Connected at NADA 2024 Special Episode: Industry Check-in with Cliff Banks

Greg Uland: Hi I’m Greg Uland with Reynolds and Reynolds and this is Connected live at the NADA Show in Las Vegas. Thanks for hopping on. I'm so excited for this conversation. I get to sit down with the legendary Cliff Banks, founder of the Banks Report and AUTOVATE. Cliff, thanks so much for taking time to talk.

Cliff Banks: Thank you, Greg. It's great being here again. I think we've done this a few times now. So it's become an NADA tradition for me.

GU: Right. Well, last year I learned I think we both learned not to do it at 8 a.m. on Saturday morning.

CB: That is true. Yes. Yes.

GU: So this is much better. We're in the afternoon. Feeling good.

CB: And we're sitting down. Not standing. We're good. Yeah.

GU: Yeah, absolutely. Well, Cliff, you always have. I don't know. You seem to get a lot of perspectives, and you always have a unique perspective on everything going on. So just wanted to get into a few other things. Kind of where you see us as an industry, what you're hearing out there. And maybe we could start with one—a couple kind of news topics to lead us in. So the most recent one, yesterday Fisker announced that they're partnering, starting to partner with dealerships to sell their cars. Right? And they're looking for more partners and more partners. Curious on your thoughts on that, the impact that it has, why they're going this direction? I don't know. What are your thoughts?

CB: Well, I don't think those of us in the retail space that pay attention to these things are surprised at all. It's just a long line of manufacturers who have determined that the dealers are the ones that are going to have to help them sell the cars. We saw VinFast last fall make that decision.

GU: Yeah.

CB: So they are signing up dealers. What I'm hearing from Fisker folks, the response from dealers has been overwhelming. Probably overwhelming. So they're not going to have any shortage of finding dealers wanting to sell those vehicles. We see in Europe and in Japan, BYD, the Chinese automaker who is taking over the world, I guess if you're an EV player, they are going the dealer route. In Japan, I think, they're looking to add a significant number of dealership partners, and they're doing the same in the UK and the rest of Europe. We've also seen Mercedes looking to offload one of their retail in Germany. So there's I think, you know, when you look, when you're outside of me and looking at the retail space—it looks easy. “Oh we can do that better.” Well there's so many different dynamics that are unique to automotive that it really does make it hard. So I think, we're going to see—wouldn't surprise me to see more of that over time. And, you know, but again, it's—the whole space is up for grabs. And whether they can survive with dealers or without is the question. I mean, they have to get to some measure of scale on this.

GU: Yeah. You got to sell cars.

CB: Plus they're offloading some of their—some of that risk. Is those costs associated with retailing those cars.

GU: Sure. So what do you think the relationship's going to look like. So you look at a company, and in today's world it's a lot different than it was, you know, even just 20 years ago. Where you have a manufacturer, right? They're building the car. They're selling the car via a website. So it's not like there's no retail establishments, right? It's not like there's something that is available for a consumer to go to today. So you have this relationship where—you have this relationship—man, those announcements sure get to you, don't they? It's tough to focus on the conversation.

CB: Yes, yes. (laughs)

GU: But no, it's ok. We’re live! What are you gonna do?

CB: It works. Yeah.

GU: So anyhow, the manufacturer is selling the car online, right? They’re selling direct to the consumer. And now they're going to franchise out and they're going to have dealers. So when you think about that, how does that relationship work? It's not like we're going from a dealer body to an opportunity to sell directly to the consumer. We’re going from a company that's used to direct to consumer and now franchising. So how do you see that relationship working?

CB: It's going to be challenging I think. Polestar went that route. And again now we're seeing Polestar—the announcement this week that Volvo is relinquishing its stake in Polestar and giving it basically to Geely, the Chinese owner. And that might just be more of a spreadsheet accounting system to clean up Volvo's books a little bit. But that was, you know, they went that route going to dealers. I don't know. We'll see how successful it's going to be. We got a lot of smart folks on the retail level who could sell anything, and I think they can help guide these companies as manufacturers. You know, in a way that, you know, maybe we haven't seen before. Well, you know, we'll see though. But again, hey, I think the survival of these companies long term is up in the air anyways.

