Latest / Automotive Informants / The Dealership Shakeup: Consolidation, Luxury Depreciation, AI & the Future of Automotive

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The Dealership Shakeup: Consolidation, Luxury Depreciation, AI & the Future of Automotive · Automotive Informants

• Zach Fritz: Welcome back to the Automotive Informants. My name is Zach Fritz and I've got my co-host Chris Martinez here with me today. And we are your source for the latest automotive news, automotive rumors, what the hell interesting is happening across the automotive industry. Chris, we were talking before we kicked off filming today about Group One in this acquisition of Hennessy Automotive out of Georgia. What do you have to say about that? Chris J. Martinez: Well, it's still pending. It still hasn't fine. It's supposed to finalize the end of the year. They still got to get all kinds of approvals. ⁓ but when I looked at it a little closer, thought, you know, most franchises, if you if you look at some of these stores, these smaller stores, or even just regular, even if you go into like metro areas, most most dealers have like 16 bays. ⁓ Zach Fritz: Yeah. Chris J. Martinez: Or lower. I mean, some fringe stores on the outskirts usually have like eight to ten bays. but know, your average dealer probably has about 16 bays. Well, when I looked at the Hennessy group that they're acquiring, collectively, they between those all 10 stores, they have 500 bays. So w one of ways that I felt like gave me a competitive advantage when we were running the Toyota store in Austin. Is even though it was on an eight-acre lot, we were able to, you know, sell a lot of vehicles, but our our competitive advantage was we had a hundred tech days, ⁓ simply because store was made up of like four old little tiny stores. And we had these monster, like I remember looking at it for the first time, and I'm thinking every tech had like three bays and they were down cars. And I'm just like, man, this is this is a little nutty, right? Like Zach Fritz: Mm-hmm. Yeah. Chris J. Martinez: We're gonna have to fill that with people. So they loved having these extra, you know, three bays of peas. And I mean it was it was pretty amazing. But then, you know, we had to, you know, start getting capacity and making sure that people, you know, we getting more efficient and and and improving. But I think there's a lot of opportunity with those stores. I think ⁓ with 280 technicians. ⁓ Zach Fritz: Mm-hmm. Mm-hmm. Chris J. Martinez: Imagine if they got you know the 500 technicians and just completely just maxed it out. I mean there's there's room for growth, but you know it's at the end of the day, they still have to, you know, have good pay plans, good leadership. You you've got to be really be able to cultivate that. So who knows? I've seen a lot of these types of acquisitions where Zach Fritz: Mm-hmm. Chris J. Martinez: They have some good leadership and they do really well. And I've seen the opposite where they acquire these these stores. They don't do so so well. They put in the wrong leadership. Stores go backwards. jump ship, change pay plans. I mean, I've I've seen both sides. So I don't know. It's gonna be interesting if they they can have the right strategy, the right plan. I think they could just absolutely crush it and grow. Zach Fritz: 100%. I mean, I think I'm in the exact same boat as you, where if they do it correctly, this could be fantastic. However, I've worked in a group one dealer before, it was not the best experience from a tech perspective. So I have my concerns there. However, looking this, I think you're 100% right with the more technician bays you have, the more you can increase that service department, get cars in and out faster. Increase revenue. I mean, service really is one of the largest driving factors for dealers. And so looking at this, what did they have? 280 technicians with this acquisition or proposed 280 techs across 500 bays. So each tech has what a little less than one and a half bays, something like that. Most of those techs, you know, you've got technicians typically will double stack. So if you've got a car up on the lift, you can pull a PDI or something on a flat bay underneath it. behind it, you can kind of stack that way. But as far as a productivity standpoint, this is great. If they if group one can do what group one is known for doing ⁓ the service side, I think it'll be highly successful. Chris J. Martinez: Yeah, you know, I've already, you know, we you you kind of alluded to rumors in the beginning. And, you know, I've I've been, you know, unfortunate. I Lee, I've actually posted some rumors recently, and I got a lot of negative backslash backlash, and people were basically saying that it was sensationalism, that's reckless, what are you doing? And in hindsight, my goal wasn't to spread a rumor, and it really just to figure out how to look at these opportunities or these these things that come up as opportunities are you know to learn so that they didn't happen to your store, right? But apparently people just read headlines and don't read the full, you know, post I do. so it, you know, I got a lot of pushback. It was like one of the biggest, you know, mic I I think I had put posted out there. And maybe it came a little too hard. I kind of went too hard in the paint. because it it got like 500,000 impressions across all the platforms. ⁓ you know, one of the I this one I'm about to say isn't really a rumor because someone commented on there and they said that they're already losing some of the staff or some of the techs. The one the things they basically said is what you just said. That's if they can keep the the talent, but maybe that's rumblings, maybe that's what do they Is there 10%, you know Zach Fritz: Yeah. Mm-hmm. Chris J. Martinez: of the staff that leaves, is it, you know, was it the top techs? You know, there's there's a lot of different ways to to look at that. because I'll I'll give you firsthand experience when I ⁓ know ran several stores, people initially jump ship. They're like, ⁓ this guy's crazy. He's gonna be, you know, he's gonna go, you know, he's micromanaging or, you know, they'll say some crazy things, right? but then they realize, ⁓ no, I'm actually I mean well, and we're actually just putting in accountability metrics to try to help you grow and get better and make more money ultimately. And they up coming back. So, you know, I don't I don't know if it's you you'll have some similar stuff, you know, rumblings in the beginning. but who