Animal Spirits Podcast - Talk Your Book: Car Dealership Guy

Episode Date: April 1, 2023

On today's show, we are joined by CarDealershipGuy to discuss buying a car in 2023, buying v leasing, the downfall of Carvana, the electric car market, and much more!   Find complete shownotes on our blogs... Ben Carlson’s A Wealth of Common Sense Michael Batnick’s The Irrelevant Investor Like us on Facebook And feel free to shoot us an email at [e-mail] with any feedback, questions, recommendations, or ideas for future topics of conversation. ​​ (Wealthcast Media, an affiliate of Ritholtz Wealth Management, received compensation from the sponsor of this advertisement. Inclusion of such advertisements does not constitute or imply endorsement, sponsorship or recommendation thereof, or any affiliation therewith, by the Content Creator or by Ritholtz Wealth Management or any of its employees. Investments in securities involve the risk of loss. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. The information provided on this website (including any information that may be accessed through this website) is not directed at any investor or category of investors and is provided solely as general information.) Learn more about your ad choices. Visit megaphone.fm/adchoices

Welcome to Animal Spirits, a show about markets, life, and investing. Join Michael Batnick and Ben Carlson as they talk about what they're reading, writing, and watching. Michael Battenick and Ben Carlson work for Ritt Holt's wealth management. All opinions expressed by Michael and Ben or any podcast guests are solely their own opinions and do not reflect the opinion of Ritt Holt's wealth management. This podcast is for informational purposes only and should not be relied upon for investment decisions. Clients of Rithold's wealth management may maintain positions in the securities discussed in this podcast. We are very excited to be joined by car dealership guy. I honestly don't know when you burst onto the scene, but holy shit, did you burst onto the

scene. Thank you so much for coming on today. Thanks, Michael. Excited to be here. When did you start on Twitter? December 2021. Wow. Right around the holiday time. So it hasn't been that long. You're like the chat, GBT of Twitter in terms of user adoption. It's really incredible. You've over 300,000 followers, and for good reason. It's not an accident. You put out killer content. Listeners of the show. I know that Ben and I talk about your content pretty much every week, so we're thrilled to have you. I thought a good place to start this conversation is with my own experience that I'm going through. So I might do a lot of talking here just to set the stage. So bear with me. In 2020, September 2020, I needed to get a car. And I wanted to get a Jeep Wrangler, but this is when

prices started going nuts. And I was going to dealerships. And for like the base model, it was like 700 bucks a month. And that was way more than I wanted to spend. And so I'm like, all right, I'll just get like a Cherokee, which is fine. I don't drive a lot. So this is mostly like a station car or around town car. So it wasn't going to have a ton of miles on it. I was going to the dealership and I hate in-person negotiation, as does everybody. You feel like it's an unfair fight. You don't know any information. And I'm just not good at it. I get anxious. I start sweating. I don't like it. It sucks. It's awful. So the prices that they were quoted me were like still felt too high. And I don't know how. Oh, I know how. My stepbrother gave me the number. He's like,

dude, talk to my broker. So I spoke to the car broker. He goes, what do you want? What color? Done. I can get a few for 475. It'll be in your house in a week. I spoke to this dude for 10 minutes tops. And he got me the car, put it in my driveway. It was such a beautiful experience. I said, I'm never going to a car dealership ever again, ever again. All right. So that's my car. My wife, like your wife, drives a Q7. The Q7 that I got from my wife, was a 2019 model. And so for my Jeep, I'm very proud. I pay $4.75 a month.

I feel like it's a steal. For my wife's car, I'm paying around $800 a month, but there's more to the story. Her car came off lease in November of 2021. I don't need to tell you that prices made no sense for a new vehicle. So I bought it. And I bought it for $38,000. But I also bought the extended warranty for $6,000, which is a good thing that I did because the transmission literally exploded two weeks ago.

Like, it just died. Before Michael keeps going. warranties are usually a sucker's bet, correct? Or no? No, not true. For cars or not? Because I feel like for most other things. So they're one of the highest margin products at a dealership, anywhere between 40 to 60 plus percent, depending on the car and the customer and many other things,

and the deal, really. But they can be very valuable. I mean, he'll look, in his case, it was 10 grand. The transmission was like almost 10 grand. And my wife goes, I can't believe you never buy warranties. I said, exactly, I'm not a sucker. But for a car that I own a German, car, I'm buying the warranty. So anyhow, so we need a big trunk space because we drive with the kids

upstate a lot and the trunk. The Q7 is a big size trunk, but it's filled to the brim. And so I know the paint. Yeah, exactly. So I was looking at my financing options to see how much is the payoff. And I owe $40,000 on the car, which sounds like a lot. It was $38,000 when I bought it plus the warranty, plus taxes, whatever. So right now, I owe $40,000 on the car. I am in the market, potentially, The Jeep has about $5,000 worth of equity in the car. Michael, don't tell me you're looking at a suburban. Please don't do it. I'm not looking at a suburban.

