CATA News

Average wholesale used-vehicle prices cracked the $14,000 mark for the first time ever in April and then proceeded to set new highs above $15,000 in May, Tom Kontos, chief economist for KAR Global, said in a recent webinar.

"This," Kontos said, "is the latest sign of the seemingly never-ending rise in wholesale values, resulting from a deluge in demand and a drought in supply."

Wholesale prices in April averaged $14,436, according to KAR Global’s latest monthly analysis. That was an increase of 5.9% versus March 2021, and up 50% relative to April 2020.

Kontos said retail used-car sales at franchised new-car dealerships and independent used-car dealerships were down 8.1% in April 2021 versus pre-COVID April 2019. But he concluded the volume decline, "might have been supply-constrained, not demand-constrained."

Used vehicles are a notoriously fast-depreciating asset, especially right after they’re first sold as new. But while it lasts, a combination of high demand and relatively short supply has turned the used-vehicle world upside down.

KAR Global sells millions of vehicles annually through wholesale, dealer-only, used-car auctions.

 

Amid reports of rising car prices, it turns out that consumers seem to understand that there’s no way around that if they want to buy a new car today. In a study to examine just how receptive buyers are to higher prices, Cox Automotive found that 40% would not shy away from being charged a 12% premium.

Given that the average new-car MSRP in the U.S. is almost $42,000, that means four in 10 people would accept a price that’s $5,000 more than what the sticker says. Despite the higher expected prices, only 37% said they’d wait to buy a vehicle, with 70% of those saying they’ll wait at least three months to purchase and 23% saying they’ll look at used vehicles instead. 

"The current auto market, with low inventory and high demand, is anything but normal. And we know it’s driving people away," Cox Automotive spokesman Mark Schirmer said.

 

Cox’s research shows that 87% of consumers recognize the issue is impacting both domestic and import nameplates. 

As the issue is industry-wide, 73% of consumers are expecting to face higher prices at dealerships, and nearly 60% believe they will find lower incentives. One main reason for this non-sticker shock is the limited supply times that are upending the industry. Cox’s survey, conducted in May, found that 75% of car shoppers knew about the global semiconductor chip shortage and that it was wrecking havoc on new-car production. Almost as many, 73% said they expected to see higher prices at the dealership, and almost 60% said they expected that any incentives they might find would be lower than before.

However, Cox’s Schirmer also said: "Our recent research shows nearly 40% of buyers who were considered ‘in market’ for a vehicle are now dropping out or deciding to delay their purchase. High prices and limited selection likely are the cause.

"For the most part, car-buying in America continues to be driven by the deal," he said, noting that even under current conditions, "Older shoppers — and specifically older male shoppers — [are] less willing to pay over sticker. These older buyers are a cohort we call ‘Straight Shooters,’ and they are experienced vehicle buyers, with plenty of good deals in their past. Paying above sticker is an unnatural act for this group."

 

After more than a year of dealing with the COVID-19 pandemic and its resulting shutdowns, one thing that has not changed is the demand for new vehicles and interest in viewing them at auto shows. 

Juliet Guerra, the media relations director at the National Automobile Dealers Association, said that auto show organizers throughout the country are revamping shows to meet COVID-19 guidelines because the value of auto shows to consumers has not changed. 

  

"Bringing auto shows back for our industry is a big deal, and consumers are absolutely ready," Auto Shows of North America Chairwoman Jenn Jackson said, according to the NADA website. "Auto Shows are the quintessential opportunity to contrast and compare different makes and models in a low-pressure environment. For a consumer who is close to purchase, visiting an auto show will often solidify their decision on their next vehicle."

The first auto show that kicked things off was the first-ever summertime Houston Auto Show, which took place May 19-23, Mega Dealer News reported. The Chicago Auto Show will hold a special summer edition July 15-19 at McCormick Place’s West facility.

