Latest / Auto Collabs / Economists Are Cool Too with Charlie Chesbrough

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Economists Are Cool Too with Charlie Chesbrough · Auto Collabs

• 0:00
  Well, I'm excited because I actually hit my record button this time. [upbeat music] This is Auto Collabs. [laughs] That's impressive. It's the little wins.
• 0:13
  Yeah, there's a lot of moving parts when it comes to, like, getting on a Zoom call and, you know, pressing record. Lots of moving parts. Got recording video- [laughs]... recording audio.
• 0:23
  You know, to- But, uh- Go ahead, my boy... how do I use this, this- [laughs]... eh, I gotta push a button. Yeah. But it's not.
• 0:30
  I mean, it's hard because, like, m- Cirillo, again, he has a device that he gets to use to remind himself, which is a comb right now. [laughs] Yeah, right. He has to reach to press...
• 0:39
  You know, one of the first podcasts that I did years ago, um, it was in person with this, uh, like, a local Syracuse businessman.
• 0:49
  Well, he's a young guy, and he was also, like, super fit, like a fitness influencer, like, really before fitness influencers were everywhere, and he had a big following.
• 0:57
  And, and so I- he has a local restaurant here, and I just saw him, I was like, "Hey, could you be on my podcast at some point?" He's like, "Sure." I show up, set up in the restaurant. We talk for, like...
• 1:07
  And that was back when you're like, "Yo, we're gonna make it count. We're doing 30, 40 minutes," right? [laughs] Back when podcasting was the thing. Crushed the whole thing. Yeah.
• 1:15
  Well, I crushed the whole thing, and about five minutes before it was over, you know what I realized? 100%. Didn't- Hit the record button. Oh... hit the record button.
• 1:23
  And I will never forget his face when I was like, "Hey, so, uh, had a couple technical difficulties [laughs] with my finger and that record button." [laughs] So the second time we rec- He was really gracious.
• 1:37
  And the second time we recorded, though, it was like, you know, 18 minutes, and probably a lot better than the 40-minute version. There you go. That's perfect. That's perfect. But he never talked to me again.
• 1:47
  I'm just kidding. [laughs] Well, that's not gonna happen- Well, we are, we are-... Paul... handling, uh...
• 1:52
  We're, we're, we're talking to a, a new friend of ours, uh, Charlie Chesbrough, today, which, uh, we think maybe from Paul's original 40 to eight- 18-minute experience podcasting- [laughs]...
• 2:02
  we've got a little bit more leverage on our expertise and skill. However, when it comes to economists, man, I know that I've got a lot to learn.
• 2:11
  You know, Cox, we've gotten to know Jonathan Smoke, and every time he speaks, I'm, like, tuned in, pen to paper. Uh, because there's just...
• 2:19
  What I'm realizing is that we can extrapolate so much from the data that, that some of these companies have into what we're doing on the, on the boots-on-ground level.
• 2:28
  So I'm excited to kind of see, like, where are we at from their perspective, from his perspective, and kind of current market data and where the market might be headed. Mm-hmm.
• 2:36
  Uh, because there is, right now, it's almost like you can't look at the data too tight, but you have to look at it because it can tell a story. For sure. For sure.
• 2:46
  So with all of that anticipation built, boys, let's get our record button fingers ready and jump into this conversation with Charlie Chesbrough.
• 3:01
  [upbeat music] Charlie Chesbrough, it is so good to have you on the Auto Collabs podcast. Uh, I think this is the very first time we've had anyone with economist in their title on the podcast.
• 3:15
  Senior Economist and Senior Director of Industry Insights at Cox Automotive. Thanks for being on, Charlie. Yeah. Thanks so much for having me. Honored to be here. Yeah. Awesome.
• 3:22
  So, okay, first question, and this is a big one. [laughs] Is it Charlie or Charles? Because I've seen them different places- [laughs]... all over the internet. Where am I headed here?
• 3:32
  Yeah, we're going with Charlie these days. Little bit- Got it... uh, less formal. Uh- [laughs]... maybe doesn't sound as, as- No tie... intelligent- Right... but we're going with it. He's like- Yeah...
