Retail Automotive Dealership Newsletters: Electric Vehicle Market

February 8th, 2019

LIVE FROM NADA

Each year our Automotive Group Team members attend NADA, they are part of the Auto Team America events, attend seminars and walk the Conference exhibits. If you have any questions about the notes below contact Conven Tang – Conven.Tang@crowemackay.ca.

INDUSTRY 

  • Outlook for new vehicle sales in 2018 was estimated at 16.7M units. Actual was better than expected with 17.3M units sold in 2018. Similar to 2017 sales of 17.2 units.
  • As with prior years, key factors that continue to drive the new vehicle sales include the low price of gas, low interest rates, incentive programs and high average age of vehicles on the road.
  • 2019 forecast for new vehicle sales to be at 16.7M units. In 2020, the number of new unit sales may be as low as 14M.
  • Sales mix of 70% light trucks/SUVs and 30% cars. Focus of manufacturers to bring in new products in the truck and SUV market.
  • Current inventory level at 4M units is slightly high given the sales in the last few years.
  • The picture on the right was taken at NADA, it is the new Chinese vehicle whose manufacture has been signing up Dealers. (See our February 4, 2019 issue)

OPERATIONS

  • Margin compression on new vehicle continues as gross margin is down another 1.7% in 2018 while used vehicle gross decreased 3.3%.
  • Decline in incentives from the manufacturer of 3.8% to an average of $4,000 per unit.
  • New vehicle prices trending up in hopes of improving gross margin.
  • Despite the excess supply of used vehicles, prices have increased 3.5% over the past year.
  • Used vehicle sales increased by 5% over 2017 signifying the eighth consecutive year of sales increase.
  • Fixed operations have increased 4.7% from 2017.  Key area of future growth given the decline in margins for vehicle sales.
  • Profit for privately owned dealership are falling.  Dealers are looking to control expenditures given new vehicle sales forecast.  Goal is still to reach 6% as pretax profit margin.

BUY/SELL

M & A Trends

  • 317 dealerships exchanged hands up to Q3 2018.  25% increase from 2017 Q3.
  • Pubco activity similar to the prior year with 25 acquisitions.  However, they have divested in 39 locations during 2018.
  • Multiples have remained relatively steady with minor increase for Volvo, Chrysler and VW.
  • Average Blue Sky for 2018 was $6.6M compared to $6.9M in 2017.
  • Buyers pursuing luxury and truck markets for future acquisitions.

Valuation

  • German luxury dealerships and Lexus dealerships with steady multiples of 7 and above.
  • Audi and Jaguar/Land Rover with multiples between 6 and 7.
  • Slight decrease in the valuation of Toyota and Honda with multiples of 5.5 to 6.5.
  • Domestic brands down to 4 times versus 4.5 from a year ago.
  • Multiples continues to decline due to downward profit trend, increasing interest rates on floor plan and the supply of dealerships for sale has increased over the past two year.

Consolidation

  • Current average of 2.18 dealerships per owner compared to 1.76 ten year ago.
  • 27% fewer owners and 34% fewer single point.
  • Post-acquisition thoughts
    • identify any valuation issues not discovered during due diligence process (inventory, A/R, contingencies),
    • review of pay plans to see if they make sense,
    • training staff to standardize procedures,
    • integrate technology and eliminate duplications,
    • cost reduction via vendor consolidation, containment of variable expenses,
    • centralization of specific functions

FUTURE OUTLOOK

Dealerships

  • Dealership model will still persist but under the hands of fewer owners.
    • dealership groups will have to grow in order to be able to increase profitability
  • Will need to focus capital on activities that will:
    • broaden product selection (more dealerships to broaden range of vehicles and parts)
    • provide customer friendly experience (online sales, bookings)
    • cut costs (consolidate functions, data warehouse, impact of customer to the group)
    • Vehicles on subscription services or driven as Uber/Lyft will still require repairs as the mileage is expected to increase.
    • Light trucks still in demand for employment that requires a significant amount of tools/supplies to be transported.
    • High cost for OEM to enter the market given the demand for real estate.