The Chicago and Houston shows, like others that are in the works for the upcoming months, followed Centers for Disease Control and Prevention guidelines to protect customers at the venues, which included not requiring vaccinated people to wear masks, but strongly recommending masks to be worn at the show. 

"While offering consumers a first-class auto show experience, attendee safety is the top priority for show organizers. Show organizers have adopted enhanced cleaning and safety protocols, including temperature checks, mandatory mask use, increased sanitization stations and enhanced vehicle cleanings between visitors," the NADA website said. 

According to the NADA, all shows are working with health and safety officials "to ensure that all applicable local, state and federal sanitation guidelines are followed."

 

And now, the waiting game.

 

The just-concluded Illinois General Assembly in late May passed several bills that would benefit dealers, their technicians, and their customers. But Illinoisans could be readying for their year’s last dip in the pool before Gov. J.B. Pritzker acts on any of them.

One measure, Senate Bill 58, would restore the tax credit on traded-in vehicles to their full amount. Another, House Bill 3940, would change how manufacturer pay is calculated on warranty work. And Senate Bill 573 would extend driveaway permits from 30 days to 90 days.

A bill passed by both houses must be sent to the governor within 30 days. The governor then has 60 calendar days to sign it or to return it with his veto. If the governor does nothing, the bill will automatically become a law after the 60-day period. 

That means Pritzker does not have to act on any of the three bills until the last days of August. At least for the warranty labor legislation, CATA officials said they are asking the governor to sign it before the July 31 expiration of the current collective bargaining agreement with the union representing area technicians, to help negotiations of the next bargaining agreement.

Supporters of the bills are urged to contact Pritzker’s office now to help move him to sign the bills. Dan Marquardt, a Buick-GMC dealer who leads the CATA’s Government Relations Committee, noted that few constituents ever contact their elected officials on pending legislation, so if supporters of the three bills prod Pritzker to signthese, it will have an impact.

Capping the trade-in credit increases the cost of new vehicles and used vehicles bought at retail. Pritzker has voiced his backing of SB 58. The cap took effect in 2020 following moves to find funding for Pritzker’s multibillion dollar state capital infrastructure plan.

Under SB 58, infrastructure projects would instead be funded, in part, by increasing the sales tax charged in private vehicle sales. For instance, the current $390 sales tax on a 1-year-old vehicle sold privately for less than $15,000 would increase to $465. If the same vehicle sells for $15,001-$20,000, the sales tax would be increased from $750 to $850. 

 

The tax rates for private transactions haven’t changed in more than 30 years, and the modest increases are much less impactful than a trade-in credit cap, which costs consumers hundreds of dollars and harms dealers statewide.

 

Regarding HB 3940, automakers consider different time guides for the same repair when technicians fix a car under warranty versus the longer time considered when customers pay for the work. The bill requires manufacturers to compensate dealerships for warranty work in the same manner that retail customers pay for retail work, in terms of time allowances, labor rates, and parts prices.

 

Mechanics Local 701, the union representing area technicians at dealerships, is working with the CATA to advance the legislation. Supporters say HB 3940 would bring a fairness to the payment process that could attract new technicians to dealerships. Wisconsin has had similar policy in place for more than a decade.

 

In addition to establishing an equitable compensation scheme for warranty work, the bill would prevent manufacturers from imposing cost recovery fees or surcharges to overcome the bill’s effect. For manufacturers, it would preserve their right to approve or disapprove dealership claims, and it ensures manufacturers have a way to charge back any false or unsubstantiated claims they paid.

 

Three-month permits

Under SB 573, a registration permit valid for 90 days could be provided for a fee of $13 for registration plus 1/10 of the flat weight tax. Permits currently are valid for one month.

 

Also, beginning Jan. 1, 2022, the secretary of state would be authorized to issue a certificate of title in the name of the dealership to a licensed dealer for $20 if the surrendered certificate of title has no space to assign the certificate of title again.