• 3:39
  kind of like the COVID beard, the no tie. Yeah. It's Charlie, right? That's right. [laughs] Charles wore a tie. Charlie is chilling out a little bit. Post, post-COVID Charlie. I love it. I love it.
• 3:49
  [laughs] Well, appreciate you coming on today.
• 3:51
  You know, I, it's, it's interesting because, uh, we, we've had Steve Greenfield on the show before, and a, a lot of times when I think, wh- when we, when we kind of hear and, and, you know, a lot of people have, have seen you around events and, and on, on interviews both inside and outside of automotive just because of the presence of Cox and, and the data that it has.
• 4:10
  But a lot of times economists kind of get put in this bucket where it's like, these guys have the data, they say the data, and then they get out.
• 4:18
  And what, uh, what I wanna, and what I wanna start with is, um, you know, obviously everyone kind of has the, the how-they-got-in-automotive story, and it looks like you have a history outside of automotive looking at data and looking at markets, and I, I'd love to hear kind of the how that transition worked, how, how looking at data and markets outside of automotive has moved you into auto and, and given you a perspective that's maybe altogether different.
• 4:43
  Yeah. Boy, well, I gotta go way back if you're gonna cover my whole career, 'cause it really started in the late 1980s. My, my first job out of college was working, uh, as a floor trader at the Chicago Board of Trade.
• 4:53
  So I was one of those guys with a phone on my head- Yelling... and doing arbitrage orders and- Pointing... it, it was crazy. Uh- It, it's really that crazy? Just- It was really that crazy.
• 5:02
  And, uh- Who were you yelling at? I think a lot of people don't know that. Like, who are you yelling to? Well, I had traders on the phone in New York that were t- asking me to put out orders.
• 5:12
  So they'd be like, you know, "S- sell 50 at 50," and I'd be like, you know, "Hey, 50, 50, 50," like that.
• 5:17
  And ch- thro- arbing an order out to our trader out in the pit, and they'd scream to get the order, and, uh, and then I'd yell it back on the phone of, "Hey, it was filled," and, yeah, it was a pretty crazy environment.
• 5:27
  That's so crazy. But that's where I first started. It, it- Uh, but-... actually seems a little Neanderthalic to me at this point. [laughs] Well, and it doesn't exist anymore. Right. It's been replaced by computers.
• 5:36
  Oh, boy. So, uh, well, but it was a- I had to ask. I never knew the answer to that question. [laughs] Yeah. No, it was a really unique environment, I have to say.
• 5:42
  Uh, uh, a lot like Trading, uh, Trading Places, if you remember that old movie- Right...
• 5:46
  the Eddie Murphy movie.Right But, uh, no, I started there and I really started looking at data there, uh, to really kind of understand financial data and all of that.
• 5:55
  Uh, but it was really a few years after that, uh, when I started working for a, a telecom company, and everybody had a phone number, and it was with that unique phone number that I was able to bring together, like, hey, we could link in their customer satisfaction data, and we could link in, hey, what phone did they purchase data, and all this other information, 'cause we had that unique phone number.
• 6:14
  And from that, I was able to get into the automotive industry, uh, where we had the VIN, the vehicle identification number. And again, this is early 2000s, late 1990s.
• 6:23
  Uh, it was kinda new to be building big databases like this. And so I started working at Ford in their marketing strategy group, and, uh, from there have, have worked for a number of companies, uh, in automotive.
• 6:32
  But I've been with Cox for, uh, a little over five years now. And, uh, uh, it's a really interesting company in automotive because we have so much information as to what's happening.
• 6:42
  Really, uh, once the vehicle is built, Cox Automotive has a, has a finger involved in, in all aspects of the vehicle market.
• 6:49
  Of getting that vehicle, uh, you know, from the factory to the dealer to the consumer, all of that. Uh, we, we've got our hands in everything. Okay. I, uh, this whole telecom to,
• 7:01
  you know, to auto relationship is really, it's coming out in a lot of different places for me right now.