knows? mean they've they're great. I mean, they they how many stores do they have now? Zach Fritz: Group one is where I read it. It was two hundred and something. Chris J. Martinez: I see. Let's let's do a quick fact check. Zach Fritz: So group one owns and operates two hundred and fifty one dealerships, three hundred and twelve franchises, and thirty two collision centers across the US and the UK. Chris J. Martinez: Yeah. Okay, so think about that. You don't get to 251 dealerships 17 states, or half of the stores are located in 17 states, and they have 106 stores in the UK. You can't get to that scale if you're not doing a good job. So you know, is every company, know, 100% where everyone's happy? I I don't know. I mean, you you look at our our you know, j not to talk politics, but you know, there's always that line, right? You know of the most of the presidents I think only need like 40% of the vote and they actually elections. So I don't know. I think, you know, if ⁓ half the or 70% of staff is is still good, maybe I don't know. I don't know what the benchmark is. You know, I I've worked at a lot of stores in my twenty three years. ⁓ Zach Fritz: Yeah. Chris J. Martinez: Well, not a lot of sores. I'd say, you know, I I've usually worked seven years at places. So I, know, I'd say for the most part, you know, I'd say 90% ⁓ them were happy, but you always have those ten percent that just there's there's nothing that you can make them happy. Like they're just gonna be living in that negativity, those are the people you you you're happy they leave anywhere. ⁓ Zach Fritz: Right. I mean, if you if you told me that, you know, a small dealer group, right, a family-owned dealer group, I want to compare this just from my experience to like Cavender. You know, you're familiar with them, right? Being in San Antonio. Yeah, yeah, they were great whenever I worked there. Probably still are, I'm not really sure. But as far as working with them, then went from Cavendar directly over to a group one store and Chris J. Martinez: Yeah, yeah, great group. Zach Fritz: It was a very different experience. So I've actually lived what these people who were likely commenting saying, ⁓ you're full of it, or whatever the hell they said. They haven't experienced that yet. So I've been in those shoes going from a small family ran dealer group to a big group one store, and it's just a very different experience. You know, different in the fact that you're you're treated more as a number. And I think that if you've got these 280 technicians across the Hennessy group looking at this big acquisition that's on the horizon, maybe it's still being worked out, maybe it's you know finalized, there's gonna be a huge turnover. If we're talking 10% of people leaving, I think you're more likely to see 10 to 20% of people being turned over because they're gonna bring in outside help, Mr. Outside Hire, and people to try to bump the revenue up in these dealerships and I mean it's the it's the same story we've seen with all this consolidation across the industry of the last decade that unfortunately it's just the reality. Chris J. Martinez: Yeah, I and it's it is it's part of the reality. think you know, at the end of the day though, I also look at some of the leadership in those stores. Sometimes, ⁓ you know, of those those leaders probably needed to go because you know, I'll tell you first 10, you know, when I've I've come into a store where we just kind of you know took over, and some of those people were there for 20 years and it it's like they they don't really know what they're doing and you're just like, man, have this guy really ever had any training or this girl ever really had any training and you're looking at these people and you're thinking like, Wow. And so then you try to train them, you start try to get them going. You, you know, you you all have you have good intentions. But then at the end of the day, if it looks like a duck, it quacks like a duck, more more than likely is a duck, and and it's time to to you know move forward. So it's it's interesting. Zach Fritz: Yeah, Yeah, it's it's tenure versus talent. And I think that for a lot of people, you know, you just have to decide where you wanna work and what kind of company you want to work for. Do you want to work somewhere where you work your way to the top through how many years you've been there and it's this big old family thing, but you're not probably making a ton of money, in some rare cases maybe you can, are you gonna work for someone who is a big consolidated group, makes a ton of money? But the turnover is going to be pretty damn high. And if you aren't the top talent, then you likely don't have a position at that store. And it's just a deciding factor. And I think that might be what we see with these rumors of people leaving already. Is they're just deciding, well, I don't want to work there. And that's okay. It's not for everyone. Chris J. Martinez: Hundred percent. Well, you know, here's here's another topic because I think a lot of those stores high end stores, weren't they? Zach Fritz: Yeah, group one does a lot of high end. Chris J. Martinez: On the well, and just specifically the the Hennessy group. want to say they're they're my majority luxury, but you know, one of the stories that was interesting that came of the luxury market was ⁓ Audi. great I I think it looks cool, you know. But some of their EVs, their residuals are coming up for some of their consumers, and they're now Telling the consumer they're paying some of these vehicles up to ten thousand dollars so that they can keep them, so they don't return them. What do you think, man? Zach Fritz: Whew, reminds me a lot of housing right now. So I'm seeing this in housing a lot, mainly as somebody who recently sold, went into a rental because ⁓ want to be holding pretty much all of my equity whenever the market does what it's gonna do, which I think it's going to correct. And think cars we're seeing that a little bit with you know cars sitting on a lot, dealers not really cycling through vehicles very fast, and especially when it comes to used cars or low mileage leases being returned. I it makes sense that Audi would want to say, hey, instead of us having to take the car in, recondition it, put it out on the lot, advertise it, sit on it, hold it, carry the liability in case a hailstorm comes in, and wait, because what what is average days on lot? Like 100, 120 right now, it's pretty high. It makes sense that they would say, Hey, well, how about ten grand and you can