GU: Yeah, I would agree. I just—I'm fascinated to see what shakes out and where we go because I can't visualize quite yet what that relationship ultimately ends up looking like. Right? From the manufacturer and the dealer. They're both used to certain things. They both operate in really different ways right now. Now you have this partnership. So what does it look like?

CB: Yeah, it's gonna evolve. But you know, they clearly aren't selling, manufacturers, clearly aren't selling cars at the levels they thought they were going to be. And I don't know that the consumer is…I don't know that we live yet in a world where the consumer is willing, I think mass level, buying—are completing the entire transaction online. You know, I mean, we’ve seen the data and you guys live it with Gubagoo but you guys are trying to provide the customer with multiple ways of getting that transaction done. But, you know, the data still shows. I think Cox had the data 7%, DAS technology, their data, show 2.4% of all transactions in the fourth quarter were digital. Completely digital. So there's going to have to be, to your point, that relationship is going to evolve, but they're gonna have to work together. And I think the manufacturers are going to have to give quite a bit on that whole online play.

GU: Well yeah, there's a difference between retailing—like, it's just a difference. It's a different business. At the end of the day, it really is. So no, it'll be interesting to see where it shakes out. Another one, Cliff, I wanted to get your read on, and you've probably talked to a lot of people about this one, but Vroom obviously closing doors on retail operations at least.

CB: Surprised they lasted this long. I'll say this. I don't think—it if hadn't been for Covid, I doubt Vroom would have lasted or Shift Technologies which closed down in October or September this year. I don't think either of those companies would have survived much longer past 2020. But Covid gave them a new lease on life. Everyone bought into the whole digital hype and investors bought into it. And the SPAC, shifted to SPAC. Vroom, I think, to the traditional IPO. But, you know, once those waters receded a little bit, it became clear. And they were just trying to hang on. Another element of that is, you know, if you're dealing especially with a public company, you can tell. You can see the handwriting. They talked in August. I mean, they were talking about wanting to raise money, but their whole relationship with Ally Bank. You know, on the floor plan lending side was all contingent upon them raising money. And I think investors saw that it was never going to be a sustainable long term play. So those guys are gone.

GU: So why? Like, why can't these companies get it right? I mean, at the end of the day, right, you're selling a used car. Used cars can be extremely profitable. It's a great like segment of the industry, right? A great—it's a great business to be in, really. Why can’t they get it right?

CB: Well all right, so let's go back. I mean even before them, BP was another one that—and I was at a conference with an executive from BP, young guy who, I asked a question, you know, “Do you see you guys getting involved or developing some dealer relationships?” And he smirked and basically answered scornfully, “The dealers are gone. We're going to take over. And they don't know what they're doing.”

GU: Yeah.

CB: Six months later, BP was out of business. So I think—my point in telling this story is I think there's a little bit of hubris, a little bit of cockiness and lack of understanding of how the retail space really is. I mean, you got the whole lot element of titling and registration and there's so many regulations and every state is different. And when you’re trying to do it just online…You know, they bought the Texas Auto Direct Group and ran it into the ground. And again, I mean, we could say, well, that's just because it's an online place. It's not going to work. Well, I don't know. I mean, Carvana to this point has survived.

GU: We’ll see.

CB: Creative financial. Creative engineering. Creative financial structuring there. And we'll see where that ultimately ends up. But, you know, we're in a space, too. We had, Off Lease Only in Florida? Five stores. Yeah. They closed down. We had a couple of others. Some of that was investor related, I think. And, you know, so, we're going to see some of this stuff. But again, you had investors that came in that thought they knew better. And knew how to run the business.

