Automotive News - December 12, 2022 - 33

December 12, 2022 * 33
SENTIMENT
Time of 'abnormally' good
profits could be over
continued from Page 4
began, dealers were telling us about one obvious
problem: inventory. Now, as 2022 comes to a close,
it's all about the economy and interest rates. "
Franchised dealers' views of the current market
tumbled from a score of 62 in the third quarter to
52 for the fourth quarter. Independent dealers also
registered quarter-over-quarter declines in
current market sentiment, while the industry as a
whole rated conditions a 43, the second consecutive
quarter marking a negative view.
Smoke told Automotive News dealers never expected
the future market to be worse than the
current market in any Cox survey from 2017 to
the COVID-19 pandemic. Since then, it has happened
several times. He said he feels it highlights
dealership uncertainty.
Uncertain times
" The uncertainty is principally around things
that are completely out of their control, with no
relief in sight, " he said. This is particularly the
case for factors such as the economy or interest
rates, he added.
Interest rates and the economy are at the top of
the list of factors that franchised dealers told Cox
are hindering their businesses, knocking the isATTITUDE
Mercedes,
displaced,
is still 'confident'
continued from Page 4
both Honda and Acura dealers. Production
and inventory has begun to rise
across the industry, meaning higher
monthly sales, but Honda reported a 5.2
percent U.S. sales decline in November.
" We aren't out of the woods yet, but
have a better outlook and see our supply
improving, " Fini said.
Lexus came in at No. 1 while Toyota is
BRIGHTDROP
GM says unit on pace to
generate $1B in revenue
continued from Page 4
whenever the [supply of] batteries [is] strong and
steady. "
GM Canada President Marissa West did not directly
address whether battery-supply constraints
will slow ramp-up times at CAMI. She
told Automotive News Canada the first Ultium
Cells manufacturing plant in Ohio is now " up
and running, " with two more under construction
and another in planning elsewhere in the U.S.
" There's such a willingness for adoption for our
Ultium-based vehicles that we're anxious to
scale up the battery manufacturing across all of
those sites that have been announced, " West
said.
Strong battery demand and limited current
output may hamper production for BrightDrop
vans in 2023, with forecasts of about 16,500 units
next year, Sam Fiorani, vice president of global
vehicle forecasting for AutoForecast Solutions,
told Automotive News Canada.
That represents about one-third of GM's initial
plans, and even that " might be optimistic, " Fiorani
added.
" With such a limited number of batteries available,
concentrating on higher priced and potentially
higher profit models such as the $115,000
GMC Hummer EV makes more sense than the
fleet-focused BrightDrop vans, " he wrote in an
email.
Production begins
The BrightDrop Zevo 600 began production last
week at the CAMI plant, which hosted an event
Economy, interest rates
hinder dealers
Interest rates and the economy displaced
inventory at the top of the list of factors
franchised dealers view as holding back
their businesses. Decision-makers polled
from Oct. 25 to Nov. 7 for the 4th-quarter
Cox Automotive Dealer Sentiment Index
rate these factors as their top 5
hindrances:
Interest rates
Economy
Political climate
Q4 2022 Q3 2022 Q4 2021
58%
57%
Limited inventory 51%
Market conditions 41%
34%
40%
47%
63%
39%
29%
2%
26%
71%
31%
21%
sue of inventory down to third place.
Fifty-eight percent of those dealers said interest
rates are a problem - up from 40 percent in the
third quarter and from just 2 percent in the fourth
quarter of 2021. Eighteen percent of dealers said
consumer credit availability is an issue, up from
10 percent in the third quarter of the year.
" Higher interest rates are killing the vehicle
market, which is exactly what the Fed wants, " a
Chevrolet dealer told Cox.
The Federal Reserve has increased the target
range for its benchmark interest rate - from 0 to
0.25 percent at the start of the year to 3.75 to 4
percent today, and it might increase the rate
No. 2 - a consistent 1-2 finish for the
Japanese automaker. BMW held the No.
3 spot while Porsche is at No. 4, the same
positions as in the previous survey. Subaru,
No. 5 in the winter survey, slipped to
No. 7, while Kia rose one spot to No. 6.
Mazda, Acura and Audi round out the
top 10. Mercedes-Benz, which held the
No. 9 position in the winter results, fell
out of the top 10.
Rob Moran, a Mercedes spokesperson,
said the brand is " committed to
transforming nearly every facet of our
business, which includes reshaping
many of our prior dealer partner touch
points and field personnel structure. "
Profitability, other variables
Customer traffic to franchised dealers fell
from 51 in the third quarter to 43 in the fourth
quarter - a score suggesting the level of traffic
dealers consistently saw before the COVID-19
pandemic.
Moran says this " effort in progress,
versus a fully realized implementation "
is the likely cause of the decline
in survey results.
Jeff Aiosa, owner of Carriage House
Mercedes-Benz of New London in
Connecticut, says the deterioration of
the score results from a " combination
of a lot of things. "
In 2021, the automaker told its dealers
it planned to cut into their trade
margin to cover expenses to invest in
electric vehicles, which Aiosa says is
one component of the concern among
dealers.
" Another thing is the executive managain
this week. Those changes can produce a
ripple effect on auto interest rates.
Fifty-seven percent of franchised dealers said
the economy is a concern, up from 47 percent in
the third quarter.