• 7:08
  Because even, even when you look at, like, consumer side in, in thinking about trade cycle management and all of the things that telecom, it seems like, always kind of has an edge up on automotive and, like, a three to five-year edge on the things that- Yeah...
• 7:23
  they're thinking about and looking at. Um, and, you know, to think, okay, the center of the data in telecom is, is the customer cellphone. But the center of the data in automotive is the vehicle record- Yes...
• 7:38
  um, more primarily. And now it's, it's interesting because maybe we're 20, 20 years behind, but it seems like we're actually moving back to an idea where the center of the data in automotive is the telephone again.
• 7:51
  Be- And then, like, the, the, the connected data is potentially the VIN.
• 7:56
  Are, uh, have you seen other trends along the way where, like, you probably still kinda, like, keep the pulse of telecom I'm guessing, because you have that history. But have you seen- Well, yeah...
• 8:06
  other trends where, like, like, auto, m- maybe, maybe we're seeing something that telecom was doing three or four years ago, that now you're starting, that we're starting to learn in automotive that we need to be looking at?
• 8:18
  I don't know. I'm, I'm just thinking there's more parallels there that you're probably- Well-... seeing because of your perspective... I, I think you're onto something there.
• 8:23
  I mean, one that we're seeing in automotive is a lot of the futuristic talk is, is that it's gonna be customer data captured within the vehicle, uh, that is gonna be monetized.
• 8:33
  And, and the auto companies are gonna figure out a way to, to make money on your, on your medical information or biorhythms.
• 8:39
  Whatever they can kinda capture as you're sitting in that vehicle seat, uh, on top of information they might gather as you drive around.
• 8:45
  And it's sort of a data vacuum connecting to various wifi networks of where you're going. And, uh, you know, there's grandiose ideas of what they can do with all this data.
• 8:54
  And that's all tied to telecom as well, uh, in terms of the customer being the, uh, the focus of the data.
• 8:59
  But the other thing that's gonna be kinda interesting with automotive is that we've seen over the last few years what I kinda describe as the, the iPhone-ication of the vehicle, uh, product planning.
• 9:10
  You know, it used to be you built a vehicle. Uh, you, you sold that vehicle essentially unchanged for three or four years, maybe longer if you could. Uh, uh, and then that was sort of the way to be the most profitable.
• 9:21
  But nowadays we're finding that you have to upgrade that vehicle much more frequently with more technology, more, uh, you know, uh, bells and whistles on that vehicle.
• 9:29
  Uh, people aren't willing to just let a vehicle be unchanged for, you know, for long periods of time. And, uh, it's much like with the iPhone.
• 9:36
  You know, you gotta have m- add more stuff every version, or else why buy the next version when my old version's just fine? Um, and I think we're seeing more of that within automotive.
• 9:45
  And, uh, that's a real challenge for the industry, 'cause there's a long lead time in product planning with automotive.
• 9:50
  And having to turn around things quickly and, and, uh, be more flexible in manufacturing's been a challenge for the industry. But thus far, they seem to have, have been doing it fairly well. All right.
• 9:59
  Before, uh, Paul asks his question, 'cause he's got a question, I'm bringing a, a shirt to SoDuCon for you. It's gonna be called the iPhone-ification of Automotive. [laughs] Right there. [laughs] It's gonna be...
• 10:10
  [laughs] I knew it. It's perfect. I love it. That's the hard-hitting documentary. The iPhone-ification- [laughs]... of the Automotive Industry, featuring Charlie Chesbrough.
• 10:18
  Um, okay, so, um, now, Mike, now the T-shirt and that show just totally got me off my game right now. When it comes to, um, using economic... Oh, no, no, no.
• 10:29
  You said the, the planning cycles for automotive are usually further out. Do you see those condensing?
• 10:36
  Like, because of, I mean, okay, well, ask what you're seeing and then what you actually predict, um, in the sense that planning cycles with EV platforms might be a little bit, uh, maybe easier, just because, like, the, the tr- drivetrain is so standardized across models.