Impact of Autonomous/Electric Vehicles

  • Level 5 artificial intelligence required for autonomous vehicle.  We are currently at level 2.
  • Significant amount of capital invested into electric vehicles, but demand is still not there.
    • may only start realizing a return in 2030
    • demand if government make electric vehicles mandatory or imposes strict emissions laws.
  • Tesla self-funding model not likely to survive on 3 products.
    • two models are getting old and the other model is over the hump.
    • will need to raise capital for future growth and development of new products.

Auto Team America Buy-Sell Summit and CEO-CFO Forum
Alan Haig, Haig Partners
John Murphy, Bank of America Merrill Lynch Global

TESLA INCREASES SUPERCHARGING PRICES – GAS MIGHT BE CHEAPER

A global price hike means it can cost more than $35 to charge your Tesla. 
Buyers of electric vehicles need to consider that inflated charging prices could make road trips in a Tesla more expensive than driving a traditional gas vehicle. Despite claims of great savings, Tesla’s rising Supercharging station prices are killing the alleged savings.

Update (1/22): Tesla announced this morning that after listening to customer feedback, they will reduce Supercharger pricing by 10% worldwide. Previously we had reported that after a dramatic ~33% increase in price for Superchargers, Tesla owners going on roadtrips could be paying as much as or in excess of what you would for a petrol engine, depending on where you lived.

According to Electrek, with the reduction the average price of Superchargers went from the original $0.23 per kWh to $0.31 and now back down to $0.28 per kWh. That’s average pricing in the US that will vary per station. As part of the change in pricing structure, Tesla is moving away from per state/region pricing, instead letting stations set prices based on local electricity rates and demand charges.

The original story follows below:
One of the benefits of electric vehicles was supposed to be that driving around would cost less per mile. When factoring in the price of current electric vehicles versus the cost of less expensive cars with internal combustion engines, this has yet to prove true. Tesla has drastically raised prices at its Supercharging stations that might make charging their vehicles more expensive than refueling at a regular gas station.

Tesla recently announced the end of its referral program that granted a limited time period of free charging, citing it to be too expensive to continue. All Tesla vehicles sold after November 2018 must pay for access to Supercharging stations. Going forward, the vast majority of Tesla owners will be paying for fast charging when they are not at home.

In the state of New York, pricing was increased by 33 percent up to $0.32/kWh. California rates are now between $0.32 and $0.36/kWh. These rates are significantly higher than what consumers in the same areas would pay at home. However, the main expense that must be accounted for is fast charging. Most homes are not wired to handle 120kW chargers, which are likely not cheap to set up.

While this may affect a minority who need long distance travel and ideally most electric car owners charge at home overnight, any calculation will ultimately depend on where you live and what kind of electricity rates you get in your area.

According to Tesla’s website, it is still cheaper to use electricity than gas, but there is a major caveat. The price of gas is assumed to be $2.85 per gallon while the estimated electrical cost is $0.31/kWh. Gas may be around that price in New York and California, but it is closer to $2 per gallon for a significant portion of the United States at present. The current national average is $2.24 according to AAA, with several regions seeing prices under $2 per gallon. At current gas prices, Supercharging a Tesla in certain areas is in fact more expensive than just refueling a car that also is cheaper to begin with.

For 100kWh battery packs, a full charge costs $32 to $36 based on the new rates. Refueling with 12 gallons of gas at Tesla’s claimed $2.85 per gallon costs $34.20. At the current national average, 15 gallons of gas is slightly cheaper than charging a Model S or Model X.

For touting savings of nearly $10,000 on sales pages for the Model S and $8,000 in savings for the Model 3, Tesla should make it more clear how they determine these numbers. For drivers in areas with cheap gas, only the tax credit portion and reduced maintenance costs of electric vehicles apply.

