David Andrews is the incoming president of the National Independent Automobile Dealers Association. Andrews is president of City Auto, with locations in Murfreesboro and Memphis, Tenn., is also chief executive officer of Dealer’s Auto Auction Group. He also owns Pace Financial.
What is your background and how did you get into the automobile business?
I’m a third generation used-car dealer.
I started out working for my dad for a couple of years and I’ve been in business for myself for 45 years. I went in business for myself when I was 20 years old.
We’ve got four independent retail locations and five auction locations. It’s a full-time job. City Auto’s been around since 1986.
I had a business called Andrews Motor Co. – that was the foundation of City Auto. I also was a Ford dealer for 25 years and enjoyed that.
I sold that business in 2005. But I was an independent dealer before I was a Ford dealer.
I got into the auction business by accident.
I made an investment in an auction in November of 2001 as a silent partner. That was Dealers Auto Auction of the South in Mississippi. The business partner had a massive heart attack and called me up and said, ‘I can’t work.’
So then I was in the auction business.
But I always liked the auction business.
In 2004, we bought a second auction in Huntsville, Ala., and we never looked back.
We now have five auctions and we’re still looking.
What kind of model do you have for your dealerships?
We’ve got two different models. We’ve got the model at City Auto, which is like CarMax. We’ve got a big location with a lot of cars.
In Memphis, we keep 1,250 cars and in Murfreesboro, we keep 1,000. Both of those lots are called City Auto. Then we’ve got two other car lots called AutoNext, also in Memphis and Murfreesboro, and they are more like DriveTime.
The Internet has been the biggest change I’ve seen over the years.
If you can’t do business on a smartphone, then you won’t be in business in 10 years.
How can your auction experience help you in leading an association made up of used-car dealers?
I think it’s really simple. It gives you two perspectives into what a dealer needs.
If I were just running an auction business, I wouldn’t know how to run a used-car lot. If I were just running a used-car lot, I wouldn’t know how to run an auction. So it gives you both perspectives.
What are the top issues that you see affecting the used-car business today?
The times are changing and the dealers are going to have to change. People say, ‘Oh, I’ve got a terrible location where I’m at.’ I think, ‘You don’t know what a terrible location is. Come to City Auto where we’re on a dead-end street. You have more traffic at your location on Jan. 1 than we have all year long.’
But we draw people to our business through the Internet.
We do very little TV and no print advertising. We’re all digital. Now, I don’t know where it’s going to be in five years.
But you’re going to have to change with the times.
I’m on an advisory board for Wells Fargo. I did an analysis on what millennials want.
They want the truth, they want transparency and they want it now.
They want to buy a car as fast as you can drive through a Starbucks drive-thru.
If you go to a dealership to buy a car and have to spend eight hours in the dealership, you’ll say you have to go somewhere else to buy a car.
When I talk to my people, I ask them, what are we going to do differently this year?
If they say, we’re going to do the same thing we did last year, I tell them we have to be better than last year.
But it’s hard to get better every year.
It costs money to get better every year. You have to do more training to get better every year.
You don’t want your customers to know more about the car you’re selling than you do.
Also, treat your salespeople like they are part of the family.
Everybody thinks you take care of the customer first. They’ve got it all wrong.
If you take care of your employee first, he’ll take care of your customer.
The used-car industry is seeing more cars coming back from auction due to the leasing boom a few years back. How will this affect independent dealers going forward?
I think it’s going to be great for the car business.
It’s going to depress used car prices and make the price between the new car and used car wider and make those used cars more affordable.
It’s also going to give people a bigger selection.
So we’re going to sell more used cars.
What can NIADA do to help dealers with the increase in regulatory scrutiny?
We try to educate dealers with the Certified Master Dealer program. I’ve got three of my general managers that work for me who have gone through the program.
We also have the National Leadership Conference and Day on the Hill in Washington D.C. each September. Last year we had 200 dealers go up there.
We lobbied Senators and U.S. Representatives against the CFPB.
We also lobbied for the right to sell cars with open recalls on air bags.
Now, with the Day on the Hill, lawmakers know who the NIADA is and what we do. Now they welcome us to get our perspective on different situations.
I think the thing that the government doesn’t realize is when something bad happens, (legislators) pass more laws and regulations.
But we have plenty of laws and regulations if they would just enforce the ones we have.