just buy the car out? that's what ha what we're seeing in housing with companies that are bought up a bunch of houses and added them to their portfolio during COVID. And the last few years, they're now offering people to take what they've paid out and lease towards a down payment on the home so people will buy the home from them. And we're seeing that on cars. What about you? Chris J. Martinez: Wow. Well, I I think here's the the thing on EV specifically. I mean, I lived it at Mercedes. I mean, some of these cars were, I we were losing $20,000, $30,000 on some of these cars just to move ⁓ them. the residuals on some of those are probably no different, right? So if that car, you know, was a hundred grand, maybe the residual was fifty grand, it's worth. Zach Fritz: Yeah. Chris J. Martinez: 30, you know, hey, I'll give you 10 grand, keep it. Or you know, maybe that's just too much of a a stretch. Maybe they're worth 40, and that that's why they're like, hey, look, I don't want to take this fifty thousand dollar. If I take it, I'm gonna lose 10 grand, so I might as well just give the savings to the consumer and they can just keep it and keep driving it. So that's where I'm thinking. Zach Fritz: Where do you think that's going? Do you think that the since the dealer technically ⁓ I want to necessarily call the dealer the captive finance, but they kind of are in a way. Who do you think is riding off that 10,000 loss on the car? Because I mean that's that's they're essentially shuffling that 10,000 to offset something somewhere else. So what are they? Who's right, who's taking that loss or who's getting the reaping the benefit of that loss against inventory or against the note on the car? That's what I'm wondering. Chris J. Martinez: Well, in those scenarios, well, those scenarios, I think for sure the OEM is absorbing that. I'll tell you, you there there's this game that, you know, you almost have to the as a dealer, you have to ⁓ try to buy some of those cars as they come in off a lease so that you know you can get other allocations. I mean you you've got to really, you know, work together with the OEM to, you know, ensure. you know, longevity. if you don't if you don't do of those cars, then you risk lot of other things. So once you buy them, ⁓ I mean, than likely you're you're gonna lose the 10 grand because then you gotta turn around and sell it or try to retail out of it. And it's it's not that easy in in some of those ⁓ types of models. know what I'm saying? So the hot models that you know for sure you can make money on, but it's interesting to see ⁓ Zach Fritz: Mm-hmm. Yeah. Chris J. Martinez: This specifically because I I want to say that another OEM did this recently and I just can't remember who it was. gosh, I forgot who it was, but there was another OEM. I want to say we talked about it on one of our our FDS. but I don't, know, but that's that was just the the Etron GT. I mean the Q4 they were giving five grand, the Q eight they were giving four grand. Zach Fritz: Probably did. ⁓ Chris J. Martinez: so you know, from a consumer standpoint, that that was might been a deal, but I don't know what a three year old Heatron GT runs right now. You know what I'm saying? Zach Fritz: Well, I mean, especially being EV. I mean, you look at the depreciation on an EV and you know, I I'm a big proponent that if you're going to go after an EV, you should probably lease it because then you aren't with it necessarily and stuck with the depreciation or buy it gently used, right? Buy it out of off lease. And think there's a lot of value that probably does drop with those Etrons, which I love the look of, but I hate the fact they're E V. I just wish they would have put like the V ten in them and it would be a fantastic car. But yeah, I mean they're probably sitting somewhere Chris J. Martinez: But that's not the think about it, sorry to interrupt, but like thinking about this luxury it's luxury, that's not just EVs at this moment. Zach Fritz: No, no, it's EVs. So it's a niche upon a niche market where you're and especially Audi owners, right? Audi owners are some of the most particular car people, car people that I've ever met ⁓ it comes to trying to sell them something. And so you're looking at those Q4s, the Q eights. Again, those cars fit a very specific niche of person and buyer. Then you add the EV on top of it. I mean, yeah, you're It's probably the best move for the dealership and they're probably actually making more money if you think about it by giving them the ten grand instead of accepting a twenty to thirty thousand dollar loss on that car when they try to retail it. Chris J. Martinez: Well, I mean, the there's the writings on the wall on luxury, because we talked about Maserati the other day, or last month, where it was reported by a car dealership guy that I don't know, was it 60 out of a hundred, or I forget exactly how many stores they have now, but it was like it was a big percentage of stores that hadn't sold a car all month. ⁓ so ⁓ Zach Fritz: Yeah. Chris J. Martinez: You know, there's that. Then you see I've ⁓ posted JLR or Jaguar, they have one of their models that it's like 500 days on the lot. some this inventory or someone posted, I think it was CarScoops or one of those ad companies that said 500 days on the lot. I mean, it was it sounded pretty sensational, but then you start looking at it, the real numbers actually 165 days on average stock. Zach Fritz: Yeah. Chris J. Martinez: of the dealers commented said, hey, that you know, the F pace has been sunseted, so there's that. ⁓ but still 165 days on online. I mean, ⁓ what point do you, as a dealer, try to, you know, get more aggressive and turning that because it's not cheap to carry that inventory. You've got floor plan at an all-time high. and Zach Fritz: Yeah. Mm. ⁓ Chris J. Martinez: The interest you're paying on those cars every day is probably 40 to 50 dollars a day. so if you're 165, 165 days on average times say 40, I mean that's ⁓ in in loss you've already accumulated on that car. And if it's $50 times $165, you're you're talking $8,200. Zach Fritz: Add in recon, add in your detailer two times at least. I mean yeah. Chris J. Martinez: Yeah, you probably detailed it twice, you know, a hundred and sixty five days. I mean Zach Fritz: Yeah. There's your ten grand. your ten grand all day. Chris J. Martinez: It can add up quickly. So, you know, what are some of these what you know what are you seeing in the lexic market? Let's let's put it that way. I thought didn't you used to read something