CATA News

Golf courses in Illinois have reopened, but not to the degree that they can accommodate the CATA’s annual golf outing, which had been planned for June 18 at Cog Hill & Country Club, in Lemont.

 

Upwards of 500 golfers often are drawn to the annual CATA event.

 

Part of the outing traditionally includes the association’s annual meeting during dinner, at which the results of the board of directors election are announced. Those results this year will be announced separately.

Littler Mendelson, the CATA’s labor relations counsel, continues to produce helpful information for dealers and other businesses navigate the current climate. Among them:

 

Updated COVID Response Kit
The kit’s third edition, sent free via email to all dealers on May 27, incorporates recent guidance by the Centers for Disease Control and Prevention on quarantining and returning to work after an employee tests positive or has symptoms, and also incorporates further guidance issued by OSHA in late May on determining whether a COVID incident is "work-related." Previous editions of the kit were sent to dealers March 27 and May 1.

 

COBRA: New notice and election forms released by DOL; Modified COBRA deadlines
Since many businesses either already have implemented layoffs or are about to, they need to know about the new COBRA forms that were released by Department of Labor in May, and also about the modified COBRA deadlines during the COVID outbreak which were established by IRS guidance issued in late May. This notice, sent via email to all dealers May 29, is Littler’s first bulletin to dealers regarding COBRA issues.

 

FFRCA Paid Sick Leave and Paid FMLA Leave policies and forms
Littler sent notice to dealers about these new laws on April 3 and again on April 9 and offered the materials for $250 ($400 for multiple rooftops), but few dealers responded. Dealers at the time likely were focused on Paycheck Protection Program loans and the fact that PPP loans have largely covered continuing pay for all employees during recent weeks. Now that PPP is coming to an end, Littler’s notice will be sent again about June 3.

 

What’s a dealer to do when the OEM is not offering any relief on floorplan expenses, one participant asked during a recent NADA webinar that considered best ideas from 20 Groups. Based on his sales rate, the questioner said he had a 12-month inventory supply.
 
"There is tremendous strength in numbers in the dealer body," said Tom Carney, a 20 Group management consultant who led the presentation. "The best way I see to leverage that is, you get together your fellow dealers that are within your OEM and you basically trade.
 
"If they’re not trading, you need to contact your regional vice president. They are influenced by some of the key dealers, especially if you have worked together with some of your 20 Group dealers, and put together a letter saying, ‘We need to talk about some floorplan assistance, or some sort of bonus or something that is going to help us as dealers to get through this, almost like a Paycheck Protection Program for dealers.' "
 
The OEMs will listen to such an appeal, Carney said, because they only make money when vehicles are sold.

Ballots mail June 2 to CATA member dealers to choose the next four members of the association’s board of directors. There are four candidates on the ballot.
 
The aberration in the structure of the annual elections comes in light of the board voting to contract the size of its body from 15 directors to 13 over two years, a change that comes in light of the Coronavirus pandemic.
 
Directors said they reasoned that most dealers would prefer to focus on their business concerns in the current climate rather than mount a campaign to get elected to the board. The board constricted from 18 directors following the Great Recession in the 2000s.
 
"The first reduction to 14 members takes place this year. That means that this year we have no incumbent directors ineligible for reelection," CATA President David Sloan wrote in an April 29 letter to member dealers.    

"With that in mind, and due to the unique conditions brought on by the pandemic, the Nominating Committee determined that it will not present additional nominations for Director. (There is, however, an additional process for any interested dealer to gather petition signatures to be placed on the ballot, so please contact me if you are interested.)"
 
Voters will be asked to return to the board John Crane (Hawk Auto Group), Fred Marks (Classic Toyota-Kia, Waukegan), Jason Roberts (Advantage Chevrolet, Bolingbrook and Hodgkins; and Advantage Toyota, Calumet City), and Richard Wickstrom (Wickstrom Auto Group, Barrington).
 
"Next year, when the Board further reduces to 13 members, and there are only three incumbents, we plan to return to the practice of nominating five or more candidates for four vacancies, assuming business conditions have returned to normal," Sloan wrote in his April 29 letter.
 
A director can serve up to three three-year terms on the board. All the incumbents on the 2020 ballot are completing their first terms.

Efforts to rescind the $10,000 cap on the value of traded-in vehicles in Illinois failed as the state’s General Assembly ended its spring legislation with lawmakers struggling to reach agreement on a budget that’s been blown apart by the coronavirus-induced economic downturn.
 
