In this insightful and special 50th UCDP episode, Zach has a conversation with industry expert and investor Steve Greenfield about the fast-changing automotive landscape. They delve into timely topics, such as electric vehicles, OEM subscription-based features, autonomous technology, and digital retail, providing valuable insights into the industry's evolution.
Zach: Zach here and today we have a very special guest on the 50th episode of the Used Car Dealer podcast. We have Steve Greenfield, the founder of Automotive Ventures, an industry-focused venture fund, and the highly regarded Automotive Intel report. Steve has held numerous leadership positions at auto tech companies like Auto Trader and True Car. Interestingly, Steve and I first connected through the Emory University Network, which we both attended at different times. Thank you, Steve, for joining me on the 50th episode of the Used Car Dealer podcast.
Steve: Zach, it's an honor to be here. It's always good to catch up with you, but I'm truly honored to be the 50th such amazing work and keep it up and really look forward to the conversation today.
Zach: Thanks Steve. And it's been quite a while since we last had you on the podcast and you've accomplished some incredible things with Automotive Ventures and the Dealer Fund. So, for the listeners who may not be as familiar with your recent work, what are some of the standout highlights in the past year?
Steve: What's funny Zach? You know, I like to look back on this at the end of December last year and try to sort of take inventory of what I accomplished. Last year was a busy year, but I was very focused. I'm gonna have a hard time superseding it this year. But, you know, we made 18 investments out of our first fund so far. So we're investing about once per month. We launched our second fund which I know we'll talk about today, the dealer fund, which is a vertically focused fund where we've got dealers as investors investing in solutions that benefit dealers. I got a book out. So the Future of Automotive Retail is out and available on Amazon and that's been generally very well received by the industry. I am the chairman of a public company, a SPAC which has its own pros and cons right now given where the market is, but we've actually found a company that we're in the process of de-SPACing and should have that company public here within the next couple of months. That's been a really great experience. My first experience on the board of a public company and then last, last I would say we also launched as a complement to our two core funds, our investment club. So we're kind of democratizing investments into early stage automotive and mobility companies for the masses and standing that up to complement and that's been a lot of fun too because now we've brought four deals to our investment club members and we've been oversubscribed on them and have some exciting pace there. So never a dull moment, you know, amongst also fostering nine different rescue cats in the house.
Zach: Well, it's an interesting life that is unbelievably fast-paced life. So, Steve, let me dig into some kind of public market questions. So during the pandemic, online used car dealers like Carvana, they took public markets by storm and then you had other ones like Vroom and Shift that went public as well during the pandemic and now they're down over 90%. What's the outlook for these sort of online used car dealers? Because from my perspective, Carmax is absolutely winning in that niche right now and they have this kind of omni channel presence. What are your thoughts?
Steve: Yeah, I mean, I think you've characterized it exactly as I would. I think it's sad because I think that these visionary companies were trying to prove that there was a segment of consumers that wanted to effectively complete the entire deal online, but then also benefit from driveway delivery and driveway pickup of the trade. And I think that Carmax is an interesting one to watch, a much stronger business model because of what you mentioned this sort of omni channel experience that they offer to the consumer. But I think that it's interesting. I watched the earnings calls and thankfully they divulged on the earnings calls, what percentage of consumers are buying online? It's an interesting metric that people should be watching. It's been growing. So, last quarter, it was 12%. This quarter, it's 14%. But they do offer the consumer the option of either buying completely online or coming into the store after they start, they say just over 50% of consumers start their purchase, but only 14% actually ask for driveway delivery, which is very, very interesting to me, it's kind of our living breathing Petri dish of watching that metric as that grows over time, which gives us an indication of what percentage of the total market demands this kind of solution. But to your point, I mean, it is sad to see. I know a lot of dealers are jumping from joy that a lot of these companies have been punished in the market and some of the wind out of their sales. But it's sad to see because, you know, there is this utopian better consumer experience that may include driveway delivery. But I think we should watch that metric from Carmax very closely to see how that grows over time.
Zach: Interesting and it's really such a small percentage and these Vrooms, Carvana, Shift their whole business model is essentially focused on a very, very small niche
Steve: Which is, it's big enough you, you look at and then the rate at which it was growing, it was still addressing a very, very small percentage of the total market, I think. In fact, you know, Ernie Garcia had said something like, you know, if he ever gets to 2% he'd be very happy with the total transactions taking place. But I think that it's a very small percentage of consumers that are demanding this kind of solution. But, but big enough to be a significant part of CarMax's business and big enough to support a couple of standalone companies that are focused only on driveway delivery.