• 10:54
  Do you see that planning cycle compressing, or do you still think it has to be the same because of the way the manufacturing process is in general?
• 11:01
  Um, so I'm just curious now that you mention that, what you think it's going to be and, you know, is it getting faster?
• 11:06
  Yeah, I th- I think the future is, is that EV platforms should be able to be redesigned much more quickly, uh, with the idea, sort of the, the skateboard idea, right?
• 11:16
  Where you've got the bottom guts, the, the, the powertrain of the vehicle, and you just kinda slap a different top, uh, on top of it to make a whole bunch of different versions of the vehicle.
• 11:25
  That's sort of the idea of where EV manufacturing is essentially gonna be going.
• 11:30
  But we're not there yet.So I don't know that there's a big savings on time just yet in terms of product planning that's been experienced- Yeah... by the manufacturers.
• 11:37
  But it's still a fa- you know, they're working today. The engineers are working today on the vehicles that are gonna be coming out in '26, '27, '28.
• 11:45
  You know, there's a very long lead time and, and you've gotta set up your supply base and, uh, you know, who's gonna make what part.
• 11:51
  And when it comes to electric vehicles, one of the big challenges the industry's dealing with right now is sourcing future batteries. Right.
• 11:58
  Uh, you know, every- everybody wants to be making and selling a million EVs, you know, every manufacturer, a couple years from now. But right now, those batteries don't exist to even put into those vehicles.
• 12:08
  So, uh, you know, there's a lot of planning going forward that the EV market's gonna get much bigger and sell many more vehicles.
• 12:15
  But in terms of the, the, the, uh, the supplies being there f- to make all that happen, we don't have that yet in the industry, and that has to be built as well.
• 12:23
  So it's obvious that you're, you're very well-versed, right, and from top to bottom in the, the automotive ecosystem. But w- we're here to talk economics for a minute.
• 12:32
  [laughs] Um, so, [laughs] and I know it all comes together. Can you give us a baseline? Because we, we try to teach to the back of the class, especially with some of these.
• 12:41
  And, you know, Autocollab's podcast is about really drawing a big circle around as many people in the industry as we can, and having them take a step closer.
• 12:49
  So can you give us, like, the 101 on what economic indicators we should be relying on the economists for, and what that should be doing to our decision-making? Well, boy, I, I, you know, that's a big question.
• 13:03
  Little question, right? Uh- Just get it all into one little- Just a weeny bitty question. Yeah. [laughs] Get it in a one 60-second packet for us, and just solve the problem.
• 13:08
  I mean, there's a lot of, there's a lot of metrics that, that economists look at that are gonna tell us, you know, will the, will the economy slip into recession, and, uh, you know, will unemployment start to rise, those types of things.
• 13:19
  And certainly I would say all Americans should be aware of those types of things, like the yield curve in- inverting, where, uh, uh, you get more, a higher interest rate on a near, on a shorter term loan than you do a longer term loan.
• 13:32
  Uh, we've had that happen in the, in the economy recently, and that's generally an, uh, an indicator that we're gonna slip into recession at some point in the near future. Um,
• 13:41
  you know, they're sort of, those are kind of big numbers.
• 13:42
  But the more practical numbers, I think, cons- that really affect consumers in their daily lives, uh, are certainly interest rates and what the Federal Reserve policy is, is and, and what it will be.
• 13:53
  Uh, that's had a dramatic, uh, change over just the last couple months, and it's gonna continue to be quite volatile over the next, certainly over the next two years.
• 14:01
  Uh, and of course just energy costs and, and food costs. We've seen gasoline costs spike, uh, dramatically, and they're coming down almost just as dramatically.
• 14:09
  Um, that's, uh, a, a sector in the economy, energy in particular, with this Ukraine war going on, that's gonna remain very volatile. Uh, we saw natural gas prices hit a record level just today or yesterday. Yeah.
• 14:21
  Um, you know, this is all gonna have an impact on the future of the economy and people's ability to buy vehicles, both new and used. Uh, and it's gonna have an impact on their overall consumer confidence.
