economic and Industry Insights at Cox Automotive. And we're gonna be talking about what's going on in the used car marketplace in 2024. Jeremy, Thanks so much for joining me on the podcast today.
Jeremy: Absolutely, Zach, great to be here. I'm happy to join you today.
Zach: So as an icebreaker, could you share with us the journey getting into the automotive industry and what sparked your interest in this field?
Jeremy: Absolutely. It has been a zigzag, not a straight line. If you will, you know, I, I started my career off. I, I have a degree in economics and I worked in the financial services world for the first part of my career. And then in 2010, I ended up working for a subprime automobile insurance company, which was really interesting looking at, you know how people went about and got insurance in the subprime world for automotive products. And, and then I got a call from Nissan asking me if I would come join there, I guess in 2012 now. So I worked at Nissan for about seven years. Ended up as the head of finance for Inmac or Nissan's Captive finance company in the United States. And then, my last role there, I, I ran remarketing for Nissan and Infinity in the US and Canada selling, you know, all the off lease product repossessions, corporate vehicles and, and things like that. And in that role, I was introduced to Mannheim and Cox Automotive and I learned that I really liked the used car business, that it was really dynamic and super interesting and you know, not as incentive driven and it, and, and it's a lot larger right than the, the new car market overall. And some people that I had worked with pretty closely had moved over to Cox and they talked to me for a while and said, you know, you should really think about coming and working here and I joined Cox almost six years ago. And most of my time that I've spent there, I've been working in kind of consulting roles for clients and, and our internal, you know, executive teams and our finance team, strategy team, kind of pulling all together all of the experience and expertise I have in the automotive space and, and tying that together with our business units that we have and trying to build interesting stuff that happens and, and we look at an industry, it's really exciting.
Zach: It sounds like you've touched so many different parts of the used car marketplace and your background. And if we were to look at 2023 what were some of the most unexpected developments you observed in the automotive market? And how did they compare to your initial predictions?
Jeremy: Yeah, it's a, it's a good comment, you know, 2023 I talked about it publicly a lot and what I said in people and, and I kind of called it the year of volatility and, and I, I say volatility, I mean that on both the upside and the downside volatility doesn't necessarily have to mean just, it's negative, we just things happen differently than what you thought was gonna happen. You know, we started the year out when we ended 2022 used retail dealers, their inventory was pretty low. Sales started off strong in early 2023 and, you know, when sales start off strong and, and dealers aren't quite prepared for that. They come to the auction and they start bidding on cars and that pushes prices up and prices went higher. And then we thought they were going to faster in the year than they would. And then as we moved throughout the year, you know, we kind of got into the summer and things started going down a little bit more than we thought and we had some more ebbs and flows as the years went on. So volatility was really one of the things that that happened out there, that, that we weren't really, you know, expecting as much of. I would say too another thing, look in the new vehicle marketplace, you know, new vehicle supply continued to grow in 2023 and we actually ended the year at levels of supply that we hadn't seen going back to kind of the earlier parts of 2021. And incentives came back too and we all thought they would start to come back. But they were a little slow, initially at first to come back, they ended the year up, but, you know, a lot higher than they had been a year ago. But, you know, I don't want to misconstrue it in new vehicle incentives while they're higher than they were a year ago. They're still not where they were, you know, kind of pre-pandemic levels over for the market overall. So that's an important part to make. And then, lastly, I would just say, you know, interest rates, we knew rates were higher when we, we ended 2022 but they continue to go higher and they really didn't come back off of that until the latter, you know, the last month of 2023. His expectations that the fed might cut rate, in 2024 came on board and, and just so important to the, retail automotive space. You know, there's tons of vehicles that are financed. It's, you know, second the most valuable thing most people will buy other than a home. And so when rates are really high and they're high relative to what people have been used to and that slows activity down. So, so rates were really kind of a chokehold on the marketplace and consumers last year definitely agree.
Jeremy: Absolutely, you know, volatility like that's where we see it when we're talking about values and we track values every week. You know, for the market overall, by age, by segment, things like that. And we know, you know, generally speaking how those move and, and kind of why they move the way they do.