Zach: True, a very valid point. And Steve, when you look at automotive software companies from a venture capitalist lens, and they're starting to raise it seed stage kind of post-pandemic, what are some of the interesting problems they're solving in the auto tech and mobility space?
Steve: Yeah, because I can spend all day here. You know, I give a lot of thoughts for early stage mobility and auto companies and, you know, we see now about 50 companies a month that apply through our process to take a look at investing. So we see a lot of companies as well. I would categorize them a few different ways. One is the area that probably excites me the most is automation. You could call it robotic process automation. I hesitate to use the word AI simply because it's such a buzzworthy term right now. But anywhere we've got a human doing a repetitive task that we can look at and automate is an exciting area. We invested in a company called War Cloud which does this for warranty claims by the OEM. But it can be any role at a dealership. I'm looking at taking that role and saying what's a manual repetitive task that we can automate through technologies. So that would be one. Number two, I'm keen on EV incentives. You look at the EV incentives today and it's a bit of a Rubik's cube of like, you know, whether my salary allows me to participate, whether where the car is built, where the battery is built. Even local incentives will mean you'll either be eligible or not. But then the amount that you're eligible for as well is gonna be something that data is gonna be able to figure out, but everyone's gonna have to consume that data. And I imagine where you'll take me later on is talking about sort of unbundling vehicle features and charging for them by the month. But this whole quagmire of vehicles as a service will mean many new businesses need to get spun up. So I'll be happy to chat about those today if you'd like. Battery technology and then also charging infrastructure. I mean, if we're going to, you know, you saw the JD Power stats recently, about 21% of chargers that are out there don't work currently. I mean, it's one thing to stimulate demand and build a bunch of chargers, but we have to also make sure that the software handshake with the car when you plug it in recognizes the car and something doesn't fail, and we don't just drive people to call 18 numbers that are on the side of the chargers because that's a bad experience. And right now, you know, one in five consumers face that when they try to plug into a charger. So, I think there's no shortage of very interesting problems that need to get addressed by early stage solutions. And I'm counting on a whole new wave of entrepreneurs to tackle some of these issues.
Zach: Very fascinating and kind of continuing on that EV topic, I heard you speak at NADA this year and it was excellent, and you talked a little bit about the EV space. What's your perspective on the disruption in the service side of the auto industry specifically around BEV and also over the air updates?
Steve: Great question, and I love this question because I get to talk to a lot of dealers now, either the partners who have invested in our funds, our two funds, or at a lot of 20 groups. And this is the area that I encourage dealers to spend the most time paying attention to right now. We can talk about the agency model and OEM disruption, but I'm most interested in what you just asked. So, with over-the-air updates, if the OEMs have their way, the automakers, then they're going to avoid a lot of the warranty work and the recall work that goes into dealers today.
So they're gonna feel less of that work that comes in which, you know, some dealers don't like that work, but a lot of it's bread and butter work where you're getting reimbursed from the OEM like clockwork, right? So, pay attention to that because the automakers are focused on avoiding a lot of those costs by providing software updates in lieu of the car actually coming into the dealership. The dealers may start to feel that. I think that the EVs will have longer service intervals. No oil changes, no spark plugs to change, et cetera. But, you know, countervailing that the positive is it's gonna take a more sophisticated technician with more sophisticated tools. So the hourly rate is gonna be higher.
Zach: Interesting. That's a huge catalyst. And I like that you brought up the right to repair bill because that kind of, I guess almost throws a curveball for OEMs because service is a big core part of, like, franchise dealers, businesses. And even if an independent repair shop that's non-OEM affiliated can make a warranty, you know, service, fix, you know, that's revenue out of that department at that franchise store.
Steve: That's right. Yeah, I mean, there will be a lot of tension for the OEMs, Apple kind of locking down their data and, and you know, under the auspices of, of cybersecurity, not letting anyone else except for a certified franchise dealer touch the data and the vehicle. But, you know, the countervailing pressure will be that the independent aftermarket has a strong lobbying arm to keep that data available to the average independent repair shop. So it'll be interesting to see how all of this plays out.
Zach: Great and kind of moving on to another future discussion, autonomous tech here in my neighborhood in San Francisco, they're testing autonomous vehicles all day long with Cruise and Waymo. It's been a big hot topic in the industry over a decade and at one point, Elon Musk predicted that we're gonna have a million Robotaxis by 2020. From your view, where are we with autonomous technology right now?
