CATA News

Many car dealers now regularly home deliver newly purchased vehicles to customers who ask for that service. But is a higher next-level on the digital horizon?

The issue came up at a Reuters’ online event at which moderator Tanya Gazdik of MediaPost asked, "Will automakers be like Amazon Prime, where you order a car and it shows up in your driveway a day or two later?"

Online retail giant Amazon is an example of a company that offers great customer experiences, said panelist Laura Rathai, a Hyundai marketing director. But she added that most consumers aren’t interested in completely bypassing the dealership experience.

"People still want to go to the car dealership," she said. "The experience at the dealership can’t be underestimated. That’s where people smell and feel the car and get the confidence of their vehicle choice. People so much want to go to the dealership."

Co-panelist Beth Mach agreed. Human senses come into play at the dealership. On the surface, it may seem odd that car-buying involves the olfactory system. But the so-called new-car smell is a powerful sales motivator.

"Until we have smell-a-vision, we won’t be able to give you that type of experience online," said Mach, chief customer officer at TrueCar, an internet automotive marketplace. Her position was created last year.

Gazdik noted that an automaker once tried to eliminate that new-car smell, "and people were furious."

The program’s discussion focuses on modern marketing models. Gone is the traditional sales funnel in which customers metaphorically enter the wide top and eventually exit the bottom tip by choosing a car and dealership.

"The predefined funnel is not there anymore," Europe-based Rathai said. "The experience used to be that we guided people through that predefined funnel. Now, the customer wants more empowerment."

Yet they also want a degree of help from automakers and dealers, while at the same time not relinquishing their control of the purchase process. "We need to know what they want," Rathai said. "The big challenge is they want us to guide them through the process."

Referring to customers ultimately switching from online shopping and researching to the offline dealership visit, "they want us to carry over information from one point to another," she said.

That means not starting over at the dealership, which has become a major auto retailing no-no. "Don’t start from scratch," Mach emphasized.

She noted the path to purchase no longer is linear. For example, it’s not unusual for car consumers to start their shopping journey online, visit the dealership in person, return home for more online work and then return to the dealership to close the deal.

Rather than following a straight line like it pretty much did previously, today’s purchase process includes twists and turns.

Mach likens it to a French horn that contains an intricate pattern of coils and tubes, and from that "comes a beautiful sound."

Customer-first marketing changes the consumer-dealer relationship, she said. If it is done right, "the customer will look at the dealership as a friend, not a foe. That’s different than before. And it’s great. It’s good if you make people feel comfortable."

A dealership using online tools, including customer-relationship-management software, can get a good sense of shoppers from their online behavior. That helps in the crucial online-to-offline pivot, Rathai said. "Creating profiles helps salespeople know how to treat customers."

 

Several high-profile initiatives hang in the balance as the Illinois General Assembly inches closer to its scheduled May 31 adjournment, among them a state budget, new legislative district boundaries, clean energy initiatives, an elected school board for Chicago, and an ethics overhaul in the wake of a sprawling corruption probe.

 

The glut of initiatives threatens to crowd out two bills important to dealers that stand on the doorstep of advancing out of the legislative body and to the desk of Gov. J.B. Pritzker: how manufacturers must compensate dealers for repairs of vehicles under warranty, and abolishment of the $10,000 limit on the trade-in credit allowance for first division vehicles, a limit that took effect in 2020. 

 

The CATA, the Illinois Automobile Dealers Association and a list of others have advocated for both bills, and dealers and their technicians are urged to contact their state senators now to voice their support and to exhort Senate President Don Harmon (D-Oak Park) to call House Bill 3940 for a third reading in the Senate and advancement to Pritzker.

 

The bill, which addresses the warranty work, passed the 17-member Senate Executive Committee May 20 on a 16-0 vote, with Harmon not voting.

 

Automakers consider different time guides for the same repair when technicians fix a car under warranty versus the longer time considered when customers pay for the work. The bill requires manufacturers to compensate dealerships for warranty work in the same manner that retail customers pay for retail work, in terms of time allowances, labor rates, and parts prices.