So when we start to see, you know, movements that are outside of what would be kind of normal before, you know, piques our interest a little bit. So, in, you know, in September of this past year, with those UAW strikes, we got a little bit of a lull with used vehicle values and they went, you know, sideways for a bit before they started declining again. Then we kind of expected they would decline again and they did. But as we got into December, normally December flattens off, a good bet for the year. You know, things slow down a little bit. There's some dealers that come out there, they start buying inventory, getting ready for the spring selling season early, take advantage of some of those prices. But we didn't see that and that was two years in a row that we saw December be a bit weaker seasonally than what's normal. So, that was something that was a little different too. One of the things, you know, that we have to talk about, I think, and I bring up in some of the series I say is like, what is the new normal? We, we're talking about prices, what's normal? We're going to be norm, more normal. Generally speaking, we're talking about, 2019 and before, but, you know, I think that normal is a relative term and, and what we're looking at is to see things we think make more sense. Because we're probably not going to get back exactly to where we were, before that time period. One of the things too, we were talking about a little bit before the show started that, that come up a lot are used EV values. You know, and, we've talked a lot about the, what we call the waterfall impact and, and pricing effect, which basically means the new car sets the highest price in the marketplace on like a, a, you know, year make model valuation. And so that new car, if it goes up or down, it'll drag the one year old, two year old, three year old along with it. And last year when we saw new EV pricing changes specifically for Tesla and, and a few others too, you know, that has a, a real impact on wholesale and used vehicle values that are tied to that and that was something that impacted the market quite a bit last year.
Zach: So what role do you see data playing in the future of the auto industry decision making? And how does Cox help dealers leverage this data?
Jeremy: Yeah. There's a newer commercial out. I don't know if you've seen it, you know, it's I think it's a, it's a Salesforce commercial and I think Matthew McConaughey is in it, but the line in it, it's like data data. Does that make data, the new gold? You know, I think that's truer now than ever before we, we live in a world. There's big data, we talk about that, you know, executives, industries, clients, businesses, everybody wants data, they want insights and they want to use that to make decisions and it makes total sense, you know, we field constant questions about our data and how we use that and how that's maybe different from others in the industry or what people are saying or clarifying questions about it. You know, because everybody's out there trying to make sense of all the data they have at their fingertips through the web or, or other business publications and, and looking at that. But we talk to you know, clients and, and people around the industry all the time. I think one of the things you have to think about with using data and this is me coming from my role where I use a ton of it, right? Is that, but on its own data really isn't that useful, it's just a number, you know, kind of telling you things. So you, you have to figure out how to apply the data and the business behind it, the business decisions that have gone to give you that data point behind it to make the most sense of it. And that's where where you really get a lot of leverage out of using data is to understand, you know, the business and the data combined and, and put those two together.
Zach: So given your background with companies like Nissan Cox Automotive, how do you approach forecasting in such a dynamic sector and especially recently with so many unprecedented market events?
Jeremy: Yeah, I I would say it's hard the first answer, you know, and, and I've learned from 20 years of experience and trying to do this in different industries is exercise some humility. There is, is something that, that can really be helpful. So another thing that can be helpful too is maybe, you know, to work with some scenarios. So instead of saying, you know, I think this is going to happen next year, you know, I might say, well, the trend would say next year might do this. Right. Well, let's create an upside scenario and a downside scenario to that and then let's go talk about it with people that have informed, you know, opinions about what's going on. And from there, you might say, ok, well, from a probability scenario, you know, waiting system, I might apply more probability to this playing out than this one. But I'm kind of looking at, you know, different things together to say, like get myself and my business ready to, you know, react to whatever might happen. On top of that, you gotta know you can be wrong. You know, I, when COVID first hit, one of the things I was supposed to do is look at like where lease returns may, may come in and, you know, it was totally wrong. I mean, I didn't think about or understand how important individual transportation was going to be to people coupled with the fact that, you know, vehicle production was, was highly curtailed and what that would do to values and lease returns. And so, you know, you can be off by a mile sometimes and especially in scenarios like that. So you start to kind of going through those, you step back and you look at like where the pendulum is, you know, eventually it's gonna swing back. But, but when it does, it doesn't always mean you're at the same port place you were before, you know, you may need to, to re evaluate and rethink. But both of the, you know, Cox and Nissan are big companies.