I'm in the market for a Tahoe. Oh, that's the same thing. What the same thing? It's not the same thing. It's basically it's how many more feet of trunk space does I have? Sir, sir. So right now I'm all in. I'm $1,300 a month for my cars.

It's $800 for the Audi. It's $500 for the Jeep. Now, I know Tahoe is are ludicrous. It's like $1,000 a month. So I'm trying to not be. super, super stretched out over where at over the M. You're never going to find a parking spot again in your life at the grocery store. He can't sit anywhere. Anyhow, I'm almost done talking. So if we get rid of the Q7, we need the Tahoe. But the thing that I'm worried about is I think that I overpaid for

the Audi. And so right now, I owe 40 and I think I could get around 40. I'm worried that a year from now, I'm going to owe 35, but I can only get 26. So I'm worried about the use of car prices coming down. All right. With all of that said, what should I do? Wow, quite a story. No, look, I think so, first of all, If we've learned anything from the last couple of years is you just can't time the market with anything. Even if we go back a year ago, everyone is panic buying to, you know, hedge for inflation and suddenly rates go up by a million percent. Now the dollar is almighty again after it was monopoly money for like a year and a half. And I think, you know, similarly to cars, there was periods and you see all these dealers that stocked up on cars near the end of 2021. Suddenly Q4 came around.

Valuations has plummeted. And all the public dealerships, every other dealership as well, everyone just took a bath on vehicle valuations. And so I think it's not necessarily the right financial advice, but the truth is that cars, we can't really look at it as an asset necessarily that you're looking to maybe time the market and get the best deal, and depending on the market movements. Oh, it's a liability. Yeah. It's not an asset.

I'll tell you one thing, though. If the market continued the way it is today for another year, two years, the higher you go up in price point right now, the greater the day's supply is. Days supply in this industry is just how we measure inventory, efficiency, and availability. It's a measure of how much supplies in the market relative to the demand, and that's how you know how quickly the velocity of inventory. And so the higher you go up in price point, the greater the day supply. All that means is that there's less demand for these cars, especially on the use segment.

And so those cars, $30,000 plus, are likely to depreciate at a faster pace than cars below 30 and 20 grand. It doesn't mean that it's going to fall from 40 to 25. I can't tell you that. No one can because we don't know what the market will look like. But I will tell you that it will depreciate at a faster pace than the less expensive cars. We tell people all the time, do not try to time the stock market. And Michael's asking you how to time the car market. I know. I get asked a lot. I'm just asking the professionals to put themselves in my shoes. That's all. Here's what's going to happen. I'm going to end up not doing anything because I'm going to look at the price and say, this is insane. The majority of depreciation does happen in the first three years of a new car purchase.

You mentioned it was a 2019, right? So you're now like in the green, quote of quote. You've already passed the major hit to depreciation, at least from a percentage perspective. And so again, financially speaking, you already purchased a warranty. It's likely better to hold on to it for a couple of years. But that said, many people would say, well, I don't want that. I don't want to have to have more issues, go to the mechanic. You just mentioned you just did your transmission. And so at the end of the day, the way I see it is with purchases like this, you have to prioritize your family, convenience, comfort first because you're just not going to be able to get it done perfectly. And it's really, we're not talking about hundreds of thousands of dollars. We all want to get the best bank for our buck. Well, that's the other thing. Am I stressing over like a hundred bucks a month? I think you are. Like an idiot for no reason.