The NIADA also has lobbyist Sante Esposito, with Federal Advocates, who watches the rules and regulations as they are developed that affects the used car business. So we’re on top of it.
The NIADA also has a PAC fund that gave out about $85,000 in campaign contributions.
We also monitor the state (legislatures). The association does a lot for the used-car business.
UCN:. On the digital side, how is NIADA helping dealers to continue to adapt and get ahead of the curve in digital business?
Andrews: If dealers will show up to our conference in Las Vegas, they’re going to learn everything they want to know about the Internet.
UCN: What would be the most important goal you hope to achieve during your term as NIADA president?
Andrews: We are steadily building a better reputation for the used-car industry. I think it’s at an all-time high. The first (reason is) people are running a better business and doing a better job. But also, if you look around at your communities, independent dealers are involved in so many efforts to help out.
Anything else you’d like to share with our readers?
The NIADA has great leadership under Chief Executive Officer Steve Jordan. I can’t say enough good things about him. He thinks big. We’re moving this association forward. All signs are positive and all lights are green.
I love what I do every day. I was thinking about retiring about a year ago. I was talking to my wife and she said, ‘You know, you could probably find something you like to do.’ Then I thought, why would I want to quit what I love to do to try and find something that I like to do. Right now retirement is not in my future
For all the doom and gloom surrounding the used-car business, several recent indicators show very positive signs.
May’s Manheim Used Vehicle Value reached 127.9, a record high and a 2.8 percent increase from a year ago.
Dealers bought the most vehicles at Manheim for the month of May since 2008.
Cox Automotive economist Jonathan Smoke said consumer demand outpaced the growth in inventory.
“The May index result challenges concerns that increasing wholesale supplies from near peak off-lease volumes and rising rental volumes would lead to rapidly declining used car values,” Smoke said. “Indeed, the opposite appears to be happening. Higher commercial volumes at auction are providing the used vehicle market with quality and choice that offers a compelling value to consumers.”
Consumer demand for used vehicles continues to grow.
A recent study by Autolist finds 38 percent of consumers want to buy their next car used, compared to 34 percent wanting new and 27 percent not sure.
Moreover, 53 percent buyers under 40 want to buy a used car next time around.
The first quarter finance report from Experian Automotive shows more prime consumers are buying used cars.
The average customer credit score for a used vehicle loan rose to 652 in the first quarter from 645 in the first quarter of 2016.
Prime and super-prime risk tiers combined for 47.4 percent market share of used vehicles in the first quarter, up from 43.99 percent in the first quarter of 2016. At the low end of the credit spectrum, subprime and deep-subprime share fell to 31.27 percent from 34.31 percent in the first quarter of 2016.
“The upward shift in used vehicle loan creditworthiness is likely caused by an ample supply of late model used vehicles,” the Experian report states.
“Leasing has been on the rise for the past several years (and is at 31.06 percent of all new vehicle financing today). Many of these leased vehicles have come back to the market as low-mileage used vehicles, perfect for certified pre-owned programs.”
Part of this increase in credit quality comes from tightening at the subprime end of the business.
So far, consumers seem willing to step up and pay more as this happens.
Used-vehicle buyers put down an additional $93 on average in May, an increase of 3.8 percent compared to May of last year. The average loan term, monthly payment and amount financed also rose.
Attendees at this year’s National Alliance of Buy-Here, Pay-Here Dealers heard about all kinds of ways the industry faces changes.
The event itself is about to undergo its biggest change in almost 20 years.
NABD founder Ken Shilson has announced his intention to sell the rights to the event he has been running for 19 years.
Shilson turned 68 in January. He said it was time to step back from the pressures of putting on the conference.
“I can’t do it forever,” he said. “The day-to-day management is getting to be more than a 68-year-old can handle.”
Shilson plans on turning the NABD over to an experienced event management firm. His main condition is that NABD be maintained as a unique event.
Shilson said he would seek input from attendees on how the NABD should move for- ward under new management.
Shilson is stepping back at a time of tremendous challenge and change for the industry.
Benchmarks for the buy-here, pay-here business are the worst in two decades, and could get even worse, Shilson said.
Buy-here, pay-here dealers today face an array of challenges, including increased regulations, changes in accounting practices, higher inventory costs and increased com- petition.