Borrowing from the federal government was a key component to address a budget hole that Gov. J.B. Pritzker’s office estimated is at least $6.2 billion. With the state in such dire financial straits, lawmakers appeared loathe to forsake the revenue that the cap generates for the state by increasing the amounts of trade-in credits consumers buying or leasing another vehicle can apply to the final transaction amount, upon which sales tax is calculated.
 
The trade-in cap, which took effect Jan. 1, first emerged in the final days of May 2019, as Pritzker and lawmakers sought funding for the governor’s $45 billion capital infrastructure plan. Also impacted by the plan: a doubling of the state’s gasoline tax and nearly 50% jumps in title and registration fees.
 
The CATA and other groups backed an alternate path for raising state revenue — increasing the tax on private party vehicle sales — but an abbreviated fall veto session last year and the chaotic atmosphere this year did not enable that argument to gain traction.
 
Lawmakers stretched their session into overtime on May 23, as they sought to finalize details on a maintenance-level $40 billion state budget that would depend heavily on federal funds while also making another effort to get a Chicago casino off the ground.
 
A Chicago casino is seen as key to the capital bill the legislature passed last year.

 

Illinois on May 29 moved to Phase 3 of Gov. J.B. Pritzker’s five-phase Restore Illinois Plan, paving the way for an estimated 700,000 Illinoisans to return to work. Car-shoppers in Illinois no longer must arrange for an appointment to visit a showroom.
 
However, businesses must limit customers in their stores at one time to five customers per 1,000 square feet (excluding employees). The customer occupancy limit is calculated by taking the total square footage of the permanent structure the business occupies and dividing by 1,000. If the square footage of the facility is less than 1,000, the number of people is also less than five, based on percentage.
 
Pritzker’s guidelines came with a set of industry-specific toolkits. The guidelines and toolkits can be found online through the Department of Commerce and Economic Opportunity’s website.
 
"Social distancing, wearing face coverings, and capacity limits are just a few of the responsible actions we must all take in order to avoid a second wave of COVID-19 infections," said Dr. Ngozi Ezike, director of the Illinois Department of Public Health. "I applaud (businesses’) willingness to follow these guidelines and keep your communities safe. Please set the example as an anchor in your community. The actions we take today will shape the future of Illinois for years to come."
 
All businesses also must have a procedure in place for asking if any customer is currently exhibiting COVID-19 symptoms before allowing entrance, if necessary.

The highly lucrative truck segment dominated by Ford, General Motors and Fiat Chrysler Automobiles outsold passenger cars by more than 17,000 units in April, according to market researcher Autodata Corp.

 

It’s a remarkable turn of events for an industry that’s long been reliant on trucks as cash cows, but never to this degree. Just five years ago, cars outsold pickups by more than half a million units in a single month. Detroit began ditching sedans the following year and hasn’t looked back. Full-size truck models alone were more than 40% of GM, Ford and Fiat Chrysler’s sales in April, according to Evercore ISI.

 

There are a few factors contributing to the development. Detroit’s deliveries -- pickups and otherwise -- are concentrated more so in middle America than the coastal states that introduced some of the earliest and most aggressive shutdown orders. Trucks also were bolstered by 0% financing offers, some of which stretched loans out for as long as seven years, Joe Spak, an RBC Capital Markets analyst, wrote in a report.

 

The chief executive officer of Fiat Chrysler, which reported first-quarter earnings May 5 in the midst of a seven-week shutdown of its North American auto plants, told investors its vehicle inventory in the U.S. was running low, particularly for some pickup models.

 

"There are certain configurations that will be running short," CEO Mike Manley said on an earnings call, adding he expected truck sales to outperform other vehicles again this month. "That’s reflected in the number of dealer orders we’ve received in the last few weeks that are just waiting for our plants to restart."

 

Littler Mendelson P.C., the CATA’s labor relations attorneys, this month updated its COVID-19 Response Kit to incorporate guidance in Illinois Gov. J.B. Pritzker’s Executive Order that took effect May 1.

 

Most importantly, the kit now incorporates the requirement that all employees wear face coverings.

 

The executive order also requires employers to post a notice with guidance on maintaining the workplace health and safety of employees, and on safety and OSHA issues that are potentially implicated in certain COVID-related scenarios.