 

Mechanics Local 701, the union representing area technicians at dealerships, is working with the CATA to champion the legislation. Supporters say HB 3940 would bring a fairness to the payment process that could attract new technicians to dealerships. Wisconsin has had similar policy in place for more than a decade.

 

In addition to establishing an equitable compensation scheme for warranty work, the bill would prevent manufacturers from imposing cost recovery fees or surcharges to overcome the bill’s effect.

The other bill, Senate Bill 58, would end the cap on trade-in credit allowances. The CATA has proposed an alternative: Raise the tax on private party sales, whose rates have not been raised in decades.

Over the last three years, an average 850,000 private party sales were transacted in the state of Illinois. Capping the trade-in credit on a retail transaction makes private party sales more attractive to the consumer, which means less revenue for the state. Dealerships also collect and remit tax due much more effectively and completely than do individuals. 

A second reading for the bill was on the House calendar on May 26. Supporters of SB 58 should express that to their state representatives in the House. Legislators would remain in session throughout the holiday weekend.

 

With some encouragement, undecided battery electric vehicle shoppers can become likely purchase considerers, which is good news for automakers expanding their EV product lineup, according to the inaugural J.D. Power U.S. Electric Vehicle Consideration Study. 

Currently, more than half (59%) of new-vehicle shoppers fall into the "somewhat likely" or "somewhat unlikely" categories when it comes to considering an EV for their next purchase or lease — a significant window of opportunity for future EV sales.

"Right now, the projected EV supply outweighs consumer interest. And for every new-vehicle shopper seriously considering EVs, there’s another at the opposite end of the spectrum," said Stewart Stropp of J.D. Power. "To avoid a potential ongoing inventory surplus, it behooves manufacturers and retailers to identify why shoppers in the middle ground aren’t completely sold on the technology, and how to get them over the hump into the ‘very likely’ consideration camp."

The study found that firsthand experience with EVs plays an important role in purchase consideration. Among respondents who say they have owned or leased an EV in the past, 46% are "very likely" to consider another, while only 6% say they are "very unlikely" to consider purchasing another EV as their next vehicle. 

This is similar to findings in the J.D. Power 2021 U.S. Electric Vehicle Experience Ownership Study in which, even among dissatisfied owners (overall satisfaction scores below 600 on a 1,000-point scale), 65% say they "definitely will" consider an EV for their next purchase.

The EVC Study also found the "very likely" ratio among respondents who have simply ridden in an EV is nearly three times that of those who have never been in one (20% versus 7%, respectively). 

Half of respondents had never been in an EV, highlighting a critical need for automakers and retailers to create opportunities for consumers to familiarize themselves with these vehicles. "Anything stakeholders can do to get more people into electric vehicles, whether it’s experiential events, take-home test drives or other proactive efforts, will help break down the preconceptions people have about EVs and drive higher consideration," Stropp said.

Key findings of the 2021 study include:

 

Vehicle use outweighs range anxiety: Among heavy-use drivers, the prospect of eliminating gasoline expense seems to neutralize range anxiety. "Very likely" consideration is more than three times higher among those who take more than 10 road trips a year compared with those who don’t take any (34% versus 10%, respectively). The ratio is similar among those who commute more than one hour (35%) compared with those who have no commute (9%).

 

Consideration by current vehicle segment: The "very likely" ratio among current owners of premium brands (36%) is more than twice that of mass market brand owners (15%). The study also finds consideration by current vehicle brand ranges widely from 46% to 96% in the premium segment and 36% to 60% in the mass market segment.

 

Information begets consideration: Nearly one-third (30%) of non-considerers cited a lack of information as a reason for their lack of consideration. To consider EVs, shoppers need to be better informed about them and the ownership proposition they offer.

 

Time frame for non-considerers to become considerers: Four in 10 (41%) non-considerers say they will consider a plug-in hybrid electric vehicle or a hybrid electric vehicle in the next two to four years while 27% say they will consider an EV in the same time frame.

 

Ransomware, where hackers hold hostage a company’s IT system and data, is top-of-mind in the auto industry right now. But simple human error with business emails still is the biggest vulnerability in cybersecurity, and employee training still is the first line of defense.