“You just need to be a better operator these days,” Shilson said.
The NABD benchmarks show that gross profit has declined to 29 percent of vehicle sales from 31 percent last year.
Bad debts as a percentage of sales have grown to 27 percent from 25 percent last year.
Shilson said the answer isn’t to try growing out of the situation.
Too many dealers have already taken on extra debt, with total debt growing to 62 percent of total as- sets from 56 percent last year. he said.
The better solution is to make operations more efficient.
Buy-here, pay-here dealers are also experiencing a massive change to the rhythm of their business.
Bill Neylan, president of TRS Tax Services, said they warned dealers last year that changes to federal law would squeeze tax season into two weeks.
Instead, it wound up being two days – Feb. 21 and 22.
Neylan said one of the stores he works with printed $1 million worth of refund checks in one day.
“It’s impossible to capture two months of sales in two days,” Neylan said.
He said one of his local dealers had 100 cars on his lot in January. By April, the store was closed.
Dealers need to prepare for this new normal, Neylan said.
Memorial Day might not be enough to stop the slide in new-car sales.
"Generous incentives are keeping traffic flowing to dealer lots, but a lot is riding on Memorial Day sales for automakers to keep momentum strong through the critical summer selling months," said Edmunds executive director of industry analysis Jessica Caldwell.
The new vehicle retail sales pace in 2017 is expected to be lowest for the month of May since 2013, according to a forecast developed jointly by J.D. Power and LMC Automotive.
"While consumers will see substantial discounts this Memorial Day weekend, they are not expected to overcome the slowing demand in auto sales," said Deirdre Borrego, senior vice president of automotive data and analytics at J.D. Power. "The holiday weekend is one of the heaviest trafficked car-buying periods and, in 2016, the Friday-Monday selling period accounted for more than 20% of May retail sales."
With one additional selling day in 2017, retail sales in May are anticipated to reach 1,222,000 units, a 2.9% decrease compared with May 2016 on a selling-day-adjusted basis. The seasonally adjusted annualized rate (SAAR) for retail sales in May is expected to be 13.4 million units, a decrease of 212,000 units from a year ago.
With the slowdown expected to continue in the second half of the year, LMC Automotive is reducing its retail light-vehicle sales forecast for 2017 to 13.9 million units.
Yet again, there is a clear divide in the market between cars and light trucks, and in May, Kelley Blue book anticipates the sales mix of cars to reach 38 percent, down 3 percent year-over-year. While SUV segments continue to see the most significant gains, full-size trucks are expected to increase market share by 0.5 percent in May, though deeper discounts and incentives are partially responsible for the growth.
"Consumers are continuing to defect from the mid-size car segment at a rapid pace," said Kelley analyst Tim Fleming. "Most commonly, they are turning to the compact SUV/crossover segment. As such, Kelley Blue Book expects mid-size cars to lose more than one point of share in May, while compact SUVs are expected to pick up nearly one point of share."
Kelley Blue Book reports that General Motors is poised to gain market share in May with growth driven by its SUVs, specifically the new GMC Acadia and Buick Envision. In fact, GM could see its SUV sales volume increase by more than 15 percent, which would offset any potential declines from its car and pickup truck models.
Hyundai-Kia could see one of the largest declines in May, with volume expected to drop more than 4 percent year-over-year. The company still faces challenges regarding the shifting demand toward SUVs, and compared to the other major manufacturers, Hyundai-Kia has the highest sales mix of cars at 69 percent, while the industry average sits at 37 percent.
Two more people have died following a crash at Lynnway Auto Auction as details emerge about the driver involved.
Ruben Espaillat died May 13 at Lahey Hospital. Elliott Rowlands Jr., died May 10 at Lahey.
Three people - Brenda Lopez, and Pantaleon Santos and Leezandra Aponte - died at the scene.
The accident occurred May 3 during a weekly sale when a 76-year-old auction employee accelerated a 2006 Jeep he was driving through the cinder block wall of the arena, striking multiple individuals.
More details are coming out about the driver, including that his license had been suspended and he has had numerous driving issues.
In addition to those killed, four people were hospitalized and three were transported to area hospitals, treated and released.
Lynnway owner Jim Lamb said he learned the driver’s license was suspended when police told him after the crash.
Lamb said the driver presented a valid license when he was hired in 2010.