• 14:32
  Um, we've seen consumer cons- confidence has fallen dramatically, uh, over the last few months as people get really concerned about inflation.
• 14:40
  And one thing we know about the US economy is nothing makes people feel worse than seeing high prices at the gas pump. That just kills the American consumer. They hate it. It's right in their face every day- Oh, wow.
• 14:51
  Yeah... uh, the cost of filling up that gas tank, and it really peaked just a couple of weeks ago.
• 14:56
  Uh, and like I said, it's getting better, uh, but that's a metric that people need to watch becau- and certainly dealers need to pay attention to, because that's gonna kinda gauge the mood of the consumers as they're shopping here in the fall.
• 15:07
  Well, I think, I think that's really interesting that, like, you didn't start with, you know, inventory dynamics or the ability of automakers to b- You started with how are consumers perceiving the market, what's their ability to purchase, and then we back into all of the other layers of data, right?
• 15:25
  Because if the consumer, if the end user of the thing that we're selling, has a per- certain perception or ability or capacity to engage with us based on their, you know, the, the way they're per- they're perceiving the market or their own jobs or their own ec- or, or their own personal economy, then that backs into, like, what inventory do we need, what, what type of a sales process or marketing process, or all of that is predicated on really the consumer experience.
• 15:51
  Which is, like, I'm, I'm just gonna be honest, I wouldn't, I wouldn't typically expect, you know, anyone that's looking at data to lead with- Experience... data from a customer perspective as the first thing.
• 16:05
  And so, one, I just wanna say I appreciate that. Um,
• 16:10
  but two, just, uh, like, for the dealers and for the industry partners listening to this, like, if, if a data-centric person that is an economist and speaks to economy on a broad scale and understand is the, and understands the inventory and they're lo- and in looking at the consumer first, then we all should be doing that, period, end of story.
• 16:28
  I feel so validated. I feel so validated because every morning- Like, I feel so good about it. [laughs] Every morning Kyle and I have a morning show- Hang up the day, we're good...
• 16:36
  right, where we're always like, "Pay attention to how your consumer's feeling coming in because of this, that, and the other."
• 16:41
  And now we just have, you know, a senior economist come in and say, "Let's think about how the customer is thinking about this when they walk into your store." I love it so much. Yeah. I feel validated.
• 16:51
  And, and then, so I wanna, I, uh... Ah, blah, blah, blah. We're all over the place. I know. We're excited. We're excited. [laughs] But
• 16:58
  you, you keyed in on this thing where it's like the, the perception of the economy is driven by the fact that the prices that you see as you drive around on a daily basis are driven by two types of billboards.
• 17:13
  One, paid billboards, and two, gas price billboards, because that's the only time that we see prices out and about when we're not actually in shopping mode. Mm-hmm. And I had never considered that till you said that.
• 17:24
  I mean, I knew that everybody kinda looks at gases, but, uh, or, or that, uh, that looks at gas prices, but that, that it's a daily kind of reminder, no matter where you go, whether you're shopping or not.
• 17:35
  Uh, daily, every day. Yeah, every day- That's really interesting...
• 17:36
  it's in people's face.A- and one of the interesting things that we've seen out there, uh, in, in, really is post-COVID, is that because we've had this shock to the US economy, the composition of who is buying vehicles has changed dramatically.
• 17:51
  And that we've seen, we can actually see in our data, the prior and post sort of March of 2020, the average interest rate that, that people are paying, uh, when they sign a, a contract, when they purchase a new vehicle, has fallen dramatically.
• 18:03
  It was sort of about 6% was the average interest rate. It fell to about a 4.5% interest rate.
• 18:09
  Not because interest rates went down, but because all of the folks that were paying 10% and higher interest rates, much, that were, that were lifting the average, fell out of the market.
• 18:20
  So that what remains are only higher credit, better credit quality folks. Wow. That's what can afford, who can afford to buy a new vehicle these days.
• 18:29
  And the other thing that's really interesting with that is that the average interest rate that the different brands cater to, who their customers are, varies greatly.