 

By Joe Neiman, Co-founder, ACV Auctions
CATA Member Benefits Partner

 

BUFFALO, N.Y. — In the midst of this history-making global pandemic, the auto industry is reeling.

 

Each day, each hour, we’re learning new updates and trying to adjust accordingly. With varying rules and laws from state to state and even county to county, it’s understandably an overwhelming state of the industry. In fact, it can be easy to lose focus or just ignore certain parts of the business in the interest of trying not to lose more money.

 

But here’s the thing: If you’re really committed to being around in a couple weeks or months, once this virus levels out and passes, you have to keep moving — business as usual. It will be slower. Your volume will be down. But you have to continue to transact. If you don’t, then you might as well shut down now.
 
So now that you’ve committed to continuing to operate, what can you do to make sure you’re maximizing on your wholesale business? Consider this a SparkNotes version of the rulebook that has never been formally written for the wholesale marketplace.

 

1. Cars get bought at auction — not sold. This means the buyers are actually in control of the outcomes far more than the sellers are, even though most sellers would never want to admit to that reality.

 

2. You must trust the auction process if you’re going to use an auction, and know how to play it to your advantage.

 

3. The way to get the most out of the auction is to ensure you have the biggest audience.

 

4. The way to get the audience is to ask the least, by setting a low reserve.  This is a classic risk = reward strategy.
  
5. Newsflash: Buyers don’t really care what a seller owns the car for.  Buyers want the best deal possible, but there is a way to make them pay more — you must create a competitive bidding environment on your vehicles.
  
6. The only way to get a buyer to pay more is by creating competitive pressure by having a low reserve price. Think about the energy and the vibe at an auction and the fast-chanting auctioneer. Just thinking about it and your blood pressure starts rising. You can replicate this same competitive atmosphere with an online auction by lowering your reserve price to pull more potential buyers in on your vehicle.
 
7. If you do the opposite and set a higher reserve price, all of the potential buyers vanish away from your vehicle, or never even take a good look at it. What seems "safe" by setting a high reserve is actually the worst thing you can do.  All that you are ensuring is that you’ll be stuck with that depreciating vehicle even longer!
 
8. It is the same strategy that seasoned auction reps know: the first five cars in your run are getting sold no matter what.  Why? Because it pulls in the audience and then you will average out ahead overall.
 
Here’s what I’ve been seeing while observing the ACV marketplace these last few weeks:
 
1. The sellers who have embraced the strategies outlined above have experienced higher volumes of views per auction, unique bidder count per auction, more total bids per bidder, higher sell through rates (conversion), higher final prices paid for their vehicles, less reliance on IF deals, and dramatically increased wholesale profitability compared to their peers who try unsuccessfully with an above-market reserve price.
  
2. The ACV marketplace rewards the sellers who set aggressive reserve prices because their listings stand out among the rest and get more audience and action, and pull more money.
 
3. When we have worked with sellers historically and influenced them to adapt these strategies, they have realized a $200-900 average lift per vehicle for their wholesale compared to their previous results.
  
4. There is no better time to embrace digital wholesale into your process. It can safely sell your cars the same day, giving you the cash flow, you need.  With ACV, we are able to accomplish this without any personal contact with dealers and your vehicles stay safely on your property until they are sold. Our inspectors are armed with masks, gloves and appropriate sanitization tools.  They are successfully inspecting and launching thousands of vehicles every day nationwide in the midst of this crisis.
  
5. ACV has thousands of buyers from across the nation, which allows sellers to reach buyers outside of their current market, some of which may be severely limited or shut down by local or regional market conditions and emergency efforts as a result of COVID-19.
 
Holding out for more money is a fallacy.  Each time you run a vehicle through an auction and don’t sell it, you actually devalue it and turn off potential buyers from engaging because they have seen it, and watched it not sell.  Buyers do not want to waste their time chasing the same car multiple times.
 
After the second time seeing it, they’re generally disinterested and will no longer bid on it even if they were once interested.  That’s why pricing aggressively and letting the competition occur is paramount to a seller’s success.
 
In the current environment, many sellers are fearful about cutting their wholesale inventory loose and actualizing the losses. But the reality is that they have already lost the money — even if they continue to hold the depreciated assets and hide their losses. Actualize the loss, free up the capital, and move forward with your business.
 