Yeah, you don't want to pick up pennies in front of a steamroller. So I think you are a little bit over analyzing this. My solution to your problem is to stop bringing so much shit for your kids everywhere. Dude, that's not a me thing. That's a white thing. And you know that. that. I would be totally down for the minivan. I just think it would be funny. But my wife's like, you're not funny. It's not funny. We're not driving a minivan. The next question for Michael's problem is the buy versus lease. And I know that Michael and I have talked about this before, that's very circumstantial depending on how much you drive and all of these things. But does the calculus change at all with rates being so much higher? You've been tweeting about the fact that

some car loan rates like 6, 7, 8, 9 percent. Does the buy versus least equation change at all with rates higher? Is it still kind of dependent on the same? Okay. A couple of things. So number one, if you look at just the average car loan payment and the average car lease payment versus pre-COVID, the average car payment is up 29%. And the average lease payment is up 34%. Oh my God. So leasing has gotten more expensive. It has gotten also just less attractive as just a vehicle as a car purchasing tool. And so leasing penetration is down. Leasing across the board used to be like almost one out of every three cars sold. Nowadays, it's closer to like one out of every nine car sold. It's far far down from what it was pre-COVID. Wait, why is that? Because I would think that

with rates higher, that financing a car is less attractive. No, so leasing is built up of, there's like a money factor, you have residual values and various other things, all the factors that make up the financials of the lease. But with there being so little inventory, it's sort of messed up the equation for leasing for the OEMs. And so financially, it's gotten less attractive and a lot more expensive to lease. What does OEM stand for? Basically, like all the car manufacturers, Honda, Toyota, Chrysler, blah, blah, blah. I've got a question for you that no one's been able to give me a good answer. So the way I understand it, the reason the car market is so messed up, and I still drive by

these dealerships, there's a bunch of them right on the big street from my office, and they're still all half full of new cars. So the way that I've been explained is the pandemic screwed things up twofold. One was the auto manufacturers either slowed or stopped production when COVID hit because they thought it's a recession, people are going to pull back, and they were caught off guard when demand bounced back so quickly. The other thing, the supply chain crisis messed up the ability to get some. which is necessary to produce new vehicles. I'm sure there's more to it, but those are the two

big things that I've been told. So my question is, it's been three years. Why are they still so far behind? Why do we still see half full car dealerships? Can they just not ramp up production or do they not want to? It depends on the car manufacturer, first of all. You have manufacturers like Chrysler, Volvo, Buick, Jeep, Alpha. They have more than enough inventory available for the most part across all of their different vehicle types. And so all the Detroit manufacturers have done pretty well with inventory. They're well above the industry average as well. Industry average is around 55-day supply. Like I mentioned to Chrysler, they're at about close to 130-day supply across the board. They're one example, but then, you know, you look at Volvo, they're close to 120.

The point is, lots of manufacturers have actually done very well, and that's benefiting the consumer right now. You're seeing new car prices come closer to MSRP, and so fewer markups. You're seeing incentives as a percentage of transaction price actually go up. Last quarter, it was around 2% in this quarter. It's around 3%. All these things are really good for consumers. The problem is that most of the Asian brands have not recovered. And it's a couple of things. You read what they're saying and they're putting out all these different articles and whatnot. And yes, they're still inundated with demand. Everyone wants a Toyota. Toyota has a serious backlog. And Toyota right now, when the dealers are getting the cars, it's shipping right to

the customers home. Toyota's at close to 20, 23, 24 day supply. That's just unprecedented. It much means that I tweeted about this other day, but you want that Sienna? Well, guess what? You're going to wait a year and you may even pay a markup when it arrives. They're just one example, right? You have Kia. You have Lexus, Honda, Subaru, Land Rover. All these brands are struggling with inventory and it has to do with manufacturing and catching up. Now, I don't know the exact reason. I don't know what's the issue is with atomic unit within their supply chain that they can't figure out. But the reality is it's kind of like a tail of two sides in the new car industry right now where some brands have really caught up. They've done well.

At a certain point, Jeep Wranglers, Michael, you mentioned that. At a certain point, those were going the most above MSRP, more than any other car at a certain point. That's not the case anymore. But the point is, like, lots of brands have caught up, whereas most of the Asian brands and then some of the Europeans, Land Rover, BMW, VW, they just haven't caught up as much. So the American brands, you actually might have a better odds of finding inventory or maybe negotiating or not getting screwed as bad today. 100%. Look, there's always exceptions. If you're seeking some crazy model or a special car, there's only one of it.

No, you're not going to have any leverage. But for the most part, across the board, you will have better odds of getting a better, quote-unquote, deal, whether it be below MSRP, some incentive if you're going for one of the American brands nowadays. Let's bring this back to me for a minute. Just kidding, but serious. There's a Tahoe, which is, is that a Chevy? What's the GMC one?