"Ransomware is a huge, huge issue," said Benjamin Tweel, senior cybercrime specialist within Bank of America’s Global Information Security team. However, even the more sophisticated threats including ransomware often get their foot in the door via common, everyday threats such as phony, "phishing" business emails.

Tweel provided some tips and best practices for combating cybercrooks in "The Auto Industry Under Cyber Attack," a recent webinar hosted by the American International Automobile Dealers Association. 

It’s estimated that 90% of phishing incidents are caused by "human error," when someone clicks or downloads something they shouldn’t have, Tweel said. If there’s a single most important tip from Tweel’s presentation, it might be, "Don’t reply to an email requesting a change in payment instructions!"

Once an intruder gets into a company’s IT system, it takes an average of 280 days to identify the intrusion, he said. "Let me say that again: 280 days. That’s a long time not to know somebody could be doing something suspicious on your network," Tweel said.

Scammers may use that time to learn the ropes in an organization. The goal is to create an email which may even come from an actual executive’s own email account, ordering a subordinate to make an immediate payment outside the usual channels, typically under unusual circumstances.

For example, the executive is overseas — and in fact may be overseas. There’s some plausible-sounding reason why the payment has to be kept confidential. Above all, it has to be done quickly, before anyone has a chance to think it over, Tweel noted.

Companies need to train employees to recognize fishy circumstances in the first place, and "empower employees to slow down the process without pressure" when they see warning signs, he said. It’s also a good idea to create a requirement that at least two people need to sign off on a payment.

The coronavirus pandemic has raised the threat level by forcing companies to switch to multiple, interconnected digital channels faster than they normally would have done, Tweel said.

Before COVID, corporations saw digital adoption as "a cost-saving investment, for the next three to five years." With COVID, that timeline is compressed to one or two years, and the focus no longer is just on cost savings; it’s on simply staying in business at all, he said.

In employee training, it’s important to make the training relevant and "engaging," Tweel said. Rather than making employees feel like "the weakest link," trainers need to make employees feel like "our strongest defender," he said. "They’ve got to understand why it’s important."

 

The U.S. Labor Department has withdrawn  its "Independent Contractor Rule" to maintain workers’ rights to the minimum wage and overtime compensation protections of the Fair Labor Standards Act.

The department withdrew the rule for several reasons, including:

 

• The independent contractor rule was in tension with the FLSA’s text and purpose, as well as relevant judicial precedent.

• The rule’s prioritization of two "core factors" for determining employee status under the FLSA would have undermined the longstanding balancing approach of the economic realities test and court decisions requiring a review of the totality of the circumstances related to the employment relationship.

• The rule would have narrowed the facts and considerations comprising the analysis of whether a worker is an employee or an independent contractor, resulting in workers losing FLSA protections.

"By withdrawing the Independent Contractor Rule, we will help preserve essential worker rights and stop the erosion of worker protections that would have occurred had the rule gone into effect," said U.S. Secretary of Labor Marty Walsh. "Legitimate business owners play an important role in our economy but, too often, workers lose important wage and related protections when employers misclassify them as independent contractors.

"We remain committed to ensuring that employees are recognized clearly and correctly when they are, in fact, employees so that they receive the protections the Fair Labor Standards Act provides."

The FLSA includes provisions that require covered employers to pay employees at least the federal minimum wage for every hour they work and overtime compensation at not less than one-and-one-half times their regular rate of pay for every hour they work over 40 in a workweek. FLSA protections do not apply to independent contractors.

In addition to maintaining the scope of workers covered by FLSA wage-and-hour protections, the department anticipates that the independent contractor rule’s withdrawal will avoid a reduction in workers’ access to employer-provided fringe benefits such as health insurance and retirement plans. The withdrawal will also avoid a reduction in other benefits such as unemployment insurance and workers compensation coverage.

For more information about the FLSA or other laws it enforces, visit the Labor Department’s Wage and Hour Division, or call (866) 4US-WAGE.

 

Some automakers in recent years have begrudged auto shows as expensive and a poor return on their investment, but an industry analyst said they are using the wrong measuring stick and predicts auto shows will become even more important in the coming years.

"Auto shows are where consumers become aware of every innovation," Chris Stommel, president of Foresight Research, said in April in an Automotive News podcast, "Daily Drive." The company is a recognized expert in auto shows analysis. He said manufacturers that base the success of their auto show participation on cost alone are missing the bigger picture.