Steve: So this may be controversial, but I think, you know, in my lifetime and I don't know how long that will be, but in my lifetime, we won't have level five autonomy, meaning we could take a nap in the back seat in the middle of a snowstorm or a thunderstorm. The technology today uses cameras or LiDAR or radar or some combination thereof and basically comparing where the car recognizes it is versus a reference map, right? And if the lenses aren't clean or they're covered in rain or they're covered in snow or debris, then it can't measure where it is versus the reference map. So, while tests are taking place in San Francisco, when there's clean weather, you see, even this week or last week, they said that some of these shut down in the fog. We know that in a snowstorm they shut down. If you try to drive it with ADAS equipped vehicles in Florida during a thunderstorm, they typically turn them off, warn you, and turn them off. If we go full autonomy with no steering wheel and no pedals, I don't know how to reconcile these things, right? Where we're relying on clean lenses and mapping against the environment. So I think that, you know, where I grew up in Toronto, I don't think that we're gonna have full autonomy for like four months of the year when there are snowstorms or there's salt caked to all these lenses. And then how do you certify the lenses are clean enough that the car can actually register with its environment
So I think that it's a stretch. The flip side though, I'm not a disbeliever. I think for a lot of commercial applications where you aren't moving around, you know, human precious cargo. I think there's all kinds of autonomy that's going on in construction and mining, agriculture, et cetera where you could have machines working 24/7 and not have to have human supervision, but the machines can be working and the worst case they're gonna bump into each other and not damage any human lives.
Zach: So another futures question, and we talked about AI being a big buzzword. Chat GPT has become the fastest-growing consumer software product to date. As an investor, what are your thoughts on AI's potential implications, not just in like auto retail software products, but also from data like inventory pricing, trade, appraisal pricing? What are your thoughts on that perspective?
Steve: No, it's a great question. And you know, as an investor, I've got to be thinking a lot about this, spending a lot of cycles thinking through things like how can I benefit from this coming wave of AI, right? Whether it's fear invoking or not. And I think that to your point, part of it is this process automation, right? Anywhere you've got someone doing something repetitive, and we should be able to eliminate that role entirely. Number two would be augmenting someone's intelligence. So if I'm sitting in a seat making decisions, you know, drafting emails or text messages or, you know, creating creative to go up on a website. Let the AI do it, they can do it consistently, it's always within brand parameters of the OEM. And you should be able to magnify the effectiveness of that individual who's like the creative person or the accountant or, you know, anybody who's operating a spreadsheet. And then I think, you know, to your point, I think in terms of your question, inventory pricing or trade appraisal, I think it's around consistency, right? How consistent are you when you bring in a three-year-old Ford Mustang to a dealership, the appraisal might be different depending on whether Bob or Sally is working that weekend. With AI, we should be very consistent, always looking at the vehicle very objectively, clinically, and saying, you know, we're gonna appraise these things exactly the same way, apply the same methodology, which isn't always the case with humans, right? So I think that there's a brand new wave of innovation coming with AI. It's gonna be very exciting, and I think a lot of it will be in the bucket of either saving costs for dealers, automating, augmenting et cetera, making your employees more productive or to your point, bringing a lot of consistency, which also again should either drive more revenue or save costs.
Zach: And let's move on to SaaS and subscriptions. So BMW, they announced features like heated seats were potentially going to be sold on a subscription model. And it created a lot of buzz in the industry, especially at native. What's your perspective on subscription features in a car? And what does it mean on the used or the preowned side? Well, let's say that a new car was leased with full heated seats and then it comes to auction and a consumer gets it and it's preowned. What's that subscription mean? How's that managed?
Steve: This is my favorite area right now to talk to dealers about because usually I get a blank stare. So one, I'll start off by saying, I think it's inevitable. I know people have this visceral reaction to saying, oh, they're gonna build features in my car and then I'm not gonna get them unless I pay for them. But I think, you know, we've conditioned a younger generation to pay for everything on a monthly basis. And if I told that same person, hey, look, how about only paying for the heated seats in the months that you actually use it. So they're like, oh oh, that would be OK. You just, if it's a positioning issue, right? It's a positioning issue.
We're only gonna charge you for the things you use. If you don't use them, we won't charge you. And that's great. So I think there's a positioning issue. I think it's inevitable to answer your question. I think this is an amazing thought experiment. So if you're working at a BMW store as a used car manager, I bring in a used Mercedes and this city is five years down the road.