Full-size SUV is a problem. That's a Chevy, and you're not going to get a good deal on that. They're still in short supply. And you see, the life progression that you're going through, Every soccer parent is driving one of these damn boats. And I'm going through that as well. And my Q7 trunk doesn't fit anything either. And we've also considered the Tahoe and the suburban.

And by the way, my wife said the same thing about the minivan. That's exactly the same thing we're all going through. And you want the captain seats too. I want the captain seats. And listen, even when I look at the van, I'm a car dealer. I love minivans because I look at it as it's a utility. It's a well-equipped, comfortable, has crazy demand. When I think about minivans, I think about the people that come to me and want to buy it.

a minivan. And I'm like, oh, wow, you know they've got their shit together. Oh, absolutely. I mean, get me a Toyota Sienna souped up. The moon roof open on a nice sunny day. If we think about the efficient frontier of cars, the minivan is the perfect sweet spot. Mini van is the best. Minivan is the best, but not everyone wants it. Lots of people still want the full-size SUVs. And so now if you go pickup truck, which you're not going to do that. I'm Jewish. Yeah, exactly. That you're going to have plenty of supply, or it's at least creeping up, RAM, Chevy Silverado, Ford F-150. But minivan, full-sized SUV is actually still a struggle. So should I get the Tahoe?

But wait, what's the other one? So we had this debate. Not this debate. On the show, there's the Drake's Theotles and the Hostess Ho-Ho's. So what is the ho-ho to the Tahoe? It's in three tiers. It depends how badass or bougie you want to be. So it starts with the Chevy Tahoe.

It goes up to the GMC-UConnelly, and then it goes up to the Cadillac Escalade. Oh, that's right. That's called the Spectrum. I would never drive the escalate. That's like way too much. personally, but I would buy the Yukon Denali. There's something that's the look of it. I don't know.

I do like that one a little bit better. Is it the grill? Yeah, yeah, it's got that grill. I mean, it's a nice one, the Yukon Nali. But the towels are incredible, especially you get them well-equipped, incredible. If I do pull the trigger, should I buy it or lease? It's going to depend at the exact moment and what deals are in the market. You're probably not going to get a good deal on it, and I'm probably going to tell you

that you'd be better off buying. Also, I would mention that you're going to want to go through a credit union or at least try to shop the credit union when you do the financing. for it because that's just where you're going to get a better rate. Credit unions nowadays make up close to 30% of all new auto purchases as well, which, just to put that in perspective, similarly, the lease is actually prior to COVID credit unions were doing about close to 10, 12% of all financing for vehicle purchases. Which is the best credit union? You're going to need like a 96-month payment on this mic with a match your payment now. He's going to take a 96-month loan out.

Just get the same payment. No, credit unions, I mean, the key here is you want to work. with a dealer that is partnered with credit unions, and you want to shop your own credit union. And then you want to see who can offer you a better rate. But they just have a structural cost advantage to traditional lenders. And so you're likely going to get a loan that's two or three points better. Could everybody get access to a credit union? I kind of thought you need to be like a teacher or something, which my wife is, but can anybody get there? There are like trade-specific credit unions. But like I said, most dealers are partnered with credit unions directly. And so you're still going to get a better rate through the credit union, even if you go through a dealer,

as opposed to, you know, going through the traditional lender. And again, this assumes you have pretty good credit, because if you don't, you won't. My car payment is through a local Michigan State Credit Union or something. Ben, what do you drive, Ford Explorer? I have Ford Explorer. And I have one more kid than Michael. I'm still not going for the upsized one. So my Ford Explorer runs up in 2024.

I'm in a better position than Michael because I have an American car. You have hair. I have head. So I should be a little better. So the big thing I want, though, is it probably won't be ready by 2024, but I want an electric SUV. When are these coming for us? Are we getting to the point where they're going to be affordable enough where that's going to make sense, or is that still weight on the line?

Let me ask you a question. Just now it's my turn, do some market research? Why do you want an electric SUV? I'm just curious. I don't know. I just think driving an electric would be kind of cool. By the way, that's an important answer right there. You really don't know.