 

GSM/Finance Manager Dynamic relationship builder, effective communicator skilled at prospecting. Great closing ability. Young and highly motivated, actively seeking to continue investment in a managerial or administrative role. Jonathon Moroni, (630) 819-9368. Résumé on file at the CATA.

 

One hundred sixty-six CATA dealer members reported a combined 2,493 unemployment claims during the first quarter of 2021 to Sedgwick Claims Management Services, Inc., which has been serving CATA dealers under various names since 1979. The company’s efforts saved those dealers a total of $8.25 million in benefit charges by contesting the claims.

 

Sedgwick monitors any unemployment claims against its clients and contests all unwarranted claims and charges. The company counts about 241 CATA dealers among its clients.

 

Claims that can be protested and subsequently denied help minimize an employer’s unemployment tax rate. The rate can vary between 0.675 percent and 6.875 percent of each employee’s first $12,960 in earnings.

 

The 2021 average unemployment tax rate & new employer rate for Illinois employers is 3.175 percent, or about $411.50 annually per employee ($398 in 2020). Rates have been improving since 2012, with a slight increase in 2021. However, rates are expected to increase in 2022 due to depleting state trust fund balances.

 

"The unemployment tax is really the only controllable tax in business, in that it’s experience-driven," said Bruce Kijewski of Sedgwick. An ex-employee’s claim affects the employer’s tax rate for three years.

 

For new enrollees, Sedgwick client fees amount to $2.85 per employee, per fiscal quarter. For the fee, Sedgwick monitors all unemployment claims; files any appeals; prepares employer witnesses for hearings, as necessary; represents the client at any hearings; verifies the benefit charge statements; and confirms the client’s unemployment tax rate.

 

For more information, including how to retain Sedgwick’s unemployment services, contact Kijewski at (773) 824-4322 or Bruce.Kijewski@Sedgwick.com.

 

For the eighth year, the CATA presented the Spirit of Carol Cooling Scholarship to a graduating senior at a northwest suburban high school. Emily Seriruk on May 19 received a $1,000 grant to put toward future studies. The CATA established the scholarship — a $1,000 grant — to honor Cooling, a Hersey alumna and long-time NBC 5 Chicago Special Events Director who died in 2013 following a battle with cancer. 

As the producer of the Chicago Auto Show, the CATA worked closely with Cooling and NBC 5 to help facilitate the station’s live TV auto show specials that garnered several Emmy Awards. When Cooling died, CATA leadership wanted to contribute to a cause that would enable her spirit to live on.

"At the time of Carol’s passing, CATA Chairman John Webb had the idea to create this wonderful scholarship as a way to pay tribute to such an impactful, larger-than-life person," said David Sloan, president of the CATA and general manager of the Chicago Auto Show. "I continue to feel very fortunate to have the opportunity to present this scholarship to deserving Hersey High School students, and I am certain Carol would be touched to see her legacy live on in such an influential and positive way." 

The Hersey High School scholarship committee selected Seriruk as the recipient of the scholarship because she embodies many of the characteristics also used to describe Cooling. Attributes such as "driven, ambitious and resilient" are commonly used by Seriruk’s teachers and peers.

"Taking the words from Emily’s English teacher, Kyle Marquette, ‘Emily is a fighter,’" said Hersey Assistant Principal John Novak. "She does not back down from challenges, but rather uses them as motivation to continually better herself." 

According to Novak, Seriruk has proven her ability to balance a rigorous academic schedule with her involvement in the peer tutoring program Service Over Self, the Asian American culture club, the math team and the badminton team. 

"As if these activities weren’t enough to fill her time, Emily also held a part-time job outside of school," said Novak. "Her determination and can-do attitude are what set her apart from other scholarship candidates." 

Novak said: "Emily truly embodies the characteristics of the Spirit of Carol Cooling Scholarship. She treats people with respect and has the ability to make a positive impact on those around her. We are thankful to the Chicago Automobile Trade Association for honoring such a deserving young adult in Carol Cooling’s memory."