somewhere? Zach Fritz: Yeah, I've I've been kind of digging in so especially the you know bring a trailer sales. There was an article recently talking about you know luxury cars and luxury sports cars, specifically Porsches, the prices just plummeting on those. And I think I've seen that reflected too in my local market. I remember two or three months ago you would see like a GT3RS pop up and you know the guy says, ⁓ well, yeah, it's never been driven and blah blah blah, 200 miles on the car and you know wants three, four hundred thousand for it. You're now seeing those prices absolutely drop out of the sky. And I think it's reflective of the buyer in some ways, and a lot of people not having that extra bit of cash to say, hey, a luxury car is something I'm going to splurge on at the moment, because let's face it, it usually is. It's not a need. And I think we're seeing a lot of people start to look at some smaller brands, such as you know, Toyota Hyundai and the like and realize those cars are starting to catch up. We're no longer seeing this divide in which, hey, I want air conditioning seats and I want a heated steering wheel only available across the big three Euros, BMW, Audi, and Mercedes. We're seeing it in Toyotas. And so I think a lot of people are starting to see that and say, well, Toyota carries longer residual value. don't I just buy the Toyota? Instead of having a Mercedes that's gonna drop 50 grand within the first what, three or four years of ownership? Chris J. Martinez: Yeah. That happens. Yeah. Like, know, the market is is the market, right? Like I'm I'm a believer in doesn't if you're in a down market or an up market, the best always figure out the way a way. And always, you know, there, you know, there's always gonna be a player that's gonna do well in in both markets. And why not you? But when look at some of the strategy that some of these people do, Zach Fritz: Not a bad buy. Chris J. Martinez: it's it's interesting, right? Like some people just start cutting advertising and think they're gonna save themselves into a profit and then they're then they look up in 90 days and wonder why their their traffic and everything is even down. And you're looking at a li kind of you know shot yourself in the foot and thought, hey, this is a good way to do it. And it's it's not in in my in my the experience that I've had, you know, whether it was, you know COVID or the financial crisis, you know, it was always the operators that pushed forward and, you know, put double down on the market and really just drove more ⁓ dollars and and and stuck in the in the game longer that ended up just outperforming the market. So I don't know. I think these, you know, 160-day market day supply on some of this inventory. You need to have a better strategy, leasing, payments. know, and I know I know it makes it more challenging because some of these OEMs don't allow you to price these cars lower than MSRP. So you've got to get pretty creative to to move some of this inventory. Zach Fritz: Yeah. Well, it's it's funny to me too, you know, kind of go into what you say about, you know, people cutting their advertising or their marketing and then realizing, hey, that's not really helping, that's not the solution. You know, in just business in general, pretty much the general rule is any change you implement takes about six months to see results from. So therefore, if you are saying, Hey, well, it's a down market right now, well, you need to be looking six months out and saying, Well, if I pull my marketing today, is it still worth not having any marketing six months from now? Probably unlikely. Now, if you look at the changes you need to implement today that will have an immediate result, okay, those are probably worth doing, but a lot of people are just uncomfortable with having fires burning and letting them burn. Sometimes that's okay, and a lot of times that's necessary, especially in the Beeler world. Chris J. Martinez: Yeah. No, I think you when I I talk to a lot of dealers often and I at some of the the strategies and you know I I I'm pretty confident what I do ⁓ and you know I sell cars and you know I'm pretty confident you you can drop me anywhere in the country and I'm We're we're gonna I'm sure we're just gonna make it happen, right? Like it's just gonna it I know we're gonna grow, we're gonna make more money, and that's just what's gonna happen. And when I look at some of these stores and and even showing them 23 years of a proven track record, and I look at and I try to give advice or kind of walk them down a path, it's interesting to me that they still look at me like, you know, yeah, that's that's like rocket science, or that's That's like I'm selling snake oil or something. I'm looking at them like, man, here's 23 years of undeniable proof stacked on top. ⁓ can help and we can help. Like it's it's interesting that some people just still stick their head in the sand and like, ⁓ no, it's either too hard or ⁓ I just I don't believe it. You know what I'm saying? Zach Fritz: Well it goes back to what we talked about earlier with Group One and Hennessy and people churning out, people who have are opposed to changing, so opposed to seeing the writing on the wall, so opposed to continued ⁓ I mean, that the one thing in my career a mechanic or a technician, I always loved the learning aspect. I always loved whenever there was a new model year and I had to go to training and learn all about the new Q7 platform from Audi and spend a week doing that so I could work on the cars whenever they came into the dealership and broke because they often did. that was always fun. But that doesn't just apply to technicians or service advisors or salesmen learning the latest, greatest Andy Elliott trick. It's the dealership. It's management, it's everybody, it's including BDC, where people need to constantly be evolving and learning and trying to figure out okay, well, what's the next thing that I need to understand because the customer's changing. We aren't dealing with the same customers we dealt with twenty years ago. It's a far different customer that's got a lot different goals in mind and sometimes change has to happen. Chris J. Martinez: Well, here's one of the articles I I talked that specifically because Volkswagen ⁓ is gonna looking at reducing their staff by a hundred thousand people, which is a lot of people. and initially there is the board basically shut them down and said, Yeah, we're not gonna do a hundred thousand people. And then somehow he convinced them, and