And then you look at this used Mercedes and you're like, huh I don't know which of these features are gonna be turned off when the consumer goes home tonight and cancels all of his or her subscriptions on, on the vehicle. So, you know, the consumer is gonna walk out of there, take their check from you and go home and call up their credit card company and say cancel, cancel, cancel, cancel, cancel. So the next day you're gonna arrive in the lot and suddenly it's gonna be a base model. And you thought you had this enhanced model, extra horsepower, you know, extra handling, high definition headlights and heads up display and you name it right, you name it, they, they, I think there'll be a number of different features going forward.
Well, you can see it today. Just go to the BMW website and configure a car. You can see a lot of those features are optional. They're building them in the car and, you know, with software updates it's gonna become accelerated. So when you think through it and then, you know, you, then you're test driving that same vehicle, you know, two weeks from now and you're, the person comes in, they want to test drive the Mercedes.
It would be nice if that used car manager, that BMW used car manager could toggle on or off the features to show you what it's like with an extra 50 horsepower or a better break or enhanced range on the E V battery. But so we're entering a brand new era and I think as you think through this and you're an entrepreneur, Zach, I mean, you'll think like, oh, ok. Well, we need to do a lot of things here, right? Build data OEM build data. There's gonna be like the window sticker of the future is gonna have a gray out area to say optional isn't like today. You, you ping a database with the VIN to get OEM build data, the original window sticker data, you know what's on that car. But when cars come to the auction, you aren't gonna know by the time the car runs through the auction lane, what features it's gonna have used. Car managers are gonna like their heads are gonna be spinning.
And then the question will also be, you know, in the case I mentioned to you, you're a BMW used car manager. If you convince the consumer that buys that used Mercedes to upgrade and spend another $200 per month on options, are they gonna get a rev share? They should, because you just can, I mean, think of that revenue, it's all profit margin. It's, it's, it's, it's the most, it's the nicest kind of profit margin revenue, it's recurring. And they, they, they should, you know, in this case, you know, Mercedes should spiff the BMW dealer if they can convince the consumer to upgrade. So there's, there, there, there are all kinds of businesses that need to be built around this.
But how do you staff it? How do you even think about these things? You almost got to like, not get the cart before the horse and see how these things play out. But I mean, it's potentially very lucrative in the future for dealers.
Zach: Definitely agree on that. And let's talk about digital retail. That was another buzzword in the pandemic. And there was a lot of interest from dealers, how they could sell inventory online. A lot of them were kind of like e-commerce widgets for dealer websites. Roadster was a big winner of this movement but some of the DR tools have shuttered. What's the next iteration of DR in the industry beyond, like the standard e-commerce kind of widget we see in DR tools today?
Steve: Yeah, I think I answer that two ways. One is, I think someone needs to figure out cross-brand shopping. If I'm a dealer and I've got 15 different brands, I might want the consumer to start at a high level, undecided across my 15 different automaker brands. And then, you know, be able to compare payments on these vehicles and compare apples to apples. And right now, to my knowledge, there isn't a really good solution for that. So I think from a dealer standpoint, I hear that frequently. Look, the OEMs are certifying certain digital retailing solutions, but the best ones for my brands don't necessarily line up. So then on my dealer website, I have a problem with that.
So the second thing is the OEM influence overall, I think if anything, we're gonna move to an environment where there's less choice for dealers and you see what's going on with the tech, for example, some of the OEMs are going, it looks like all in to say, look, this is gonna be my vendor of choice and I'm gonna encourage my dealers to use it because the experience is gonna be far better and far more customized to what the OEM wants. So it'll be interesting if, you know, a couple of years from now, there's less choice for dealers and they're effectively dictated which solution that they should be using for digital retailing, which integrates seamlessly back to the manufacturer site as well. So I think those are the two trends that I am anticipating in the future.
Zach: Interesting and that, that was kind of my next question. Like what headwinds do you see coming down the pipeline for the traditional new and used car dealers?
Steve: I think we talked about some of them, you know, with fixed operations over their updates, EVs, longer service intervals. But I think, you know, higher hourly rates and loyalty should, should be countervailing good positives for them. You know, I think that margin compression is going to come back. I believe that new car inventories inevitably are gonna come back, incentives will come back. You know, I think that dealers have lived through the three strongest years ever in the history of automotive in terms of profitability and as a result, as margins start to come back down, valuations on dealerships will come down. And then I think the last thing I'll say is FTC regulations, right? Like safeguard laws are coming, there's gonna be much more focus on consumer privacy as all this data comes off the vehicles. And then I think that that's gonna be costly for dealers to comply with. And then I think, you know, all of these other things that, you know, there's been saber-rattling from the FTC around, sort of like truth in advertising and F&I products as well. Don't know how much of that
But if it does, it may mean that dealers just face a lot more regulation in the future. A lot more red tape, which means they're gonna have to worry about having chief compliance officers and, you know, lawyers involved in a bunch of software to make sure they're in compliance. They're not running afoul of whatever rules the government comes up with. So I think all these things probably will be some headwinds for dealers going forward.