Seriruk graduated from Hersey High School this month and will attend the University of Illinois at Chicago this fall. She plans to study chemical engineering. She will apply her scholarship to help pay for her UIC tuition.

"I’ve heard that Carol Cooling radiated positivity and made a great impact on everyone in her life, and I strive to do that as well, whether it’s from simply tutoring my peers or planning to improve people’s lives through solving real-world problems as a chemical engineer," said Seriruk. "I believe I met the requirements of the scholarship because I am driven to work hard to achieve my goals, including maintaining a 4.73 GPA and financially helping my mom from a young age."

"I am beyond grateful to have received this scholarship, and I can’t even begin to explain how much it means to me," Seriruk continued. "I really wish I could have met Carol Cooling, as she exemplified the type of person I strive to be. Her accomplishments demonstrated her passion and hard work that result in achieving great things. 

"I am honored to carry on her legacy by graciously taking this scholarship and applying it to my own education to pursue a career where I hope to make a positive difference in the lives of others."

The CATA will fund the scholarship at Hersey through 2024.

 

The 12 retail auto dealerships in Libertyville that make up the Libertyville Mile of Cars donated $30,000 to four local charities during the Village of Libertyville Board Meeting on May 27.

The donation was part of the Libertyville Rewards program that ran in the village October 2020 through February 2021. When consumers purchased or leased a new vehicle at a Libertyville Mile of Cars dealerships, they received certificates from the Village of Libertyville, usable towards goods and services at participating Libertyville businesses. 

And for each benefiting customer of the Libertyville Rewards program, the dealerships pledged a donation of $100 towards local charities that are responding to community members in need.

The four charities chosen to benefit were Lake County Haven, the Libertyville Township Food Pantry, PADS Lake County, and Youth & Family Counseling. All four charities are responding to community members in need during the difficult economic time created by the COVID-19 crisis.

Glenn Bockwinkel, chairman of the Libertyville Auto Dealers Association, is a program supporter. "The Libertyville Rewards program is great for so many reasons. It promotes shopping at the local dealerships as well as other Libertyville businesses that participate in the program, and it helps four great charity organizations. This is really all part of what makes Libertyville a great place to live and work."

Retail auto related businesses represent about 60% of all sales tax receipts received by the village — taxes which support needed services and facilities, including parks, fire and police protection. The businesses also employ nearly 800 people. Their community support extends far beyond taxes and provision of jobs to sponsorship of the village’s Independence Day fireworks and various organizations. 

According to Libertyville Mayor Terry Weppler, "Vehicle-related businesses are crucial to our local economy through their sales taxes, employment, connections to other local business, and their ongoing support of community events and organizations."

The Libertyville Rewards program is part of the Shop 60048 effort, a program intended to strengthen Libertyville businesses through encouraging area residents to shop locally. When residents shop locally, it helps add to local sales tax revenues which support village services. More importantly, it strengthens local businesses and provides employment opportunities.

 

"The cost of EV service is less than for gasoline-powered and hybrid vehicles, right?" asked Renee Stephens, a vice president at the data firm WePredict, citing conventional thinking. Then she added: "Wrong."

Her firm’s aggregated repair data indicate EV parts and labor currently cost twice as much as other vehicles.

That’s probably not surprising about EV parts, which can include complex electrical systems. But what about labor? Turns out, that per-hour work really drives up the cost of servicing EVs, Stephens said during an online Automotive Press Association program on a WePredict study on early vehicle-repair costs.

Stephens explained: "EVs require service technicians to spend much more time figuring out what is going wrong. They are on the phone more with the manufacturer. They are on more test drives."

 

Technicians typically write a brief report summarizing their repair orders. What technicians write for EVs can stretch on. "Those reports are paragraphs long, some 1,000 words or more," Stephens said.

"This is part of an industry learning curve," she said, adding that the new generations of established EV models show far fewer issues than do newly introduced versions.