"Eleven million people attended an auto show in the U.S. before Covid, so the consumers are still coming," Stommel said. They willingly pay for parking and overpriced concessions to experience what essentially is a long car commercial. But the takeaway, he said, is that attendees often add brands to their purchase considerations.

Some automakers have been absent from U.S. auto shows for several years. Stommel said manufacturers in recent years have placed too much emphasis on the media coverage generated by their participation in auto shows and not enough on consumers and resulting sales numbers. 

"I think auto shows are suffering from a (manufacturer) perception problem," he said. "They are expensive, and the shift to public relations brought elaborate displays that exploded budgets. Some declared auto shows obsolete, but we take a completely different view at Foresight."

Stommel said consumers attend auto shows to see what’s available and to have their questions answered. He said: "Our data shows that things like ride-and-drives are very powerful. Anything to increase consumer awareness is a good thing."

 

The year-plus disruption to most aspects of life caused by Covid-19 affected auto shows around the world. The Chicago Auto Show wrapped its 2020 edition mere weeks before public gatherings grounded to a halt, and continued restrictions forced this year’s February show to pause. 

It was down but not out.

 

The Chicago Auto Show will be one of the first events to return to McCormick Place when it hosts an abbreviated five-day exposition July 15-19. Attendance will be limited during the time slots consumers must choose from when purchasing their tickets, and sizable outdoor ride-and-drives will help alleviate the indoor crowd size.

"Finally, the return of our beloved Chicago Auto Show," Illinois Gov. J.B. Pritzker said May 4 during the reopening announcement, adding that the return of events at McCormick Place is a "critical step toward our state’s overall economic recovery."

The show will move to the convention center’s West building with 470,000 square feet of indoor space and 100,000 square feet of outdoor space along Indiana Avenue, where test drives will be conducted. There also are plans for a street festival that will feature cars, food and entertainment.

Admission is $13 for adults and $10 for senior citizens and children through age 12. Members of the CATA can buy $6 vouchers  for customers which, when redeemed, will admit the users free.

Face masks will be required at all times. There will be contactless delivery for tickets. Temperatures will be scanned and a medical questionnaire must be filled out before entering. A vaccine will not be required.

The show will be smaller, limited to 10,000 people at a time, and shorter, but it is on nonetheless.

The Chicago Auto Show will be McCormick Place’s first convention since the beginning of the pandemic more than a year ago. McCormick Place was temporarily turned into an alternative care facility in case hospitals became overwhelmed.

"We’ve been working with McCormick Place officials for months on an opening plan, and very early on they saw that our show may provide a pathway to reopening the facility," said Chicago Auto Show General Manager Dave Sloan. "We stand committed to providing a safe environment for all involved and will carefully adhere to the health and safety protocols and guidelines set forth by city and state officials. 

"McCormick Place is an important economic engine for our city and state, and we take very seriously the responsibility that comes with helping to get it running again.

"While we believe February is the right time for the Chicago Auto Show to have its biggest impact on the industry and the area economy, we’re thrilled to be able to experiment with the July dates. The timing has allowed us to get creative and try new things and the automakers have really embraced it."

 

Two bills of interest to dealerships stand on the precipice of passing through the Illinois General Assembly. But if they are to do so, it must happen by month’s end, when lawmakers will adjourn their spring session.

 

Senate Bill 58 would abolish the $10,000 limit on the trade-in credit allowance for first division vehicles, a limit that took effect in 2020. House Bill 3940 would amend the Illinois Motor Vehicle Franchise Act to redefine how manufacturers must compensate dealers for repairs of vehicles under warranty.

 

Both bills have been approved by one chamber of the General Assembly and are nearly through the other. HB 3940 is being considered by the Senate Executive Committee, and SB 58 awaits a vote by the full House. Dealers and their employees are urged to contact their lawmakers now to help get the bills across the finish line.

 

Dan Marquardt, a Buick-GMC dealer who leads the CATA’s Government Relations Committee, noted that few constituents ever contact their lawmakers on pending legislation, so if supporters of the two bills prod their legislators to pass these, it will have an impact.