You just think it's cool. And so I think we're seeing a lot of that in the industry nowadays. And OEMs, like I said, the car manufacturers have made lots of proclamations that certain ones that, you know, we're going to be fully EV by this or this lineup will be fully. EV by certain year, whatever. But I think the whole EV space is very fascinating right now because you look at Q1, Tesla gained roughly 1.4% market share in the industry, far more than any other car manufacturer in the industry. I also mentioned the other day on Twitter that Toyota lost roughly 2% market share in the

same quarter. Toyota did not lose that because in the EV lineup or anything, they lost that because they barely have any cars to offer people. But the point is that you see Tesla where they've recently dropped their prices. They're gaining so much market share so quickly. And clearly, Ben, what you mentioned, there's many other people in your shoes or in a similar situation that want to go EV,

want to drive this new technology and will be adopters over the next couple of years. Now, as far as when more SUVs, EV SUVs will come out, I don't know. I mean, it's going to take time as manufacturers work on improving vehicle ranges and as they beef up their EV departments. But it's going to come and it's going to come quickly.

There will be adoption for it. And the other thing about the premium on it, The prices seem to go to premium. Like, they released the Ford Lightning. I remember it was like 40 grand, and they've continued to increase that. And, I mean, you do the math, and I'm a spreadsheet guy, so I've done the math. The gas savings on that is nowhere close to the premium that you're paying, even if you qualify for the tax break on it. You don't save money driving electric.

It seems like right now. At least that's the calculation I've made. Most people, I don't think they buy it to save money, and there's studies on this and whatnot. But the reality is the person that bought a $120,000 Tesla Model X over the last six months, They're not doing that to save money. It really comes down to preference and brand. I want to drive a Tesla. And also you mentioned Ford.

Let me tell you another interesting fact that the Ford Mustang, you know, Machi, after they made their price cuts, they follow Tesla with price cuts as well. And they're actually losing money on a per unit basis. And so they have a lot of work to do under supply chain and manufacturing to the point where they can get it to be profitable at a competitive price for consumers. So why are they doing that? Why are they selling it a loss? It's a free market.

You got to move the metal. They have to, right? And if Tesla drops their prices by up to 20%, you've got to stay competitive one way or another. Let's talk about subprime leasers for a second. I think there are some whispers that the fault rate is going the wrong direction. Is that something that should be a big concern on like a macro basis? Are there more implications beyond just people not paying their car bill? Here's what's happening.

We're seeing that 60-day delinquencies. There's ways of measuring car payments and whatnot and just how people are paying. So we're seeing that delinquencies are rising. And on certain segments, like the deeper subprime segment, we're seeing that we've reached delinquencies, we've reached levels that we haven't seen since 2009 and in many cases even beyond that. The interesting thing is that these are not yet translating into default. And as you can imagine, right after default is when the repossession happens.

And so it is definitely an area of concern that I'm watching very closely. Will we see more repossessions over the next 12 months? Of course we will. We're putting a lot of pressure on the consumer. People committed to payments that are significant. higher than what they had prior to COVID over the last couple of years. People bought these cars that inflated prices. They're out of equity in these cars much more than they would have been otherwise. And so all roads lead to more repos. Now, I also mentioned the other day that another

interesting phenomenon is that because people are buying older cars with higher miles, because, of course, we have a used car shortage, not new car shortage, mind you, use car shortage. Well, that's going to lead to more repossessions as well. Because I remember one of the first things I learned in this industry is that 50% of the reason why someone repossessed or gets their car repossessed is because they could not afford repairs on that vehicle, so they had to give it up. 50% of the reason. And so when you think about that, if we're selling older cars with higher miles now to consumers, what's going to happen? Well, there's a higher likelihood that that car is going to break down. They're not going to pay for it. And the repo rate is going to go up. And so it's a very weird time for lenders and dealers

because people's credit scores were artificially inflated over the last couple of years. all these stimulus checks. People were paying these loan deferments and whatever. You don't have to pay your student loans and blah, blah, blah. And it kind of messed up credit scores, whereas if you look back a year and a half ago, the rejection rate for auto loan borrowers was almost zero. Almost everyone was getting approved for a loan. And nowadays, it's back to like one in 10, one in nine people or so are actually getting rejected an auto loan, which is actually a healthy thing for the market. Not everyone should get approved. And so all that said, we are going to going to see more repossessions. It's going to take time. Like I mentioned, we're seeing

higher delinquencies. It's going to eventually translate to more defaults. And ultimately, that will translate to rebos. You know, all that you mentioned that, there was always those one shady car dealerships that you'd see advertise on TV. They'd be like, we don't care what your credit score is. Come, we'll give you a loan. You don't see those anymore, do you? It's funny because there's two sides to that. There's the dealers that do that, and they work with third-party lenders, and they just do that to bring you in, and then they bring you in, and you're probably going to get rejected or some people or a high percentage of customers will. But then there's also dealers that are called buy here pay here, which are dealers that actually do their own lending.