"As he had no issues while driving for Lynnway for the past seven years, we were surprised and upset to learn of this development," Lamb said. "We hold our drivers to a high standard. If a driver loses the ability to drive in Massachusetts for any reason, we would expect them to inform us and we would not allow them to drive on our property unless they hold a valid driver's license."
According to press reports, the driver had seven accidents dating back to 1987 and his license was suspended at least four other times.
The driver told a local television station that the Jeep he was driving suddenly accelerated.
An investigation continues, with the Middlesex District Attorney's Office, the Billerica Police Department and the Massachusetts State Police CARS unit involved.
The Massachusetts Independent Auto Dealers Association will be collecting donations on behalf of all the families involved in the accident. So far, the group has raised $22,275 with a goal of $100,000. Donors include several auctions, auction personnel and NextGear Capital.
In addition, the National Auto Auction Association donated $25,000.
Two of most dealers’ least favorite regulators – the Federal Trade Commission and the Consumer Financial Protection Bureau – say they want to help small businesses.
the Federal Trade Commission has launched a new website – ftc.gov/SmallBusiness – with articles, videos, and other information aimed at helping small business owners..
The FTC’s new web page offers specific information to help small businesses protect their networks and their customer data. This includes a new Small Business Computer Security Basics guide, which shares computer security basics to help companies protect their files and devices, train employees to think twice before sharing the business’s account information, and keep their wireless network protected, as well as how to respond to a data breach.
It also has information on other cyber threats such as ransomware and phishing schemes targeting small businesses.
Meanwhile, the CFPB announced it is looking into ways to gather and use information to identify the financing needs of small businesses, especially those owned by women and minorities.
The Bureau is asking for public feedback to help its staff better understand how to bridge the information gap. The Dodd-Frank Wall Street Reform and Consumer Protection Act requires the CFPB to collect data about small business lending to help identify needs and opportunities in the market and to facilitate enforcement of fair lending laws.
"Small businesses fuel America’s economic engine, create jobs, and nurture communities," said CFPB Director Richard Cordray. “Yet little is known about how well the lending market serves their financing needs. "This inquiry will help us learn how we can best fulfill our duty to collect and report information on small business lending."
The CFPB seeks to define what being a small business even means. There are a number of widely different definitions, based on data such as the number of employees or annual receipts.
The Bureau is looking at what institutions lend to small businesses and what products are offered and what types of lending information they use.
The CFPB is exploring how to protect the privacy of loan applicants and borrowers, as well as the confidentiality interests of financial institutions in this process.
The Bureau is requesting comments from individual businesses, consumer groups, community development organizations, bank and nonbank lenders, regulators, and all other interested parties.
The CFPB is also releasing a white paper reviewing the available evidence concerning the small business lending landscape.
The Bureau estimates that small businesses access about $1.4 trillion in financing. However, current information on how small businesses engage with credit markets is incomplete or dated and does not paint a full picture of access to financing, particularly for small business owned by women and minorities.
For example, current information does not reflect whether there is more or less access to credit for a small business depending on its type or location. Nor does it show to what extent small business lending is shifting from banks to alternative lenders.
And it does not indicate whether the tighter credit triggered by the Great Recession still persists.
Three people have died, six remain hospitalized and three individuals were transported to area hospitals, treated and released, as a result of a collision that occurred May 3 at Lynnway Auto Auction in Billerica.
At approximately 10:13 a.m. today, a 2006 Jeep SUV driven by an employee of Lynnway Auto Auction, a man in his 70s, accelerated through the cinder block wall of the business striking multiple individuals.
The incident occurred during a weekly sale.
Two individuals, an adult male and an adult female, were pronounced dead on scene. Another adult female was transported to an area hospital where she later died from her injuries.
One of the surviving victims is believed to have injuries that are considered life threatening.
Melissa Otis, executive director of the Massachusetts Independent Automobile Dealers Association, said she has heard from several dealers who attended the sale.
“Today is a very sad day for our dealers community, Otis said. “I was not there, but have spoken to many who were that all say it was a horrific scene.”
All evidence and information at this time suggests an accidental cause. The investigation by Billerica and Massachusetts State Police is ongoing.
During the past three years, the U.S. Government Services Administration (GSA) has sold an average of 36,000 vehicles annually through wholesale auto auctions, according to Bill Toth, who oversees GSA’s fleet vehicle and lease acquisitions.