 

Automakers consider different time guides for the same repair when technicians fix a car under warranty versus the longer time considered when customers pay for the work. The bill requires manufacturers to compensate dealerships for warranty work in the same manner that retail customers pay for retail work, in terms of time allowances, labor rates, and parts prices.

 

Mechanics Local 701, the union representing area technicians at dealerships, is working with the CATA to advance the legislation. Supporters say HB 3940 would bring a fairness to the payment process that could attract new technicians to dealerships. Wisconsin has had similar policy in place for more than a decade.

 

In addition to establishing an equitable compensation scheme for warranty work, the bill would prevent manufacturers from imposing cost recovery fees or surcharges to overcome the bill’s effect. For manufacturers, it would preserve their right to approve or disapprove dealership claims, and it ensures manufacturers have a way to charge back any false or unsubstantiated claims they paid.

 

Capping the trade-in credit increases the cost of new vehicles and used vehicles bought at retail. Gov. J.B. Pritzker has voiced his backing of SB 58. The cap took effect in 2020 following moves to find funding for Pritzker’s multibillion dollar state capital infrastructure plan.

 

Under SB 58, infrastructure projects would instead be funded, in part, by increasing the sales tax charged in private vehicle sales. For instance, the current $390 sales tax on a 1-year-old vehicle sold privately for less than $15,000 would increase to $465. If the same vehicle sells for $15,001-$20,000, the sales tax would be increased from $750 to $850. 

 

The tax rates for private transactions haven’t changed in more than 30 years, and the modest increases are much less impactful than a trade-in credit cap, which costs consumers hundreds of dollars and harms dealers statewide.

 

Major auto lender Ally Financial said in April that it expects to see yields on retail auto originations in the 7% range for the rest of 2021, above the first-quarter 6.66% average for Ally’s current book of retail auto loans.

Ally’s auto leasing average yields have surged, from 5.2% at the start of 2020 to almost 8.6% in the first quarter of 2021.

But the wonky supply chain isn’t all good news for banks. Dealers typically borrow to finance their floor inventory. When they can’t get cars, and the cars they can get immediately zoom off the lot, that hurts banks’ loan growth.

Still, there is an upside to that. When supply picks up and puts pressure on used-car prices, for banks there may be an offset in the form of faster dealer floorplan loan growth.

The supply-chain woes that have stymied carmakers have accelerated used-car prices, as buyers scramble to find vehicles — and, in turn, for auto lenders. Banks are relatively bigger players in used-car loans than in new-car loans, and used-car loans generally have higher yields. 

 

Auto suppliers told U.S. lawmakers April 27 that they oppose setting a firm date to end the sale of new gasoline-powered passenger cars, and they warned that a quick shift to all-electric vehicles could cost thousands of jobs.

The Motor & Equipment Manufacturers Association (EMMA), which represents more than 1,000 vehicle suppliers, told a Senate Commerce subcommittee on transportation that the Biden Administration should continue to set regulatory requirements that ensure suppliers keep working to improve internal combustion engines.

"If we move too quickly to a fully electrified fleet we could lose 30% of the supplier jobs in this country," said Ann Wilson, EMMA’s senior vice president of government affairs. Auto parts manufacturers employ about 560,000 people in the United States.

Wilson told the panel that new gasoline-powered vehicles "will likely be on the road for an additional 20 years."

"Engines, transmissions, after-treatment systems, and other parts will simply not be manufactured for battery electric and fuel cell vehicles," she said.

The governors of a dozen U.S. states and many U.S. lawmakers have called on President Joe Biden to back ending sales of new gasoline-powered vehicles by 2035.

Biden’s infrastructure plan seeks $174 billion in spending and tax credits for electric vehicles and charging networks but does not call for phasing out gasoline-powered passenger vehicles.

California said in September it planned to end sales of new gasoline-powered passenger vehicles by 2035. Biden’s campaign said last fall he did not support California’s phase-out plan.

White House climate adviser Gina McCarthy said in late April that the administration had not set any specific EV adoption targets.

"We’re not making any demands right now because this is about basically using the market to generate the kind of reductions we need," McCarthy said.