And so what they're doing is they have this pool of capital and they're selling you just like $3,000 car, which is like a beater. It's a piece of shit. And they're banking on it that you're going to make eight payments to them. You're going to pay weekly or biweekly, whatever. You'll make like eight, 12, 10, whatever payments. And then you're going to default. And then they're going to take the car back and then resell it and rinse and repeat.

And so that's the buy here pay here model. and that's typically who you'll see advertise that. It's like a better call salt type character. Yeah, I mean, there's a lot of different opinions on the business model. I've spoken about it on my account. I mean, it's definitely heavily disputed of what's right, what's wrong. But at the end of the day, I think there are buyer payers that serve a good purpose in the market and the ones that truly they're able to sue more risk than traditional private equity backlender

or publicly traded lender. You mentioned that if prices keep rising, that makes demand Wayne, which makes sense. It's hard for people to afford. Is the same relationship occur with interest rates? Because Michael and I track the mortgage rate market a lot. And you see this thing happening now where mortgage rates shoot up and demand for houses goes down and mortgage rates fall and the demand comes back. Does that same thing work with cars?

Do you think we'll see it since rates are so much higher now or does that not really play? I don't think the relationship is as correlated. And by the way, if it is and maybe there's a lag, because we've seen rates right now, like the average used car loan in the U.S. in February, I believe February or even early, March is 14%. Just like, think about that second. That's the average. Obviously, there's lower, just higher, but it doesn't matter because that average, there's always been higher and lower. So that's like credit card payments almost. Yeah, that's the average in the US today. And new cars is 8%. And so it's really wild what's happening out there. What I'll tell you is that we are

seeing that asking prices are slightly coming down for use cars. That doesn't mean that transaction prices are coming down. There's like fees and all these things, but asking prices are slightly coming down. And you have to assume that a big reason for that is interest rates, the fact that we've put so much pressure on the consumer between rising prices up over 40% in like three years for use cars and now interest rates that are at multi-decade highs. Two-part question. Are we ever going back to normal? And how are dealerships dealing with this? Are they getting killed? Is this good for business, bad for business? If by normal you mean pre-COVID, no, we're not. I'll give you a simple reason why not because the cost to produce a new car nowadays is higher. And so that just translates down

all the way eventually to the use car market. Now, we will see prices come down over time. We will see more use cars available in the market over time. Right now, we have about 2.07 used cars in dealer inventories, which is down roughly 30% year over year or 28%. Wow. So we're just starting to take the medicine right now. Remember, COVID started March 2020. And no one was leasing cars. Manufacturers weren't manufacturing cars. Those cars should be returned now. If they were leased, they would be returned now. We're not getting those. And so we're like all-time record lows in terms of available use cars in the market. New car inventory is improving. We're up 70% year over a year, but we're still down 50% over the last three years. And it's just like a stock.

If it falls 90%, then it goes up 100%. You're still down in the float. And so if you look at it that way, we're still far from normal. All the economists in the industry, they're predicting that we're going to start getting closer back to normal by 2026. Oh, my God. All right, I'm buying a Tahoe. I wouldn't bank on it either. You're the luck some, Michael, not the dollar cost averaging. Can you tell us the story?

What happened with Carvana? What happened with Carvana? I mean, it's a fully loaded question. What else say is like this? Ultimately, they build a great customer experience. And if you're a dealer that says otherwise, you're a liar. They build a great customer experience. It's an awesome mousetrap.

Their issue, and by the way, they built a vertically integrated business. just very, very tough undertaking. I think obviously ownership or at least the chairman has a checkered history, which many people have doubted over time. They've always had a very debated capital structure where they have all this debt, all these interrelated transactions with affiliated parties or whatever. And so I think ultimately now they took on too much debt. They bought an auction house like a year and a half ago or so for some crazy price. I forget it was like 20 time earnings or something. They levered that as well. And now they're finding themselves in the situation where they have way too much debt, the use car market is not doing well