The average selling price of GSA vehicles in recent years is $10,602.
“The GSA buys new vehicles from the manufacturers and leases them to other federal agencies,” Toth said in an email.
“When a vehicle’s leasing period ends, it is sold to the public through auction. Vehicles sold at auction have been used by government agencies for ordinary transportation purposes.”
Mid-State Auto Auction in New York Mills, Minn., and Missouri Auto Auction in Columbia, Mo., regularly run GSA sales.
“The positive side is you can get a lot of cars with good miles on them, in good condition that you can sell to customers,” said Rob Thompson, president and general manager of Mid-State Auto Auction.
Thompson has been running GSA sales for five or six years.
Kevin Brown, owner/general manager of Missouri Auto Auction, has had a GSA sale for about six or seven years.
Brown first bid on a GSA sale to bring in solid vehicles and new buyers.
Participating GSA Fleet Vehicle Sales auction locations are selected through an open solicitation / competitive contracting process, Toth said.
The factors that impact the award of a contract are: the vendor’s ability to meet the contract requirements; the auction location;
and the price of the services.
“Maximizing the sales proceeds from the disposal of vehicles plays an important role in our operation, as GSA Fleet does not receive appropriated funds,” Toth said.
“The money raised from the sales is used to buy new vehicles for the fleets.”
Toth said GSA originally held its own auctions and later migrated to
working with commercial auctions.
“A national auction contract was established to streamline the process and improve consistency,” stated Toth. The age and mileage of vehicles are determined by federal regulations.
Most new government vehicles for are delivered in spring and summer, which is why many GSA sales are held between spring and fall.
“Our first GSA sale this year is going to be April 21,” Thompson said. That’s pretty much in line with years past. They will go out until November.”
In a typical year, Mid-State Auto Auction will run between 500 and 600 GSA units.
Thompson said the schedule of the GSA selling season depends on when the new cars come in.
“We do the marshaling, too,” Thompson said. “If we run the cars when we get them, then a lot more depends on the manufacturers than it does anything else.”
Along with extra cars and customers, the GSA contract does bring some extra work.
“New cars will get dropped off here,” Thompson said. “We’ll get the cars prepped and get them ready to go. Then we’ll do a swap-out with the GSA customer.”
The auctions will work with individual GSA employees who bring in the old car and pick up their new one.
“There’s always going to be a little extra challenge with something like this,” Thompson said.
“You’re coordinating with an individual for each car. With dealer consignment, you might go to a dealer and pick up 20 cars for the auction. If you have 20 GSA units, that’s 20 different swaps.”
Thompson said there is some prep work to do once a new car is taken off a semi-truck.
“You have to put antennas on and license plates – some minor stuff like that,” he said.
Sometimes the auction will deliver the new car to the GSA customer - which the auction receives payment for - and sometimes the customer
will pick it up from the auction.
Brown said the extra work isn’t a big problem.
Despite the added work that comes with swapping out 350 vehicles and putting them up for sale, it doesn’t require additional staff, Brown said.
“We have it dialed in,” he said. “We’re just able to mix it in with the rest of our fleet. I’m sure with some of the larger sales, they may have to do something different.”
Brown has a process during the vehicle exchange with GSA employees.
“We’ll have a meet-and-greet with their clients,” Brown said. “We’ll walk around the car that they’re turning in.
“We’ll exchange the license plates. It’s a really pleasant experience.”
Both Brown and Thompson said GSA is a good client.
The staff of GSA makes the experience go well, Thompson said.
“They are very good people to work with,” he said. “They really look at it like they are partners with you. They work with you to have success. I like that about them.
“They’re excellent to work with, in my opinion.”
GSA is also attentive to the process.
“They come in quite a bit to walk around the cars and check how we’re doing,” Brown said. “It’s a pretty good account.”
Auctions have to keep up their end of the deal, if they want to hang on to the account.
Brown said the multi-year contract with GSA is not an automatic renewal.
“You always have to bid it out,” he said.
The benefit of winning a GSA bid is that it gives the auction a better handle on how much they want to bid when the contract is up the next time if they want to keep the account.
What else makes the GSA account attractive to auctions?
“More than anything what GSA does is bring you a buying crowd,” Thompson said. “It’s good because you learn what people want.”