And so they had, they had just had troves of information that I could use. And we tried to do things like seasonal impacts. You know, that's an important part of business that's really important in the automotive industry I used and new, they work a little bit differently. But you gotta know that and just try to see if there's real movement somewhere, if there's cause and effect or if it's more from a seasonal standpoint and really, you know, always be putting in your brain like there's something physically out there that's making the day do this, right? And, and think of what that is and try to peel the onion back to understand what that point is. And that really helps you. I think make better decisions when you're looking into the future, very insightful and speaking of insights, could you share your insights on how the recent economic climate is impacting auto loan defaults in repossessions.
Yeah, sure. That's a, it's a question that we get a lot, at Cox, especially related to repos and, and things like that and, and I feel so, you know, the overall economy has definitely slowed down in the past two years. But it still has positive growth. Oh, there's so like we're seeing some real impacts from that slowdown and then there's also a lot of worry about what could happen, you know, and, and we've been going through that worry, I would say for 2, 2.5 years now about what could happen from the post-pandemic highs. When you think about auto loan defaults and repossessions, a lot of what you need to think about is like what type of equity is in a vehicle loan. And we have some analytics that we use that measures that specifically. But when we look at what happened in 2022 you think about in 2021 we had really high vehicle appreciation and so consumers went out there. If they purchased it like a used vehicle in 2021 they were paying a higher amount for that vehicle, but their interest rate was lower. However, we got to the second half of 2022 values dropped a lot every week in 2022 and in 2023 values dropped again in 2023 not as much as they did in 2022 but more than what we would see in a, in a normal year, you know, and that, so those value declines that really pushes down the collateral on a car loan. It's putting consumers in a more negative equity position once that occurs, you know, those loans could definitely move into a default or repo, a little bit more. And the, and higher interest rates too, you know, a lot of people don't think about this but it actually does push out the amortization of a loan a little bit more. Not, not a ton, it's about six months, you know, kind of what I've modeled but what we see when you think about it, a repo default, a lot of times that happens in the first, you know, 18 to 24 months of a loan. Right. So, so that matters earlier in the life of the one. But on the other hand, you know, there's still positive job growth, the unemployment rate is still very low for the economy as a whole. That means people have income, regularly and if they have a job and they have income, they're gonna wanna keep that car to keep getting them to work. And that's a positive thing. And so that, that's kind of a, a counter that keeps maybe defaults and repossessions from not really going back as high, as what a lot of people have thought over the past year or so.
Zach: So, in your view, how is the increasing focus on EVs more broadly affecting the traditional used car market?
Jeremy: A good question. You know, EVs are, I, I think in, in my role it takes up 30 or 40% of all the questions we get are around EVs and, and it's, it's so dynamic, you know, new car to used car EVs and how they, you know, relate with ICE vehicles. When you think about technology, you know, vehicles have had advancing technology for years. And a lot of technology impacts the value of what the car is. But, but I think there's some nuance to that, you know, you think about something like a safety camera, right? When that came out, when, when a safety camera was first put into a new vehicle. And that tech, does that make that car, did it make that car more valuable then, or did it decrease the value of other units that were older? And they didn't have that technology in them? And I think that's the thought process that we have to go through kind of with, with EV and the tech and the battery and, and measuring battery health that we have, there are tools out there that help us measure battery health and provide that information and information is always gonna be welcome from a consumer and for a, a seller too, you know, it's gonna make consumers more confident in, in bidding. It's gonna make sellers more confident in selling, you know, a unit versus one that doesn't have that kind of background to it. And so it just, you have to think about having that information and the data that's provided there and if you have it right, it, it probably makes your transaction or your vehicle more valuable than the ones that don't have it. And so I always advise our clients that, that we work with like, you know, if we can get this and, and share battery health kind of out there for clients and industry for consumers. You know, I think that's going to have a big, a big impact on, on not only like adoption but but peace of mind, right? For people to and and definitely help facilitate the buying and selling of, of EVs and Jeremy. Can you provide any advice for used car dealers on how they could optimize their inventory and manage customer price expectations in today's market?