I guess now they're moving forward with it. And my question was, you know, at what point. Do you cut? You know, it is to cut complexity before complexity forces you to cut people. Like when I think about that specifically, at what point do some of these because I've never really, you know, in whether it was a down market or an up market, I was always hiring. You know, I mean, like we're always moving forward, the gas, but I'm not naive to think that at some point. ⁓ There may be a reason, a good reason to cut. because even during COVID, we didn't cut. Like it was like you saw a lot of people immediately furlough a lot of people and do all kinds of things because they went to con conversation or conservation mode. And don't I mean, when you start looking at multiple vendors doing the same job, management layers that may be doing the same job, or you know, you start looking at some of the complexities that. Zach Fritz: Mm-hmm. Chris J. Martinez: some of these stores are putting because I've been in stores where I look at some of these people and I'm thinking that position doesn't need to be here. That one doesn't need to be here. And for me, I always look at it from that angle. But you know, what what's your take on on some of these giant resets? Zach Fritz: Mm-hmm. It's twofold. because during COVID, I was on the other end of a company that decided to consolidate ⁓ you know let go of pretty much all of their talent and they still are at a point years later where they haven't been able to catch back up. And so every time I see them post, I kind of laugh. But it's also I there is, especially for Volkswagen, if they are cutting this many positions, they're likely repetitive roles. Within their group. Meaning if they're cutting it, other automakers are going to cut it. And so therefore you're going to see all these people with a similar set of talents enter the job market and be searching for work all at the same time. Right? It's like if we all of a sudden said, well, we don't need to fight fires and every firefighter was laid off, you'd have all these firefighters with similar skill sets looking for jobs. I think it's good to be proactive about it. But at the same time, looking at your dealerships, yeah, you've got to cut positions. There are a lot of there's a lot of redundancy these days, right? If you've got detailers that work in-house, you've got mobile detailers who will hold the liability, come out and do it on demand, and you don't have to pay their insurance. That's a pretty big advantage. You've got people who will drive and porter cars around for your dealership. You've got people who will shuttle customers around. You have all of these positions in which I've seen, I mean, I'll give you a great example. Group one. The group one store that I worked at, we had a fucking chef in a kitchen on staff. Well why? this was for employees. I never once saw a single customer go back there and order a sandwich or ask for something to be made for them. And yet we had this position that as much as I liked it and enjoyed it as an employee, I don't think it needed to exist. It could be cut out because there were restaurants right down the street. So there's always waste that needs to be cut and it's of the game. It sucks, but it is part of it. Chris J. Martinez: Yeah, I think it's ⁓ it's all about the right strategic being strategic in that regard. but you know, one of the the the ⁓ actual recent article that I read this morning was from automotive news, and they talked about the robots, the humanoid robots. And let me just kind of tell you what the headline said. It said ⁓ Zach Fritz: Mm-hmm. Chris J. Martinez: Automakers rush to humanoid robots for manufacturing and learn their limitations. So you once you start kind of going through it, they've talked about, you know, some of these other companies that it's 200 grand for a robot, you know, the economics. I mean, they they really kind of did a pretty good job. The one thing that I felt like they left out was the like. Zach Fritz: Yeah. Chris J. Martinez: You're talking like Elon's saying that this robot's going to cost 20 to 30 grand. And so then I started putting the math to that and thinking, okay, so ⁓ a manufacturer production employee costs about ⁓ an hour. All right, $39.25 an hour inside automotive plants, non-union plants, $45 to $60 an hour. ⁓ The Detroit three union plants, $75 or $78 per hour. And then once you looked at the robot economics, a $20,000 robot comes out to about $8 or 80 cents per hour. 30 if it's $30,000, it might be $1.20 per hour. And then you look at some of the maybe there's some support that they still have to come, like maintenance, support with all of those robots. Even if it went to nine dollars an hour, the ROI on that is still just astronomical. And then think about this: 23% of the output of an average manufacturer is the average output for a man of a manufacturing worker, right? And 18% of the output of a $50 an hour automotive worker. Do you understand what that means? So think about it. The human could. Zach Fritz: Mm-hmm. Chris J. Martinez: Operate at 100% all day, they'd probably be worth all the money, but they're really only operating at 18% output. And so if the robot, even if it's the output's even less, because you can work it around the clock, it will outperform and the ROI is just right? So some of these robots that are in the OEM space are in those plants today are 200 grand. Two two hundred I mean, you start looking at all these things and if Optimus is successful, it could change the whole economics for everything. And they're saying that's a five trillion dollar market. Zach Fritz: Yeah, I believe it on the condition they can get rid of the unions. I mean, everybody wonders why are cars so Chris J. Martinez: Well well think about what Walmart did. Well think about what Walmart did. You know, they removed those on the Delhi workers. They just removed that whole thing and say, hey, we're just gonna have it pre-packaged. Zach Fritz: Yeah. I mean I'm a big union fan myself because I think that that I mean you you hear about, you know, the salaries or, you know, how much they're getting paid to work in the automotive plants. Well the reality is half that's going to the freaking union, which is just a modern crime family. It's racketeering, if you want my honest opinion, but nobody cracks down on it and they really don't do jack shit for the rest of the industry. But I think there'll be a lot of pushback and we've probably already had this happen where the