" Customers don't know how bad the economy
will get in the coming months and years, which
makes them think twice about buying a vehicle
right now, " a Mazda dealer told Cox.
Inventory held back 51 percent of dealers, down
from 63 percent in the third quarter.
" [New-vehicle inventory] is finally beginning to
increase, " a Honda dealer told Cox. " It is still low,
but we are starting to see models we had not seen
for some months and I find this encouraging. "
Inventory has even jumped back into favorable
territory based on responses to another Cox
question. Dealers rate it a 53, up from 31 in the
third quarter. This slightly positive rating is better
than any seen since the second quarter of 2020 -
the first full quarter of the U.S. being disrupted by
the pandemic.
" Fully stocked in most models, first time in
months, incoming inventory has been good, " a
Jeep dealer told Cox. " No shortage for our specific
dealership. "
Franchised dealers also face significantly more
pressure to lower prices than they did last quarter.
Dealers rated this factor a 35 in the third
quarter, with pressure to lower prices soaring to
50 in this latest survey.
" Higher interest rates, horrible
lease programs,
and we are seeing more customers with
negative equity in their trades, " a Nissan dealer
told Cox. " Some are vehicles purchased in the
last 24 months, some are older. But the drop in
wholesale values is having a big impact on these
buyers. "
Dealers view the new-vehicle sales environment
about the same as they did in the third
quarter. But they indicate that the used-vehicle
market, while still favorable, has soured from a
score of 62 in the third quarter to 54 in the fourth
quarter.
Yet profits remain strong for franchised dealers.
Retailers rate their profitability over the past
three months at 67 - down 11 points from their
third-quarter score but still well above pre-pandemic
levels.
" That's still a very high number for franchises, "
Smoke said. But the trajectory of this data indicates
" we may not stay in the sixties very long, " he
said.
The time of " abnormally " good profits has ended
for independent dealers, who were already down
to pre-pandemic levels in terms of profitability,
Smoke said. " Maybe we're headed into a direction
that tells us there's only a few more quarters potentially
left for franchises too. " n
agement team - all but one individual
is basically new, " Aiosa said. " There's
been a lot of turnover at the very top. "
In June, Mercedes-Benz announced a
restructuring that would give higher-volume
stores more in-person attention
from field representatives, leaving
smaller stores with representatives
based in Atlanta, and less face-time.
Despite the sentiment expressed by
dealers, Moran says the brand " is confident
its new strategic direction will
better support our dealer partners and
our brand for sustained profitable
growth, and to better serve our mutual
customers for the long term. " n
Honda back in top 5
NADA's Summer 2022 Dealer
Attitude Survey top 10
1. Lexus
2. Toyota
3. BMW
4. Porsche
5. Honda
6. Kia
7. Subaru
8. Mazda
9. Acura
10. Audi
let-Buick-GMC dealer Mike Caposio. Additional
dealerships will follow demand, based on where
BrightDrop customers choose to deploy the vans,
Hornyak said.
" We will expand upon that in the U.S., looking
at very specific dealers that fit our profile for being
able to manage fleets, service the vehicles,
and in the proper geographic location with the
proper facilities and investment profile, " he said.
The Zevo 600 features 600 cubic feet of cargo
space, can travel up to 250 miles on a full charge
and is intended for long-range deliveries. The Zevo
400, with more than 400 cubic feet of cargo
space, is designed for more frequent deliveries,
such as groceries.
Growth plans
GM set production targets of 50,000 Zevo vans
per year by 2025 at CAMI. Last month, GM said
BrightDrop is on pace to generate $1 billion in
revenue next year - en route to as much as $10
billion in revenue and 20 percent profit margins
by decade's end.
BrightDrop said it has more than 25,000 reserGM
President Mark Reuss called BrightDrop " the fastest product launch in our history. "
with GM President Mark Reuss, Canadian Prime
Minister Justin Trudeau, Ontario provincial officials
and Unifor leaders. GM invested close to
$800 million to retool CAMI, which previously
built the gasoline-powered Chevrolet Equinox.
Production of the smaller Zevo 400 will begin in
the fourth quarter of next year, Hornyak said.
Last year, BrightDrop started low-volume production
of the Zevo 600 in Michigan while retooling
the CAMI plant. Reuss last week called
BrightDrop " the fastest product launch in our
history, from concept to commercialization in
less than two years. "
The brand recently expanded its customer base
into Canada, signing logistics company DHL Express
Canada to use Zevo vans in its fleet starting
early in 2023. Hornyak told Automotive News
" there is market pull outside of North America, "
but BrightDrop is focused on this market initially.
It hasn't named additional U.S. dealerships beyond
its first, BrightDrop Greater Los Angeles, in
Fontana, Calif. The store is owned by Chevrovations
and letters of intent for its vans from customers
including Walmart, Hertz and Verizon. To
date, it has delivered 150 Zevo vans to FedEx Express,
its first U.S. customer.
" The billion-dollar target - based on the backlog
that we have right now and letters of intent,
contracts, as well as orders - we've got extreme
confidence in that for next year, " Hornyak said.
The expansion of BrightDrop's geographic
reach and product line - including current
models and forthcoming derivative versions -
puts " the plans in place that show us getting to
that level, " he added. a
David Kennedy of Automotive News
Canada contributed to this report.
Automotive News - December 12, 2022

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