Jeremy: Sure, you know, I mean, dealers are smart, they're, you know, entrepreneurial, they're always looking to do what they can. In, in my world, we use a lot of software and tools like that. And I would say that's one of the biggest thing a dealer can do is to be smart. There are tools that are developed that will help you sell better and, and help customers out and if you use them, you know, that's going to be to your advantage. We have a, a host of those products at Cox. Many of them are, are pretty well known. They're designed to increase the turn rate and throughput, you know, they may lower your cost of acquisition. Help maximize margins and, and specifically help out dealers. One example of that is our Profit Time GPS product. You know, it's a velocity management tool that we have.
It takes core fundamentals of selling cars and helps to achieve a better ROI for dealers. And I think that's something that, you know, that would help not only the salesperson, the dealership itself and it helps you manage the whole, you know, portfolio of vehicles you have at your dealership. And then finally, I would say, you know, listen to consumers, they have more information than they've ever had before. Researching it. A lot of times they have an idea of what they really want. You know, and the people that work at dealerships there, there's there to help sell and also facilitate those transactions. And so the more they can solve for the wants and needs of a consumer really the better off everybody's gonna be from that.
Zach: And as we gear up for 2024 based on the current economic indicators and market dynamics. What prediction or predictions can you share with us on the trajectory of the used car marketplace?
Jeremy: And you know, 2023 was a bit more normal overall what we saw in the industry, especially relative to 2021 and 2022. And we expect more of that this year in 2024. It's not gonna be what, what it was back in 2019 in our, you know, pre-pandemic normals, but we're moving in the right direction. One of the things I would say to really keep your eye on that and as it relates to used is what happens with new car inventory from OEMs over the past several years, they've really said they want to focus on right-sizing supply even as they continue to grow back towards, you know, pre-pandemic levels. You know, not overly incentivize products. And then the question is, will they right or who will in, in that realm? I worked for an OEM. I worked actually in manufacturing finance for a while and kind of saw, you know, differences between the manufacturing side of the house and the sales side of the house and there are big decisions that get made for all those OEMs. So you have to watch, not just what they say but what they're going to do and if supply keeps growing, you know, inventory is gonna grow and with that incentives will grow too and incentives pick up. We will see an impact on the used vehicle value market.
Zach: Well said and two-part question for my last question. So the first one's for the dealer audience and that's one, what's one piece of advice you'd offer to dealers to navigate the challenges or potential challenges in 2024. And then the second part of the question is as we look through the rest of the year, what are some key developments conferences that Cox Automotive is gonna be involved in? That dealers should be excited about? I know of course, NADA is upcoming as well.
Jeremy: Absolutely. You know, on the first question about, you know, navigating, I'd say be nimble, you know, our industry changes fast, the market moves fast. And one of the things that we really have to keep in our mind, and it may not be as apparent to everybody living it day to day is that really used, market supply is still relatively tight. That inventory level is not back to where it was before. The supply inputs have been curtailed from that lack of new vehicle sales over the last couple of years in production. And we're gonna be living with that for the next several years. And when you have tighter markets and, and supply overall you know, things can happen fast. So, so be nimble. We look into 2024 you know, Cox, we're, we're gonna be at all the big conferences, you know, Car used car week NADA, all of that that, you know, representing there happy to talk and share everything that we can with people. One of the things we continue to work on with Cox is Cox. Cox is an automotive, is a really large business and it's made up of companies that are large businesses on their own. If you're talking about Mannheim or dealer track or Kelley Blue Book or auto trader, you know, combining all of those under one roof, takes time for the audience and internally, you know, your, your resources to get to know that. And we've been working on becoming Cox Automotive and bringing ourselves to our dealers and our clients like that. And I think we're, you know, closer than ever about that and it, it provides more clarity to people that we work with. And we're actually able to solve a lot more problems than we have in the past. So we're as focused as ever on innovation, you know, keeping that alive. We know competitions always coming around the corner in the industry and, and this is a really dynamic market and it's a great market and, and industry to be in and we're happy to, to be there and to try to help clients along the way and solve as many problems as we can.
Zach: Very exciting, Jeremy. And I've learned so much on this podcast today and you've really got me up to speed on what happened in 2023 in terms of the used car marketplace and then some predictions and what's ahead for 2024. So great episode for our audience. Thanks Jeremy for coming on today.
Jeremy: Thanks Zach. I appreciate you having me here.