union's saying, Well, no, that robot's not going to take jobs. Otherwise, all these other workers who can't be replaced by robots just yet are gonna go on strike. And it I would love to see it happen because I think it would be good for a consistency layer. But I also think you're right with good. Chris J. Martinez: No, well, I I just think that if it were to be accurate and instead of paying forty five to seventy-eight dollars an hour, you're paying eight dollars to nine dollars an hour for a robot. My only thing would be the cars cheaper. But that you know, that's never gonna be the case. It's just gonna increase the profit margin. You know what I'm saying? Zach Fritz: Mm-hmm. Yeah. margins gonna increase and I think it's interesting too. I mean you'll probably see they'll find a way to amortize the maintenance of these robots into the vehicle price and be like, well car prices have to go up because the robot was, you know, this dollar amount and we have to maintain it and this is what it costs an hour. So we gotta bake that into the cars while somehow simultaneously getting rid of the people and the unions and it'll all just be robots that are, guess, multimillionaire employees. I don't Just find a way to do it, trust me, it's gonna happen. Chris J. Martinez: You know, the when I think about I think about the future, it's pretty wild, right? Like if this were to happen, you know, the verdict's still out. I think they're they're talking like they're you know, some of their first robots before the end of the year ⁓ and they'll mass producing. and the the goals are pretty ambitious. They're talking about, you know, Tesla saying that, you know, he's The Elon saying that they no longer may be considered a car company at that point. It'll just be a robot company because they feel like they're gonna there's gonna be one robot for every human in the world. And if that's the case, we have a lot of other challenges. So it's ⁓ it's be it'll be interesting to say the least if these the economics on this are true. And you we looked at US. ⁓ Bureau of Labor Statistics, Social Associated Press, Tesla, BMW group, their plant that they're doing, Business Insider. I mean, we went through a lot of the data to really come up with this article to really kind of understand the behind what that means today ⁓ with versus ⁓ you if they could get these robots to a point where they could do those types of ⁓ manual and then. What what about power? Then you don't even have to have the lights on anymore and you save money there too. Zach Fritz: Yeah, it's interesting to me. I think the the key word that you said is the power behind it. Is how do we how do we power these robots? How do we power the manufacturing? How do we that that is the biggest hurdle I think ⁓ is it's just energy across it. You know, instead of having this human energy that let's face it is usually a pretty lackadaisical output, just know, to be honest, versus a robot and the consistency there. Sure, you're gonna have breakdowns and maintenance, but it does come down to, you know, are we at a point where we are waiting for battery technology? Are we looking at other forms of powering these robots or machinery on the line? I mean, what that's really my big question is just where does the energy for the output come from? Because I think that's all we're really waiting on. Chris J. Martinez: Yeah, no, I agree. But I think, you know, you know, I think the future looks bright. I think there's still opportunity. One of the things though, ⁓ future looks dark. Yeah. Now the one of the things that just came out from car dealership guy was October 1st, Delantis moves to do their new map pricing or their new, you Zach Fritz: Yeah. Well, dark since it's robot factories. Yes. Chris J. Martinez: Compliance their is going to cap ⁓ advertised adjustments at 3% ⁓ of So now some of these vehicles that generally ⁓ justify adjustment because they don't make many of them and they're hard to get. And dealers are were used to making 10, 20 grand over sticker. Now the OEM is basically capping it at 3% above invoice. ⁓ What do you think about that? Zach Fritz: As a consumer, I love it. somebody works in the industry, I hate it. I was actually looking just now to see if delivered, that guy Tommy had done a video on this yet, because I'm sure he's loving this. But I you know, I would love see it actually play out and be implemented. I'm just a little apprehensive that it will, you know, because then you look at okay, 3%, well. Is the dealer allowed to do anything in the end term? Right? Meaning, well it came in, but we added a you know, say it's a T R X, we added a lift kit and that was twenty grand, so now we can charge three percent extra on top of the twenty you know what mean? Where's are gonna where's the loophole ⁓ that the are gonna exploit? That's my question. Chris J. Martinez: Where is the loop? Well, here's the the loophole most I've seen dealers do. it's frowned upon. Oftentimes it's ⁓ a good look, and manufacturer can, you know, you know, do something that, you know, maybe cost you some, you know, your your advertising dollars more importantly, it could cost you your license or franchise license, dealer but I've seen and heard dealers do this. I personally have never done it, but What I look at is they the dealer just say, look, I'm gonna buy it and then they keep it for you know 90 days as as their personal vehicle and then they turn around and flip it because they know they can make 50 grand or 20 grand. because I'll I'll give you an exact deal. So they this happened at Porsche. They said you couldn't they didn't want you marking up the the cars as high. Zach Fritz: Mm-hmm. Chris J. Martinez: when they were in limited supply. Unfortunately, you mean you just couldn't not ⁓ the money, right? Because you're you're saying I'm not going to make 20, 30 grand on a car that you know is so hard to get and people pay for it any every day of the week. It'll go as soon as you put it online, boom, 30 grand over it, done. It's it's someone's buying it, right? You have a list of people that are can't wait to pay for it. Well they said well you're not gonna get allocation ⁓ There's certain things that would happen. There's some challenges there, right? Well, then you go to auction and you're seeing the same cars used going to auction for 25 grand over, 50 grand over. And you're just like, come on, man. Like, you want me to say no? I'm gonna sell it at sticker. But then you've got all these other cars going to auction for that much price. How