Dealers Plan to Amp Up Digital-Marketing Efforts

In a WardsAuto Q&A, National Automobile Dealers Assn. Chief Economist Steve Szakaly talks about integrated digital marketing and a healthy economy, yet he voices concerns that gasoline-price volatility could return.

He also tells why Tesla’s sales model is a bad idea, because historically automakers have faltered when it comes to selling the vehicles they engineer and produce.

Szakaly joined NADA two years ago. Before that, he worked with General Motors in powertrain forecasting, and was an economist with the Center for Automotive Research in Ann Arbor, MI.

WardsAuto: What’s the most exciting thing that will happen in the dealership world in 2015?

Szakaly: We expect 16.94 million new cars and light trucks will be sold in the United States in 2015, which is great for every dealer and auto manufacturer. 

Operationally, 2015 will be about the integration of digital marketing between dealers and automakers. It will be about re-occupying the space taken by third parties and helping to reduce the additional costs those third parties bring into the transaction.

WardsAuto: Did you ever think you would have to worry about falling gasoline prices in the U.S.? How is that impacting auto retailing? What’s the downside?

Szakaly: No, we called for stable gasoline prices. The current market-share war for oil is beneficial to global consumers, but in the long term, prices will rise back above $70 (a barrel).

A major impact is the accelerating shift towards light trucks and sport/utilities that began in 2011 largely because consumers value the functionality and space of these vehicles. Our concern is that the volatility in gasoline prices will return, which could impact overall sales.

Lower gasoline prices mean that consumers will have less incentive to pay for CAFE-required improvements in fuel economy because it becomes harder, if not impossible, to recoup the costs of that technology while they own the vehicle.

WardsAuto: New-car financing terms are increasing in length beyond 70 months, sub-prime loans are on the rise, incentives are climbing. Which trend is the biggest threat to market health? Is the industry in danger of suffering a 2008-like downturn?

Szakaly: The U.S. economy is doing well. GDP growth will be above 3%. Right now there is little chance for a 2008-like downturn.

Loan terms are getting longer, but so is the useful life of the car and consumers are keeping these vehicles longer. Obviously this stretches the car buying cycle out, but given all the other factors, this is not going to impact sales in the short term. Subprime loans make up a very small portion of the new-car market and defaults are still low. Reserves at finance companies are healthy. Cars are a productive asset for consumers. They offer numerous benefits and help folks get to their jobs. Consumer defaults on car loans are at very low rates.

WardsAuto: How has the Internet changed auto retailing? How will it change auto retailing? How has auto retailing changed in general, whether Internet-related or not?

Szakaly: Car shopping has shifted to the online world. Consumers spend on average 14 hours online compared to just five hours a decade ago, which is one of findings of a new study by NADA and McKinsey & Co. that will be released later in the first quarter of 2015. Unfortunately, much of this time is spent on third-party websites, adding to the costs without providing any clear economic benefits to consumers.

WardsAuto: What will happen in 2015 with the Consumer Financial Protection Bureau, the federal regulator that wants to eliminate the practice of dealers adding a percentage point or two to customers’ car loan interest rates as compensation for arranging the loan?

Szakaly: It’s hard to say, but we have done a lot in 2014 with NADA’s voluntary Fair Credit Compliance Program for dealers. We all want to see the competition that exists today in the automotive financing world and the competition that dealers provide continue to be strong and not weakened by excessive federal regulations.

WardsAuto: Do you foresee a so-called “hybrid” dealer-franchise system in which a company like Tesla has franchised dealerships in some states but not in others?  

Szakaly: The franchised dealer network works because manufacturers tend to be very poor retailers. Manufacturers have tried many times in the past and have failed every time. Why any company focused on engineering and manufacturing would want to be distracted and burdened by the costs of a retail system is difficult to rationalize, unless of course they wanted to restrict price competition in their brand, which is what a direct sales model does.

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