at all. Interest rates have clobbered demand, relatively speaking, for use car dealers. Needless to say, all just volatility in prices and interest rates has really hurt profit margins for use car dealers, and it's just not a good time to be a use car dealer. And on the flip side, I will tell you that the franchise publicly traded dealer groups, Asbury, Group 1, Lithia, they are a much better position. These are companies that the franchise dealers have like four different revenue streams. They have new cars, use cars, service, parts, and others. And a use car deal, you really only have once to use cars. Now, yes, you can sell financing and whatnot, but at the end of the day, that's all packaged when you sell it the used car. And so not a hot time to be the used car

business. And Carvana, definitely, I mean, they inflated the most during the boom and they deflated the most during the bust. Let's be honest. The sign of the top for Carvana was doing those weird car vending machines. That was just like the ultimate sign of hubris. Was that really necessary? It's funny. Like, they might totally manipulate this. So I take it with a great of salt. But they have these charts that show that when they open a vending machine in the market, their sales go like parabolic. Oh, people like that. Okay.

Their market penetration. Wasn't there like a token? Wasn't there like a giant coin? Yeah, yeah. That was the top. Yeah. And those things cost like $5 to $7 million. It was very, very gimmicky.

Did it actually bring the return? I have no idea. But I think there's many bigger mistakes that they made behind the scenes that probably heard them a lot more. And again, their evaluation got super inflated. They were a victim of their own success in a way. Well, listen to this. This is very emblematic of the Carvana rise and fall. These towers I were talking about, they're like giant life-size matchbox sets for cars. There was one that was built on Long Island off of the Metabook Parkway that I think they just like abandoned because they started building it. It's built, but there was never any cars that went inside of it. I haven't seen that they've been putting a lot of these up for like sale in these packs all throughout the country. Who would be a leaser of that?

So I talked to a builder actually. One of my buddies is a builder and he was offered the deal and he pretty much. much said, listen, there's this thing that's not pencil. I forget what cap rate, they're trying to sell it. But number one, everyone thinks that they're going to default. You're buying just bad paper. Number two, you looked at me, he's like, I can't convert this. And this guy's experience. I mean, they have, I would say it's over a hundred million dollar portfolio and they're on their own. They're very, very serious. I'm not a developer, but I don't see how you can convert that. I mean, those things are probably going to need to get knocked down. One last question. Do you know anything about like the asset back security part of this business? Very lightly, I do.

Does that impact interest rates or is it the other way? Are they just like the taker? What do you mean to that? So I can tell you that like Santander, a huge subprime consumer lender, auto lender, they just had like a $2 billion bond portfolio that they were going to sell to the market. They halted the sale because what's happening in the market, the market's sort of dry for this paper at the moment. And we're seeing that now impact us on the sales side. They're just not able to originate as many loans with them. Well, that's what I mean. If demand is dry, originator is going to be less willing to make loans, no? It's sort of like the chicken or the egg because they're not willing to make loans. It's not that demand is necessarily dry.

Like, we're still seeing a very steady volume of customers come to the showroom, submit online inquiries and whatnot. But lending has gotten a lot tighter unless you have great credit or are putting a significant amount of money down. And guess what? Most use car dealers have a large percentage of customers that don't have necessarily great credit and don't have a lot of money to put down. The fact that lending has just gotten tighter is hurting used car dealers and overall sales

all across the country. All right. So we mentioned your Twitter feed, which we've been using for a few months now. What's the handle? At Guy dealership, check it out. Also, if you look at YouTube or Apple Podcasts, it's car dealership guy, one word. I just launched my podcast last week. You've got a newsletter too, right? The newsletter is more for deep dive. You can find out on my website, dealershipguide.com. I'm doing all the plugs right now. There we go. For the podcast, what are you doing? These interviews, is it just you? What's the style? Dealershipguide.com, there's a link to the podcast, a newsletter. Everything else is on there. What I'm doing is I started this out by just doing these 10 to 20 minute segments of me just talking about I'm picking one topic and doing a deep dive. Similarly to the newsletter, I'm trying to help consumers educate the finance

and investment world and provide some value to dealers. And so sort of hitting different segments and I'm still unsure like where I'm going to kind of go deeper, maybe, you know, what I'll maybe do a bit less of. But so far, it's driving very well. And people really are enjoying the fact that they can see under the hood as a dealer what my thoughts and what my experiences are. But also I'm sharing specifics for people that are either investors or just consumers looking to know what the hell is going on in the market. Next episode, should Michael buy a Tahoe right now? Yes.

That's your deep side. All right. Thanks, man. This was awesome. Thank you so much. Thank you, gentlemen. This was great. Had a great time.

Thank you.