Source: Techspot 

HONDA SAYS PAINFUL U.S. CAR SALES SLUMP MAY BE BOTTOMING OUT

The dramatic swing from passenger cars to trucks and SUVs among U.S. consumers may be close to petering out, according to a top Honda Motor Co. executive. “We think we’re getting close to the limit in terms of the percentage mix of light trucks versus cars, which is very close to that 70-30 mix,” Henio Arcangeli Jr., senior vice president of automotive operations for Honda Motor Co.’s U.S. unit, said in a phone interview. “At least in the near term, that’s probably the limit.”

Source: Bloomberg 

VEHICLE INTEREST RATES HIT SECOND HIGHEST POINT IN DECADE

New-vehicle financing’s average annual percentage rate hit 6.19%, the second highest point in a decade, according to Edmunds, a digital automotive marketplace. This compares with 4.99% in January of 2018 and 4.22% five years ago. The average APR on used vehicles was 8.88% in January, up from 7.83% the same time a year ago.

Source: WardsAuto

SELF DRIVING CARS – NOT ANYTIME SOON

In the world of autonomous vehicles, Pittsburgh and Silicon Valley are bustling hubs of development and testing. But ask those involved in self-driving vehicles when we might actually see them carrying passengers in every city, and you’ll get an almost universal answer: Here are the reasons and for a detailed analysis of each go to the article in The associated Press on February 4.
• Snow and Weather, the vehicles “cannot see” in snow and rain
• Pavement lines and curbs, the vehicles need clear distinct lines and uniform curbs to “read” the road
• Human Drivers, humans are unpredictable
• Left turns, self drving vehicles have trouble assessing when to make the turn
• Consumer acceptance, a study by the AAA found in a 2018 study 73% (up from 63% in late 2017) of humans are too fearful to ride in a fully self driving vehilce

Not anytime soon. Source: The Associated Press

BIG DIESEL-BURNING PICKUP TRUCKS ARE PAYING FOR GM’S ELECTRIC FUTURE

The vehicles that will secure the next decade for General Motors Co. aren’t covered in self-driving sensors or loaded with batteries. No, the future depends on hulking pickup trucks that often run on diesel and cost more than the average BMW. That’s the irony at the heart of GM’s event this week at its sprawling factory in Flint, Michigan, where the next iterations of the Chevrolet Silverado and GMC Sierra will be introduced. These revamped heavy-duty pickups, which go on sale in June, feature advanced, lightweight materials and fuel-efficient engines but none of the technology that will supposedly shape the next era of the auto industry. Yet in Detroit that future can’t exist without the profit margins generated by classic pickup trucks.

Source: Bloomberg

BET EVERYTHING ON ELECTRIC: INSIDE VOLKSWAGEN’S RADICAL STRATEGY SHIFT

If Volkswagen realizes its ambition of becoming the global leader in electric cars, it will be thanks to a radical and risky bet born out of the biggest calamity in its history. The German giant has staked its future, to the tune of $91 billion, on being able to profitably mass-produce electric vehicles – a feat no carmaker has come close to achieving.

Source: Reuters

GM IS GOING ‘ALL-ELECTRIC,’ BUT….

It Doesn’t Expect to Make Money Off Battery-Powered Cars Until Early Next Decade
General Motors does not expect its electric vehicles to turn a profit for at least a few more years, CEO Mary Barra told investors Wednesday. The largest U.S. automaker repeated its commitment Wednesday to make its entire vehicle lineup “all-electric,” but provided investors with few details about those plans on a conference call after GM reported fourth-quarter earnings that beat expectations. However, GM is clear that its electric vehicles won’t make money until “early next decade,” Barra said.

Source: CNBC

This information that follows is taken from sources including The CarConnection, Autoweek, and other industry sources. For more information please call our Edmonton office.

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