Zach: What automotive innovation are you most excited about that you saw at CES this year?
Steve: Yeah. So it's interesting. There's a bunch of stuff, you know, BMW had paint color changes on the exterior of the vehicle. A couple of the OEMs had these like dashes to go from left to right and take over the entire interior of the vehicle. And then you had the, you know, the Sony Honda JV, they're calling it, which has, they say they're gonna offer that vehicle like on a 10-year lease. And I don't know if the consumer in the US is ready for a 10-year lease. Most practically, I think, I think it was like, I saw a demo and I can't remember the vendor, you know, using, you know, I think Google Glass was way ahead of its time, but one of the most clever use cases that I've seen was at CES that kind of technology where, you know, the technician who's working on a vehicle would have glasses on and they would see an overlay of the repair they're trying to make. So in this case, it was, you know, a brake repair, you know, where are the bolts, what's the torque specifications for those bolts? You know, how do the brake pads fit into that housing this kind of thing? And, you know, I think that if we can make technicians more efficient, you know, the dealers are gonna be more profitable. Technicians should make more money. Dealers can get more throughput through their shops, etc. And I think, you know, that struck me really as saying, oh, you know, if the technician had every permutation of, hey, I'm looking at this car, these glasses can help me diagnose what the problem is. You know, order the right parts from the parts department and make me much more efficient and increase my throughput. I think there's something of great benefit for the dealers and the technicians.
Zach: And Steve, you're closing a fund at the end of the month. Tell us about that and how accredited investors, car dealer owners could join.
Steve: Yeah, great. Well, thanks for bringing that. I appreciate that. Yeah, so we, we, we launched this dealer fund. We're calling it a year ago allowing dealers to invest in the fund and then we, you know, collectively harness their wisdom to find companies to go invest in. Have them help vet those companies. And ultimately, if we find companies that address some of their needs, then we can drive adoption, right? So it's kind of a self-fulfilling cycle and, and we are closing that, as you said at the end of the month. So, you can reach out to me, it's Steve at automotive ventures dot com. You can find Steve Greenfield on LinkedIn. If you go to our website, it is very prominent, you can see a link to also find out more about the fund. And, if you're not a dealer owner and you still want to participate. As I said earlier, we've got the investment club and there's no cost to join, you can see our deal flow. And then if you ever get excited by one of the deals that we've got available, you can invest with very small checks as small as $2000. You can put small checks to work in some of these early stage companies as well.
So we kind of have both the dealer fund if you want to go a little more heavy on the investment club, if you just want to get started with us and get your toe wet, so to speak, get your toe in and, and get started.
Zach: Awesome. That's so exciting. And lastly, you're an amazing speaker. You're a Delta Million Mile, which means your second home is a Delta One plane seat. What are some of the upcoming industry events, dealers, allied industry listening can see you speak at?
Steve: Well, I can thank Delta because it is like my home away from home. I spent a lot of time on airplanes thankfully to Delta, but no, I have a bunch of stuff coming up. I've got the Agent Summit in Las Vegas in early May. I'm speaking there about the future of automotive retail. So if you happen to be at the Agent Summit, please drop by my session. I'm speaking at the Commercial Vehicle Summit that same week in early May, I'm the master of ceremonies at the Reuters Automotive Retail Conference in Las Vegas May 15th to 16th. So if you are going out for that, which I highly recommend, ping me ahead of time and we can meet while I'm out there. And then rounding out May, I'm gonna spend, I think, three days in Israel starting on May 22nd. There's a mobility conference there focused on early stage companies called Eco Motion, which is getting a lot of traction and in terms of exposing VCs to early stage companies. So I've got a little bit of international travel coming up next month as well.
Zach: Wow. So exciting Steve. And we really appreciate you joining this 50th episode of the Used Car Dealer podcast. You've dropped a lot of knowledge bombs on us. Thank you so much for joining.
Steve: Well, before we depart, let's thank you for everything you're doing, a very selfless act to share all this intellectual capital with the industry. So, I appreciate it, and I'm a great fan and listener. So, I hope everyone enjoyed today's episode and keeps listening and I'll be back for your 100th episode if you'll have me back.
Zach: Definitely. Thanks, Steve.