• 18:38
  Subaru and Honda customers and, and, uh, Volvo customers, on average they're getting like a two, 2% or 3% interest rate on average is what, uh, those customers are paying when they buy a vehicle.
• 18:49
  When you get into a, uh, a Mitsubishi or a Dodge, you know, their interest rates can be 10% plus on some of them.
• 18:56
  That, you know, massive difference in the type of person, because the interest rate kind of reflect, reflects the credit quality, uh, of the, of the person who would be coming in as to what they would qualify for for an interest rate.
• 19:08
  Um, and so who's vulnerable in that environment when interest rates go up dramatically?
• 19:12
  You would just think that folks that are, that brands that cater to a higher interest rate customer are gonna be more vulnerable than those brands catering to a lower interest rate customer.
• 19:22
  Because the higher interest rate customers are really gonna see their interest rates rise here and, and as interest rates go up in, in this environment.
• 19:30
  And the other, as a result of all of this, of the, of the lower, uh, credit score folks dropping out of the new vehicle market, whoever remains in the new vehicle market buying vehicles today has a v- is getting a very similar interest rate.
• 19:43
  So we've consolidated consumers. So before we had consumers getting anywhere from 0% to 15% interest rates.
• 19:50
  It's all cons- consolidated down, that we have a much s- smaller group of, uh, uh, uh, variation, uh, around that. So that all of the brands are pretty much catering to the same kind of financial customer today.
• 20:03
  Um, you don't have- Wow... a, a big variation. So it's getting that much more competitive out there in terms of competition among who's in the vehicle market buying today.
• 20:12
  Well, financially they're a very similar customer across the board. So, so we have, we have two types of sidelined new car buyers then.
• 20:20
  Because the type that I've heard the majority about is silil- sidelined due to inventory capacity, right? That people can't find the car that they want, so they sideline and, and say they're gonna hold out.
• 20:31
  But what you're saying is that we've got a sidelined buyer set that is that, but also a sidelined buyer set that is potentially in a higher credit tier, lower income that, or a, a lower t- credit tier, lower income that can't afford to purchase on the current interest rates and prices, and that's also sideline new car buying.
• 20:49
  Might have pushed a used car buying, but probably also sidelining that buying.
• 20:53
  So as things regulate or, or m- marketing is attenuated to those places, that we're still gonna see inventory sidelining because we can't, we cannot ha- we can't even get those customers in those cars because there's not availability.
• 21:08
  Uh, uh, am I- And, and that-... am I hearing that right? That's the, you, you got it. So yeah, we have both of these forces going on.
• 21:12
  There's, there's folks that have left the market and there's folks that are kind of sitting on the sideline, uh, waiting to buy for those products to come in.
• 21:20
  Uh, but all of it suggests that the, uh, the, the market going forward's gonna be a little bit weaker, that we, we've lowered our longer term forecast.
• 21:28
  We think it's gonna be a real challenge to get back to a 17 million new vehicle market here in the next couple years, and that we're probably now on a different trajectory for the new vehicle market.
• 21:38
  Yeah, for the- Uh, we're-... for the next, you're saying two to three years? Well, or maybe even longer. That, uh- Wow...
• 21:44
  it's, it's no, there, we're, the, the, the prospect of going back to a 17 million plus market, sort of the, the 2018-'19 types of markets that we had, uh, seems less likely the longer this chip shortage goes on, the inventories remain lean.
• 21:59
  Because on the flip side of all of this, and everybody kind of complaining they can't find their products, the revenues have been relatively strong for the manufacturers.
• 22:07
  Uh, sales are down, but the, the per unit profits are l- are, the margins are looking very, very strong. They've pulled back dramatically on incentives.
• 22:15
  Uh, we know that they're pulling back on some of their marketing budgets. Um, and all of this means that the margins are quite strong.
• 22:21
  They don't need to sell 17 million to s- to sell the, to make the same amount of money. Maintain profitability, yeah.
• 22:26
  Uh, and just to give you a back of the envelope, in, in, in 2019, uh, in our own data, transaction price times sales, uh, was about a 57 billion, uh, market, uh, total.