Later, when the auction is holding its regular sale, auction staffers can get a sense of what certain buyers will want based on what sold at GSA, he said.
“It introduces some buyers that you might never see without the GSA sale,” Thompson said. “Very seldom would these be less than 100-percent sales.
“They are very motivated. They are here to sell. They are here to sell everything.”
Brown said it’s always beneficial to offer good
quality vehicles to his customers.
“GSA is a good account,” he said. “They are great to work with. They draw a lot of buyers in and they help the rest of our sales.”
Toth said over the past five years, GSA Fleet vehicle sales have on average sold for 111.5 percent of Black Book.
Tom Webb is calling it a career after spending five decades watching the car business. He has worked at the National Automobile Dealers Association, PricewaterhouseCoopers (PwC) and, since 2001, as the chief economist at Manheim.
Webb started as an analyst after graduating from the University of Wyoming. He took the job with the intention of attending Georgetown University full-time to work on his doctorate. Webb soon found he preferred the financial freedom of working, so he switched to night school at Georgetown.
I started in October of 1973, one week before the Arab oil embargo. Back then, new-vehicle sales were reported every 10 days. Part of my jobs at NADA was following those sales. They were down 6 percent or 7 percent in the first 10 days, then down 15 percent and then 40 percent by the end of the month. It was a horrible time for the industry. I started thinking, ‘I’m not going to be here much longer.’ But 26 years later, I was still there.
NADA had just started its Twenty Group program and we were getting those financial statements. As a result, we had better financial information than anybody out there. These days, everybody is sweeping dealers’ databases. I primarily focused on analyzing dealership financials. I never worked for NADA Used Car Guide, but I interacted with them quit a bit.
It wasn’t long after I started that Lynn Weaver came on board as the direct of the Used Car Guide. I always enjoyed his insights. He always sought out my opinions, but every time I left his office, I knew more than when I entered it.
At that time, there was a big push for cost-benefit analysis of regulation. I did a lot of work on that. That was rather frustrating because they didn’t really consider it that important. So focused more on dealership financials. We really were the source for the state of dealership performance at that time.Today, with publicly traded companies and other sources, there is plenty of information today on how dealerships are doing. When I started, it was a lot of small dealerships with direct dealer-principal involvement. My first NADA convention was 1976. The attendees were primarily dealers. Some of the largest stores might bring their general managers, but it was usually just the dealer. They were single-point dealer-operators. Today, it’s primarily managers. That’s how I learned about the business. Dealers are very open about their business and they enjoy talking about it. They’ll tell you a lot of stuff.
I would attend NADA board of directors meetings and soak up what they were talking about. There were all kinds of operators. Some were what you would call ‘car guys,’ but others were finance people. They all had a different attitude, but they were all sharp operators. I learned a lot from them.
Webb stayed with NADA until 1999, when he took a job at PwC. That turned out to be the shortest tenure of his career.
It wasn’t a mistake, but I did leave for the wrong reasons. It was a more lucrative offer for a position I didn’t fully understand.
It was fun, because it was more of an academic position. PwC has a lot of very sharp economists and they recruit the cream of the crop for interns. It was fun to work with young people who were totally focused on economics and analytics.
I was there for just over a year.
After leaving PwC, Webb sold everything that he had in Northern Virginia and moved to Kitty Hawk, N.C. He went to work as a greenskeeper at a local golf course. Then one day, out of the blue, he received a phone call from Manheim’s chief operating officer. Manheim was buying ADT Automotive, but plans to incorporate their economic insights hit a snag.
Eventually, I was going to seek employment, since I wasn’t financially ready for retirement. But it did come out of the blue. It resulted from Manheim’s purchase of ADT. Darryl Ceccolli sought me out. He called NADA and the people there said I had retired down to North Carolina. So he contacted me there. It was one of those great, fortunate things that happen in your life.
(ADESA chief economist) Tom Kontos, just like everybody at ADT, was offered to stay on, but when he decided to go another way, they decided they wanted that functionality. They didn’t have that kind of outreach. I joined Manheim in October and that January we had our first press conference at the NADA convention. I think it was the first press conference Manheim ever had.