GU: Well and I wonder too, how much of it is this—especially once you start to go public or you're looking to go public. Like how much of it is scaling too fast. When you're looking at a national level. You look at these massive dealer groups that we have in the country today, you know, and certainly franchised dealers, but even used car dealers, right. DriveTime. You mentioned Carvana, but, you know, DriveTime’s the godfather of Carvana.

CB: And they've been around a long time.

GU: Right. But it takes a long time to build that business. And you have to have a local business and then a regional business, and you can't just have one warehouse of cars sitting somewhere in, you know, St. Louis, right?

CB: Impatient investors. I think that's a big part of it. Everyone wants to get that unicorn. And—

GU: It's a hard business. And it takes decades to build.

CB: It's a very hard business. It’s very hard.

GU: Yeah. So I don't know. But it does continue to baffle me, you know, because everybody sees it and they say, “Man, we can do that. And this is a great business.” But then they last two years or three years and they're gone. Why can't somebody get this right? And it just it blows my mind. But it goes back to, you know, our franchise dealer system that we have in place today. And even, you know, you can look at used car dealers too, but—

CB: Yeah. Legitimate, long time, independent used car dealers. Yeah.

GU: They’re building a local business. At the end of the day, they're building a local business and then growing from there. And I think that's what's missing. It seems like at least. When you look at all the pieces to the puzzle, at its basic level, its core level. Being in a community and starting there, it seems to be the answer especially for used cars.

CB: Right. Well, I think, you know, you look at CarMax. As an example. And I think they did it right. Obviously, they've done it right. They provide a great return to their investors and have become a mainstay in the entire just the automotive retail space. And so, that would be the model I would follow.

GU: Yeah. Yeah. So what do you see for the used car market here coming up next year, next two years? Because it's—there's a lot of stuff out there, right? You're gonna have a lot of off lease vehicles. You're going to have, you know, I mean. EVs is a whole different conversation.

CB: Well, are we? I mean, I think the off lease vehicles, we still have a little bit of ways, a couple of years before we start to see—because we, leasing completely fell off the map. I mean, it was under 20%. Maybe just about 15, 16%. And I didn't get to hear all of the data yesterday at the conferences. Yeah, I think it's going to continue to be somewhat volatile. I think what I've said this actually last two years is you just have to understand what's going on in your local market. Going on with your franchises and act accordingly.

GU: Well, and limit risk, right?

CB: Yeah. Yeah. You certainly want to do that. You certainly want to do that.

GU: Get rid of—anytime there's a volatile market in used, get rid of that car as quick as you can because you know what you have in it and get it sold because, you know, it could go up, could go down. And you want to limit that risk.

CB: Right. So. Yeah, yeah. You know, prices to start. I mean, I think everyone's talking about normalization, but we're still higher than where we were.

GU: Oh, sure.

CB: So, you know, at what time do we get back down to those pre-pandemic levels? I, you know.

GU: I think it's going to be, you're going to be hard pressed to get to where we were.

CB: Right, right.

GU: You know, once you go high, it's really tough to stomach coming way back down.

CB: It is. Yeah.

GU: Right. It just, it's difficult to do. Yeah, I mean, we’ll come back down, but I don't think we're going to find that 2019 level or whatever. Doesn't make sense. All right. So Cliff, one of the other things that you always seem to have great perspectives on, and you have different ideas than pretty much anybody else around the connected car. So what's new in that world? What do you see and what are you excited about? You know, it just, it's a world that seems to have endless opportunity.

CB: Endless opportunity, but it's darn near impossible. You know, and I mean, you know, we've talked about this for the last few years. My vision of where I thought the connected vehicle—now and I think the term now is software defined vehicle, SDV, which I think we need to put to bed. But, I don't know that the manufacturers are going to be able to pull off some of the thoughts that I had in terms of tying everything together. We're not, you know, Tesla is one. But that's a different, you know, they've been able to do it from the ground up. I think with Ford, General Motors, Stellantis, Toyota, any of them. It's just very hard. There’s going to be some disappointed investors who were banking on this $20 to $30 billion in revenue, additional revenue annually that the automakers have been talking about. There's no. Just, we're so—it's so hard. It is so hard. I mean, you take Rivian the other day. I mean Rivian, they did an over-the-air update and bricked their infotainment center.