• 22:38
  Uh, in 2022, uh, it was a $60 billion, excuse me, 2021 it was a $60 billion market. $3 billion higher, and we sold nearly two million, uh, fewer vehicles. I saw that.
• 22:49
  So the higher prices are really mitigating a lot of the s- the smaller rev- uh, volumes. Do you think that this- And so there's really not much of a need for the industry to get back to the way it was.
• 22:58
  I mean, do you think that this... I, I'm, I'm, now I'm just kind of guessing here.
• 23:04
  If there's higher availability of inventory, and there's lots of incentives going on, does that incentivize consumers to get, flip cars more often? Cycle through faster? You know, like, "Hey, there's a good deal.
• 23:17
  I can get in this new car cheaper," so it's maybe instead of every four years I'm going every three, or in every three I'm going, like, two and a half. D- do those two things tie together?
• 23:27
  Because if so, um, this limited supply could actually prolong cycle times, you know, over time, and maybe reduce overall profits. Are you following what I'm saying?I am.
• 23:39
  Um, one area we definitely see is in the leasing side of the business, right? So n- uh, in, in a normal sort of pre-COVID market, about 30% of all retail ac- uh, purchasing or retail activity was a lease.
• 23:52
  That's fallen dramatically in the post-COVID market. In, in fact, I think, uh, uh, the most recent data point we had from June was 17%. Uh, so from 30 down to 17%- Oh... is what leasing share is.
• 24:04
  Those are your folks that every two to three years are getting a new vehicle. They're, you know, they're churning through these things. Uh, but they've backed away from the market. There's just not as much of that.
• 24:13
  50% cut. It's, it's a huge cut, and part of it is, is intentional. That, that the, they're not making great lease deals anymore. They'd much rather sell you a vehicle, the manufacturers, than lease you a vehicle.
• 24:26
  Uh, and so- Well, because, uh, you just said they, they reduced incentives and r- so they reduced marketing costs, which makes a whole bunch of sense, right?
• 24:33
  Because you don't need to market as hard to customers- Right... when they're- There's no supply... everything's selling. Right, yeah.
• 24:37
  But, but red- uh, it's really wild that the American consumer, you know, a lot of attention is being placed on dealers raising prices, EV manufacturers raising prices.
• 24:48
  But technically what, like, legacy manufacturers have done over the pandemic is raise prices by not having incentives, which is a really interesting, like, w- way to perceive that.
• 25:01
  And so they've raised prices by not having incentives, which thereby increases the bottom line. This is already baked in. And- Right... th- so the profitability is still there. Uh, you know- And, and-...
• 25:12
  because that's been an argument... th- they've cut back on, on the discounting, absolutely, and they're focusing on making the most expensive products- Right... or the highest margin products. Uh- Right.
• 25:23
  Back to your- And so- Who, well, the target market, right? The more affluent buyer, which is who's in the market today.
• 25:29
  Uh, it, and it's made an, it's been a long-term trend that th- you know, the affluent buyer is who's buying a, a new vehicle.
• 25:35
  But it's really made a sh- a stronger shift, even in post-COVID market, that higher incomes is who's buying the, the new vehicle these days. My goodness.
• 25:43
  Well, look, we're gonna have so much, obviously, to talk about at ASOTU CON in just a couple of weeks from now.
• 25:49
  Uh, Charlie, it's gonna be great to meet you in person and just watch you mix it up with all the dealers and other industry partners. Not just when you're on stage, but also in the room and throughout the event.
• 25:58
  I hope you can stay and, uh, you know, and trade ideas and, and bring us along a little more. Thank you so much for spending some time with us today in the AutoCollabs community.
• 26:06
  On behalf of Kyle and myself and the whole community, thanks for joining us. Yeah. Well, thanks for having me, and I look forward to meeting you in a few weeks.
• 26:17
  You know, it honestly blows my mind the fact that leasing post-COVID is down almost 50% of what it was. Down from 30% to 17%.
• 26:28
  The implications of that- You know, a lot of people talk about what the market is doing- In two or three years from now- It's gonna be nuts...