 

For example, the Chevrolet Bolt and Nissan Leaf, which have been on the market for years, did well on WePredict’s ranking of vehicles with low service costs and needs. She expects repair costs will drop as newly introduced EVs are on the market longer and work-in-progress improvements are made for later generations.

EV models that have been around for a while "had issues, too, when they first came out," Stephens said.  "It bodes well to see the improvements with later generations."

 

Unsurprisingly, many of the EV growing-pain service issues center on electrical issues. A frequent one is vehicle charging capability. "The vehicles either are not charging to the levels they should or to what the customer expects," she said. 

 

The most-serviced EV issues involve the electronic controller, high-voltage battery, charger/cable and battery contact, according to the WePredict study.

 

The study is based on data from dealership management systems relating to service issues in the first 90 days of vehicle ownership. Those issues arise from owner complaints or manufacturer recalls or service bulletins.

 

Why are such early costs important, particularly if the manufacturer is covering them with warranty programs? Because they often indicate what’s to come, Stephens said. "Costs can go up 15 times from early on, and at a point where customers have to open their wallets. It’s a multiplication factor. If a vehicle has early issues, it usually doesn’t age well."

 

Many car dealers now regularly home deliver newly purchased vehicles to customers who ask for that service. But is a higher next-level on the digital horizon?

The issue came up at a Reuters’ online event at which moderator Tanya Gazdik of MediaPost asked, "Will automakers be like Amazon Prime, where you order a car and it shows up in your driveway a day or two later?"

Online retail giant Amazon is an example of a company that offers great customer experiences, said panelist Laura Rathai, a Hyundai marketing director. But she added that most consumers aren’t interested in completely bypassing the dealership experience.

"People still want to go to the car dealership," she said. "The experience at the dealership can’t be underestimated. That’s where people smell and feel the car and get the confidence of their vehicle choice. People so much want to go to the dealership."

Co-panelist Beth Mach agreed. Human senses come into play at the dealership. On the surface, it may seem odd that car-buying involves the olfactory system. But the so-called new-car smell is a powerful sales motivator.

"Until we have smell-a-vision, we won’t be able to give you that type of experience online," said Mach, chief customer officer at TrueCar, an internet automotive marketplace. Her position was created last year.

Gazdik noted that an automaker once tried to eliminate that new-car smell, "and people were furious."

The program’s discussion focuses on modern marketing models. Gone is the traditional sales funnel in which customers metaphorically enter the wide top and eventually exit the bottom tip by choosing a car and dealership.

"The predefined funnel is not there anymore," Europe-based Rathai said. "The experience used to be that we guided people through that predefined funnel. Now, the customer wants more empowerment."

Yet they also want a degree of help from automakers and dealers, while at the same time not relinquishing their control of the purchase process. "We need to know what they want," Rathai said. "The big challenge is they want us to guide them through the process."

Referring to customers ultimately switching from online shopping and researching to the offline dealership visit, "they want us to carry over information from one point to another," she said.

That means not starting over at the dealership, which has become a major auto retailing no-no. "Don’t start from scratch," Mach emphasized.

She noted the path to purchase no longer is linear. For example, it’s not unusual for car consumers to start their shopping journey online, visit the dealership in person, return home for more online work and then return to the dealership to close the deal.

Rather than following a straight line like it pretty much did previously, today’s purchase process includes twists and turns.

Mach likens it to a French horn that contains an intricate pattern of coils and tubes, and from that "comes a beautiful sound."

Customer-first marketing changes the consumer-dealer relationship, she said. If it is done right, "the customer will look at the dealership as a friend, not a foe. That’s different than before. And it’s great. It’s good if you make people feel comfortable."

A dealership using online tools, including customer-relationship-management software, can get a good sense of shoppers from their online behavior. That helps in the crucial online-to-offline pivot, Rathai said. "Creating profiles helps salespeople know how to treat customers."