is that fair to the dealer where you know? Zach Fritz: Yep. Chris J. Martinez: it's not as easy to make the margin on some of these cars. And when you have the opportunity to make the margin, why not do it? Supply and demand, people do it every day. Ticket sales, Airbnb sales, hotel, airfare. I this the list goes on of the amount of people that supply and demand happens, and people immediately ⁓ Zach Fritz: Helping. Yeah. Chris J. Martinez: Make the money. Zach Fritz: Yeah, I mean, that actually that makes me remember there was an article talking about allocations being, you know, somebody would put their name in, they would get drawn for a car. I think it was the, I want to say it was a four GTs or something weird like that, where people were putting in allocations for it, they would get the car allocated, then the they would find out the dealer had sold the car to somebody else. I wonder if that's exactly how that was working out, where the dealer would then buy the car. or figure out a way around it. But yeah, that's just Chris J. Martinez: Who knows? I mean, there's there's dealers I know. I think that happened at I'm trying to remember what OEM ⁓ happened where they were buying all their cars to get hit their number, ⁓ then they were putting them in a certain status and then turning around and selling them used, ⁓ just to get their new car count. And I think it look like cost somebody their job. So I mean it's ⁓ it's happened, don't you know, but it's not Zach Fritz: Mm-hmm. Chris J. Martinez: something that you know people you it's amazing some of the things that you hear ⁓ it's interesting people get creative but you know yeah I don't I don't know that how that well you're buying the car you know you're telling me you got you can but it's it's I I think it look they look at it similar to like if you're a dealer and you got a wholesale piece or you've deemed it wholesale Zach Fritz: It's frowned upon. His creative hell. It really is. Chris J. Martinez: And then you're a salesperson, and then you go and try to buy that car, and then you go and try to sell it and make money, like you're curving the car, right? Like so that's that's where I think it gets a little tricky, but I don't know. I think I think it's not gonna stop dealers from doing. I think some dealers will still look at that and just keep moving, similar to how this pricing on online where they still have addendum disclose online, and now. ⁓ car edge is a field day with a lot of these dealers where they have their their ai you know do some type of negotiation or who knows what they're doing and when get there it's ⁓ a different so what what what your thoughts on that? Zach Fritz: Mm-hmm. ⁓ I I absolutely love it. I think it's think right now we're Don't take this the wrong way. think we're seeing the battle of the AIs. And I I love it because you can be so petty with it, especially going after these dealers who are behaving badly. I the reality is all of these people out there who are, you know, let's say, I don't want to say brokering, because if you say brokering, everybody comes after you, but that's what they're doing. But people who are negotiating deals or trying to find dealerships that are marking cars up or adding things or having an addendum that's not disclosed on the car, I think we're seeing AI allow them to just completely blow them out. But if all these dealers just collectively one day said, ⁓ hey, we're just gonna do the right thing and we're not gonna mark cars up more than what we're listing them for online, all these people would be out of jobs. And the content would be irrelevant. Chris J. Martinez: Yeah, I mean that's one way to look at it. I d I don't know it would be that easy though. you I'm saying like this Zach Fritz: To do the right thing? Of course it's not gonna be easy. unlikely to happen. ⁓ Chris J. Martinez: Well, I think it's justifying the right thing, right? Because I've dealers where they go to the one price and ⁓ then just have other dealers that continue to keep discounting and doing and they still outsell the the non-price type person. You know what I'm saying? So unless Zach Fritz: Yeah. Yeah, but then you've also got it from the FTC. Because the FTC is hammering. Then you have OEMs coming out and saying, well, three percent's your only allotted markup over invoice. And then you've got all the YouTubers and everybody else, including CarEdge and Delivered and all those guys coming after them. So it's just kind of we're getting to a point where there's whole hell of a lot less margin or runway or whatever you want to call it available on these cars. And living in the age of transparency. And mass outreach with AI. So dealers really can't hide from this anymore. Chris J. Martinez: The AI is really, I mean, you know, our company, do a lot with that every day. We have AI models all over, you know, deep all of our dealerships have a bunch of We have AI answer that, you know, also has AI agents that help negotiate for customers. we've got a lot of those tools. but the power of how quickly they can get the data. I think dealers some don't understand a lot of dealers are there's a lot of really good dealers right now that are building their own stuff and doing a lot of stuff that is really involved with AI, but there's still a pretty decent portion of them that are just gonna stick to what they know and that's kind of what they're what they're doing. So it's it's interesting that there's not more people doing it. Zach Fritz: Yeah. Yeah, it's ⁓ I I'm kind of waiting for the day whenever you go to call a dealership and it's all just AI and completely automated. So you don't end up with salespeople or even service advisors who just shove their foot so far in their mouth they start choking on it the moment they answer that phone. Because I think it's gonna provide a lot of consistency across the industry. And also it'll make for some really entertaining content. Some of these YouTubers calling up dealerships to try to catch ⁓ in the act and the AI's just answering and not giving ⁓ what they want. I just find that hilarious. Chris J. Martinez: ⁓ There are a bunch right now. Like it's it's interesting. You know what I'm saying? When I I look at that, I'm just like, man, it's and some of these things are going so viral. What's that? Zach Fritz: Yeah. What's the biggest advantage that you see with it? What's the biggest like if there is one number one selling pointer advantage that you see with it, what is that? Chris J. Martinez: With having AI or which what