GU: Right.

CB: You know, I think these things are challenging. It’s not in their skill set really. And you have multiple suppliers. So you're relying on them to produce things that can be connected. I think the vehicle infrastructure still isn't set up yet to be able to manage all of those functions. You have the cybersecurity issue. Issues. But yeah, I mean, I would love to be able to get into my car and have it talk to me and tell me what's going on with the vehicle. Now, what is fascinating, and we're starting to see, you know, you see Mercedes, I think, and there's other manufacturers that are starting to play with AI, natural language models and tying it into their voice. Activate or, you know, voice systems. Now, that is, if they can get that to work without too many bugs. But, you know. You get in the car and ask where the traffic is and it verbally tells you, but maybe it doesn't give you the right answer. But if you're ever—if the manufacturers ever able to tie that AI to the actual mechanical systems in the vehicle to tell you when you need an oil change or, you know, I say, it could be an EV, but or you need new tires or new brakes. You could, you know, I think that could be a game changer. Is the customer going to pay for it? How much cost? How much does that develop?

GU: That's true. Yeah. What's the business model like? But, you know, I think it's a cool concept at least. You mentioned brakes, right. So. All right. Brakes are getting low. Car comes on. Says, hey Cliff, you need to change brake pads within the next month. Looking at your calendar, you have an opening on Wednesday afternoon. Your dealership has an opening on Wednesday afternoon. Do you want me to go ahead and schedule the appointment?

CB: You've been listening to me!

GU: So that concept is just, it's so logical, and I love it. But how do you build it in? Is your point. And I think part of the struggle is the transfer. And you just mentioned it, right. Tying it all together. But that transfer of data, because there are different parties that are going to have to play in that ecosystem. You have the dealership, you have the dealership software they're using, you have the OEM, you know, the manufacturer of the vehicle. You know, in some cases, you have the company that’s running the software for the infotainment system.

CB: Yeah, right.

GU: You know, just it's.

CB: And we've seen the trouble that General Motors has had with their Ultium platform. You know, they still say they're going to be building 200,000 to 300,000 vehicles on that platform. We'll see. I mean, they've had a lot of struggles, you know, last year getting that off the ground. And I would imagine they will continue to do so. And it's not, that's not to criticize General Motors or any of these other automakers. I mean, they're trying to rebuild the plane while they're still flying in the air. And they have to and so, you know, there's going to be a lot of hiccups. Tesla had—how many years did it take Tesla and how many bailouts did they need? So, I mean, creative bailouts, but. You know, but GM and Ford and Chrysler, they don't get that. They don't get that same level of patience.

GU: Yeah, they don't have the runway.

CB: They don't. Yeah, yeah.

GU: No, that makes sense. Okay. So I wanted to talk to you about at least one more thing here. So EVs. You know, it's a big topic. There’s a lot of different angles to look at it, but, as more and more and more manufacturers come out with more and more models. I'm starting to get the sense, so I want your feedback on it, starting to get the sense that it's feeling less and less like an EV is a different category of vehicle and more like it's another powertrain, right? It's, you know, yeah, you have a four-wheel drive vehicle. You have two-wheel drive vehicles. Sure, but it's still a vehicle, right? It's a feature more than it is a category.

CB: Stick shift versus an automatic. Kind of.

GU: Yeah. And maybe I'm way ahead of myself on this, but as more and more models start coming out, it starts to feel less and less special, I guess. I don't know, what's your—what your take is on that because, you know, Tesla was really the one that nailed the category, right? They said, hey electric vehicles different. They had a different purpose, a different vision of the world. And they push things forward. Push things forward. And now we're starting to get to the point where, again, it just feels a little diluted. I don't know what your thoughts are.