• 26:33
  yeah, what, what's happening right now with inventory, chip shortages, the way the market is, interest rates. Everybody's talking about right now.
• 26:41
  But what that tells me is that in two, three, and four years, the used car market, the way vehicles are acquired, the lease retention, brand retention, is significantly at risk.
• 26:52
  And there's, there has to be this mentality. Like, we, we typically, we think about a lot of our data in auto of, like, year over year, month over month.
• 26:59
  We have to start thinking in these two to three-year timelines on, how are we gonna retain that customer? How are we getting that customer back when it's not a, a large portion of leases in new car purchases?
• 27:10
  It's a, it's, it's a problem that I don't think we're... Like, we should be game planning for that two and three years in the future, and that's hard to do- That's not happening...
• 27:19
  when you're in a month-to-month business. Yeah. It's not gonna happen.
• 27:21
  I mean, we've just watched a lot of cycles of this happen over the years, where you have, like, a glut, and then you have a scarcity, and then you have a glu- And it really is the natural ebb and flow of this business.
• 27:32
  And it, even if you look back, you see that there's always, like, I th- I don't know if you've ever seen Men in Black. There's always a new thing. Right. Right.
• 27:38
  There's always a Krillian Death Destroyer waiting to destroy the Earth, right? [laughs] It's always gonna happen. But I, I'll tell you what. I didn't know economists were so much fun.
• 27:47
  I thought Jonathan Smoke was, like, an anomaly. [laughs] But, but Charlie kinda, like, he's like, "Oh, that's how y'all rolling. And okay, okay. I think we're cool."
• 27:55
  [laughs] I don't know if I have what it takes to ever consider anything to do with, uh, uh, being an economist, 'cause I feel like I would just be worried all the time for people. I'd be like, "Oh, no."
• 28:04
  You'd walk around like, "Oh, my gosh. Oh, well, what if this happens?" "It's coming." You don't know. "Am I gonna die, Dad?" You can't see it. Yeah. [laughs] Yeah, exactly. "I see it coming."
• 28:11
  Like, you have to have the game face. Like, left in 15 years, there's a meteor- Yeah... coming, and I can't let you know about it. Right. And that, that, you're right, Kyle.
• 28:19
  Like, to your point, I think it was really interesting how he draws parallels to something like telecom. First, because it's something that we can all relate to, and we c- are all constant...
• 28:28
  Like, what just happened a- as of recent, the iPhone 14 drops. What are all the cellphone companies doing? Like, you know they were prepped well in advance of- Oh, yeah...
• 28:37
  like, "Hey, here's how you're gonna get out of your 13 or your 12. Here's how you can..." Like, they had the whole process laid out. Mm.
• 28:43
  And I always find it intriguing, especially when it comes to that in automotive, where we're like, "What in the heck? How did, where did Red Tag Days come from?"
• 28:51
  And you're like, "Oh, you mean the thing that happens at the exact same time every single year- [laughs]... for the last 87,000 years? Why is this a surprise?" So true. So true. It's crazy. Crazy. Well, look. W- how...
• 29:03
  Go ahead, Kyle. You were gonna, "Well"? I'm gonna, "Well." No, you, you got well. Do well. Well. Well.
• 29:08
  We hope that we've helped change your perspective of economists to know, like, they're actually the people you wanna hang around with at a party, 'cause they're so much dang fun. We had a great time with Charlie.
• 29:17
  On behalf of Michael Cirillo, Kyle Mountsier, and myself, thanks for listening to AutoCollabs. We'll see you next time.
• 29:24
  Sign up for our free and fun-to-read daily email for a free shot of relevant news in automotive, retail, media, and pop culture. You can get it now at asotu.com. That's A-S-O-T-U.com.
• 29:36
  If you love this podcast, please leave us a review and share it with a friend. Thanks again for listening. We'll see you next time.
• 29:44
  [upbeat music] Welcome to AutoCollabs. Welcome to AutoCollabs. [laughs] Why are we recording? Are we rolling yet?
• 30:02
  Not yet.