part? Zach Fritz: Yeah, with implementing it into the dealership or your, you know, sales or service process. Chris J. Martinez: I think I think number one advantage is having all the redundant tasks that your people just won't do. Like if you can just we just solve for that piece and now all those redundant tasks that you you swear up and down work, you tell them, hey, I need you to make calls back in my day, whatever you you said, and now you got an AI solution that can actually do all that redundancy. And at a at a at a point that could not replicate what that could do, ⁓ a hundred percent you should be all in on that stuff. Like it's it's not even close. So when I look at so some of the dealers that we have that are winning, they're just crushing it right now. They're all I mean, I've got a lot of stores having record months every month right now because the Zach Fritz: Mm-hmm. Chris J. Martinez: I'm not saying it's all because the AI, I think it's they have a really good sales process, sales team, service advisor. I mean, it's it's it's all the people a hundred percent, but the AI gives them up these other opportunities that would have taken them a lot of manual labor, manual time to uncover. And the AI is just serving them up, and those people are capitalizing. Now, there are some dealers that Zach Fritz: No. Chris J. Martinez: Don't do so hot because they have a terrible sales process, terrible sales team, or they don't train their sales team, leadership. ⁓ know what I mean? Like when you start looking at all of the reasons why it doesn't work, and at the end of the day, it's because of the people. So it'll work or not work based on your people. And no, no matter how good your AI is, it's like all it comes down to your people. Zach Fritz: Mm-hmm. Well, I love it for the fact that it's the ⁓ 100%. But it's it is. It's those silly tasks where if you're managing your team, you're gonna have to pretty much bitch at them to get them to do the work. It's the work that they are pushing off till the very end of the day or till 4 p.m. on a Friday. It's the work that they just don't have time for. So it's you know, it's the simple text message, hey John, by the way, we are running a special on oil changes right now. Your service advisors aren't gonna do that. Your salespeople aren't gonna message every single customer that's in the CRM and say, hey, we're running a promotion, or hey, there's some sort of lease, you know, ten thousand dollars towards buying your Audi out. There's no there's not enough hours in the day to get the that kind of work done. And unfortunately, there's not a lot of managers out there who could get the employees to do that in the first place without being just insanely distracted. And so that I think if we're going back to our conversation earlier about wasting the dealership or positions that kind of could be eliminated. This isn't necessarily an eliminate, I think it's an addition, but it's a great way instead of cutting your marketing dollars to spend your money and try to capture more customers. Chris J. Martinez: Okay. Yes. Well, we're coming up on the the top of the hour now. before we, you know, we head on out, you know, we've had a lot of great discussion. I feel like we can keep going because there's I was looking at my list here and I was like, man, I wish we'd have talked about that. But have to wait for next week ⁓ on and do an encore or do something, you know. ⁓ and actually I've got to encourage you, Zach, to do more of what. Zach Fritz: En tour. Absolutely. Chris J. Martinez: you're you because you're you have a great youtube channel and i'm looking at some of your stuff here and i'm like man you're you need to do more of it so you do a great job and ⁓ you ⁓ please do more of it because it's it's actually it's some good stuff good needed in in the marketplace i believe but based everything that we discussed we talked about you know Zach Fritz: Thank you. No I appreciate that. Chris J. Martinez: Reduction in staff, we talked about robots, we talked about acquisitions, we talked about AI. Walk me through we through everything. So, you know, from a dealer perspective, what is what do dealers need to be looking for? How can they apply any of this in their business today? And or or what ⁓ what they should should they be doing? Zach Fritz: Yeah. I think the biggest thing that people need to embrace right now is change. Is it's change and fluidity across the industry. Everything right now is up in the air. There is no online that's going to have the perfect answer or the s you know, correct solution for you. But at the same time, everything, including the customer, has evolved over the past 10 years, even 20 years, and it's not the same. dealership that we grew up in, if we're being honest. And so I think being comfortable with that change, being okay with educating yourself and continuing that education so that when that change does come, you can make the right decisions. I think that's going to be putting yourself in the best position to be successful in the industry today. Chris J. Martinez: I agree. I think you're you're spot on on that change. Change is it's it's what something that's going to be guaranteed in this business is change. I get it. You know, some dealers don't want to change. It's painful to change certain technology because you got to do some integrations and you got to do all this other stuff. Or or you got a new hire and you got to train them now. And and I look at some of this stuff. change embrace the change right it's inevitable it's coming it's always gonna be there so i think the the dealers that learn how to evolve adapt and continue to to learn those are the ones that that win in any market soak ⁓ it's it's been fun i appreciate your your time i you know i always and look forward to these every week because ⁓ Zach Fritz: One hundred. Chris J. Martinez: There's lot of things that happen throughout the week and of the opportunities that I feel dealers kind of sleep on. We I try to bring them to light. I think that as long as you stay abreast of what's going on in the in the marketplace, it's an easy way to identify some patterns and some things that are evolving to either in or slow down in certain areas in your business that we try to stay on top of. So with the automotive informants. my hope is ⁓ everyone who's listening today, they can share it, like it, comment, do what you do. But next time, Zach, thank you as always. But I look forward to seeing you next week. Zach Fritz: Likewise. Thank you, Chris.