CB: Well…Yeah, I don't know that.

GU: I mean, I haven't asked you too many questions where it seemed like you didn't have an answer. I'm proud of that one.

CB: I think the answer is we still don't have clarity on where that this whole EV play is going to end up. And online, I mean, these people are either pro or against and all I know is that the dealers I talked to are saying they can't sell EVs. I mean, a Mercedes dealer in California telling me, “Yeah, we're selling them, but we're selling them for no margin.” You know, Ford just announced they were going to sell 100,000 Mach-Es and Lightnings to environmental fleet for their company. Well, there's only there's only one reason why they're doing that. They can't sell them to customers. So they're looking for other ways Oh, I don't know. I mean. Again, I just don’t think we have any clarity on where the true consumer demand is. We don't know what happens with the election this year. Some of those mandates. Look, there's a real challenge on at the state level with mandates. I think there's like 17 states where, you know, over the next few years, you're going to have to be at near zero.

GU: Yeah, which is interesting.

CB: I mean, how, if you're a dealer in one of those states, how are you going to, what cars are you going to sell? I mean, if the customer doesn't want a vehicle that your manufacturer’s forced to put on your lot. What are you going to do? So I think, you know, I think there's still a long legislative and legal and political game at play here. So I say we just don’t know. To me—I was having lunch with a couple of dealers today and my advice is drag your feet as long as you can on the EV stuff because they said the vehicles that are sitting the longest on their lots are EVs. And there's a lot of media pressure, a lot of media chatter about how dealers are the ones who are at fault because they don't know how to sell. They don't want to sell a car. Listen, that vehicles sitting on the lot, it’s costing them money. They want to get rid of that vehicle. Problem is, they're not making any money on them. Where you gonna put your attention as a dealer? So we've got a long way to go. You have the Chinese question, too. They're here. Their automakers are here having conversations with the appropriate parties, with dealers. And just how do we get our product in here? And how do we do it in a cost effective in a way that, where they're not being pounded by our government tariffs or tax rates or whatever. But again, you have a security issue. You know, I mean, with Chinese vehicles here. So, I'll tell you, to me, if I’m a dealer, you just keep your head down, keep selling cars and don't worry about all this other noise going on. And make sure you're doing business the right way. And don't worry about changing the industry. Don't worry about removing customer friction. Do it for your stores. Let everyone else fight their battles.

GU: And when you look back over time, I mean, that's been the story forever. There's always been issues. There's always been problems. There's always been challenges, always been newcomers. And you keep doing things well. You keep doing them right. And you know what? You're going to come out on top.

CB: Yeah. Exactly.

GU: That's good. So all right, Cliff, what else is on your mind? Anything else that's kind of in the line of sight for you that you have your eyes on either this weekend or moving forward into 2024?

CB: Well, I think, you know, watching closely to see when these valuations at the dealership level on these buy sells. How long do they last? Certainly the Florida market is as hot as ever. You know, I mean, every time, every week you wake up, there's another, deal going down. And some of these, you know, we know about them before they happen and know the price. Some crazy money and some people willing to drop some money. Everyone's saying, oh, you know, the brokers in some of the accounts are saying we're starting to see that come down a little bit, but we're still so high and you're still a lot of cash. Group 1 this week announced in their earnings call. They’re armed and ready. They've got cash and they're ready to go and start buying. I mean, and I would imagine that the others are in that same boat.

GU: Yeah, it’ll be, I mean, it's interesting for sure.

CB: Yeah. Keeps your guys’ life interesting.

GU: Sure does. Sure does. All right, well, Cliff Banks, thanks so much for joining. It's a pleasure, as always. So much. Yes. Appreciate it. Have a great show this week.

CB: Yeah. You guys do too.