It was different for Darryl, but he went along with it. My biggest experience at joining Manheim was getting to know Darryl. We knew each other well enough that he sought me out for the job. When we met, he just started to talk about the industry. And any question I asked, he could talk about it. It was another tremendous learning experience.
I came in without a job description and filled it out with the things that I like to do and what the industry needed. For example, I had a lot of contact with the financial community and I knew the Index was something they would gran right onto. It was really a relatively little project, but it was a way to increase our profile.
We had a lot of analysts on individual client accounts. But Manheim Consulting separated the analytics from sales.
One of Webb’s most notable contributions at Manheim was the creation of the Used Vehicle Value Index. The monthly Index takes wholesale prices and adjusts them for mix, mileage and seasonality.
Manheim Used Vehicle Value Index
I sort of have this love-hate relationship with the Index. I love that the financial community adopted it so readily. At the same time, I hate that it had too much influence based on any particular movement. They would upgrade or downgrade a stock based on those movements and that’s not what the Index is all about.
Originally, we just published the Index on a semi-regular basis. I was at a conference and it was during a time when AmeriCredit (now GM Financial) was under some pressure. It was near the end of the month and I indicated what the Index would do for the month. I don’t know it, but there was an analyst in the audience and he wrote a research report that mentioned the Index. I got a call from AmeriCredit’s investor relations and was read the riot act that the Index was material information for publicly trade companies and it needs to be released to everybody at the same time. That’s why it now comes out on the fifth business day of every month.
That was eye-opening because I didn’t know people were following that closely. We also had issues where analysts were basically hacking our website by changing the date and getting the Index early.
Now there’s a lot of information about used-vehicle price trends.
I knew the Consumer Price Index reading on used cars was a bad indicator. I also knew the straight AuctionNet numbers were misleading. It was frustrating to see those numbers picked up and analyzed.
I certainly hope the Index isn’t my lasting legacy. I would hope my legacy would be the broader perspective that I’ve given to some of Manheim’s clients, that there are factors beyond their own portfolios that affect them and how those interact. I really enjoyed working with Manheim’s clients on the remarketing process. There are a lot of great people out there trying to understand how to best preserve their residual values.
With all the questions surrounding auto finance and the wholesale market, CarMax Inc. executives reassured analysts they’re prepared to meet any challenges that arise.
The used-car superstore chain recently announced results for the quarter ended Feb. 28 that beat many expectations.
“We realize there’s a lot of noise in the market,” said CarMax CEO Bill Nash. “We’re confident about the track that we’re on.”
Total used vehicle unit sales grew 13.4 percent and comparable store used unit sales rose 8.7 percent versus the prior year’s same quarter. The comparable store sales performance resulted from a strong increase in conversion, together with a modest increase in store traffic.
Wholesale vehicle unit sales declined 1.2 percent versus the same period a year ago, as contributions from the growth in CarMax store base and an improved appraisal buy rate were more than offset by a reduction in appraisal traffic. In particular, age 7-to 9-year old wholesale vehicles continued to be in shorter supply.
Nash said some of that decline came from the delay in tax refunds.
Other sales and revenues increased 19.2 percent, primarily reflecting improvements in extended protection plan (EPP) revenues and net third-party finance fees. EPP revenues increased 19.3 percent, largely due to the growth in used unit sales and favorable adjustments to the reserve for cancellations. Net third-party finance fees improved by 44.4 percent as a result of more sales to consumers with higher credit scores.
Total gross profit increased 14.9 percent to $562.2 million. Used vehicle gross profit rose 14.7 percent, driven by the 13.4 percent increase in total used unit sales.
Used vehicle gross profit per unit was largely consistent at $2,134 versus $2,109 in the prior year period. Wholesale vehicle gross profit declined 7.8 percent versus the prior year’s quarter, reflecting the 1.2 percent decline in wholesale unit sales and a decrease in wholesale vehicle gross profit per unit to $938 from $1,005.
Other gross profit increased 46.1 percent, primarily reflecting the improvement in EPP revenues and net third-party finance fees, as well as some favorable payroll-related cost experience in CarMax’s service operations.
One of the biggest concerns going forward is the Increasing supply of used vehicles. Nash said this is a good situation for CarMax’s business.
“We believe lower prices will be beneficial to sales as cars become affordable for our customers,” Nash said.
He said the company has managed periods of sudden declines in wholesale values and high off-lease volumes in the past.