Right now, the best move is to stay as current as possible with the market and ride the waves, instead of trying to time the market perfectly and get in and out at the right times. To achieve this, reduce inventory turn times, and get wholesale inventory off the books as quickly as possible, even at a loss. Take that now-liquid valuable capital and reinvest it in right-priced inventory.
 
We’ll get through this together. ACV is here for our dealer partners and appreciate all the new dealers reaching out and asking for our assistance. We’re fully operational and committed to supporting you however we can. Like everyone else, we’re rolling with the volatility, making changes and updates where we can and looking for ways to keep innovating while we weather the storm together.
 
What doesn’t stop us only makes us stronger.

 

New-vehicle dealers seem to be playing a game of roulette right now, with about half of them betting on red and the other half on black.

 

The wager is on whether dealers should continue taking additional new-vehicle inventory into stock.

 

Many dealers understandably have been unnerved by this pandemic and have voluntarily placed themselves on finance hold to halt any additional vehicles from being delivered.

 

Most OEMs have tried to combat this fear by offering additional wholesale incentives or by providing deferred floor plan terms.

 

A recent inventory analysis by vAuto found that 60% fewer new vehicles were delivered to dealership lots early April vs. the same week a year ago. Clearly, there is a fair amount of pessimism at the inventory roulette table. 
 
But which is the better bet, black or red?

 

The pure retail new-car seasonally adjusted annual rate dropped from 13.4 million in Feb to 8.7 million in March. Ouch. This drove the days’ supply numbers 53% higher, to 116 days.  
 
The April sales forecast puts retail sales volume at 558,000 units for the month.  If that sales volume is applied to the ending March inventories, the industry days’ supply climbs from 116 days to 143 days, nearly a six-month supply.
 
Based on the math, it’s hard to fault the dealers who are betting on red, or against taking more new-vehicle deliveries.

For those inclined to bet on black (taking more inventory), consider:

 

• OEM production has essentially halted globally, and it likely will be six months before normal production and inventory volumes begin flowing again. What dealers have on their lots today is likely what they will have to sell from for the next four to six months. Most dealers will need what they have on the ground just to get through this downturn in manufacturing. 

 

• The auto industry is simply "too big to fail." There are strong indications the government will launch another "cash for clunkers"-type program to spur demand sometime this summer, once there is more certainty around the health crisis. Morgan Stanley auto analyst Adam Jonas is reporting a new program would be in the $10 billion range vs. the 2009 "cash for clunkers" program, which was $3 billion.

 

• Unlike independent dealers, franchised retailers have a motivated partner in their OEM to help drive demand. The domestic makes already have shown a willingness to be aggressive with programs, like 0% APR financing for 84 months. In March, average incentive spend was 10.5% of average transaction price. According to the latest Cox Automotive 2020 COVID-19 Impact Study, one-third of shoppers are delaying their vehicle purchase, but almost half of those could be spurred into action if they find the right deal.

 

• Necessity vs. emotional purchases. Dealers say that about 50% of their new-car sales are "necessity" purchases: lease turn-ins, life-changing events, totaled vehicles and the like. There will continue to be these purchases, some of which are likely being postponed until summer.

 

• The financial cost of holding new vehicle inventory is quite low because interest rates have plummeted.

 

• Cash flow. New-car deliveries bring with them holdbacks, floor plans, ad assistance dollars and pre-delivery inspection money for the technicians. At a time when dealers are conscious about their cash on hand, new-car deliveries do create more cash.
 
This economic downturn is having a massive impact on consumer demand and their ability to buy new vehicles. Consequently, dealer days’ supply at most stores has more than doubled since February, which no doubt has raised some eyebrows and caution around the inventory roulette wheel.
 
However, with 2020 being an election year, there will be huge political motivation to get the economy and the American consumer back on track.
 
The potential Cash for Clunkers II could drive nearly 4 million units of sales volume. Brian Finkelmeyer, senior director of new-car strategies at vAuto, said the OEMs are going to be more concerned about their own cash flow and less focused on margins, which means bigger consumer incentives.

 

All of these elements combined could create some big winners at the inventory roulette wheel.

 

Last week, a dealer from North Carolina said: "Dealers are optimists by nature. We always find a way to figure it out." 

 

"If I were placing my bet at the new-vehicle inventory roulette wheel," Finkelmeyer said, "I’d be betting with the optimists on black because I believe in three things: the American consumer’s resilience, American politicians’ willingness to spend money, and in the American car dealer’s ability to always figure it out."