NASHVILLE, Tenn.–With the new and used automobile market much in flux due to tariffs, developing technologies and changing consumer behavior, two auto dealers have offered their views on what’s happening and what’s ahead, including for lending.
The discussion is a popular annual event at Origence’s Lending Tech Live meeting. Origence is parent to CU Direct Lending (CUDL), with the combined credit unions on the platform representing the largest auto lender in the U.S.
Participating in the discussion were Heston Young, F&I Platform Director, Young Automotive Group, a fourth generation family owned group; and Jason Carson, general manager, Toyota of Knoxville and AMSI Group, the largest privately held auto group in the country with more than 130 dealers.
The discussion was moderated by Josh Amaton, VP-dealer solutions at CU Direct, a subsidiary of Origence.
Here is a look at what was discussed:
Amaton: What are your thoughts on the tariffs and threat of tariffs?
Carson: You definitely saw that uptick (in prices) there; that’s kind of slowed down. I’m not sure if they know what they’re going to do. But I haven’t seen it affect business yes
Young: I think the tariffs pushed a lot of buyers into the market and they purchased, and now the uncertainty and the lack of finality has kind of put a lot of buyers on hold. They want to see what’s going to play out. What we need is finality that tariffs are here to say or they are not. Even the manufacturers are giving us a little of that.
Amaton: It’s not just impactful for the consumer, but also for the OEMs. What has been their response
Carson: For Toyota, you are looking at Canada and Mexico right off the bat. The RAV 4 is manufactured in Canada, the Tacoma in Mexico. I think we will see a lot of manufacturing moving back (to the U.S.).
Young: We have just about every brand of the main lines with exception of Nissan. Some manufacturers have not pushed any costs onto the consumer. But with their foreign production they are slowing down in pushing product into the U.S. Product made here in the U.S. will be more readily available.
And we have other manufactures who have put in the tariff increases and we’re hoping that cost will go away, but we just don’t know.
Amaton: The bread and butter of credit unions is the used vehicle. What impact do you see?
Carson: With Toyota, we always floor planned 400 new and used cars and trucks. Yesterday, there were 47 on the lot and 45 were Tacoma’s, so the preowned market has been influenced especially on the pre-owned side. I have a used Tacoma that is (priced higher) than a new one.
Young: The beautiful thing about where we are is we have a predecessor to a used car shortage and used car pricing increasing, and that was COVID. So, depending on how a lending institution weathered that can give them a blueprint to replicate.
If there is a new car shortage there is going to be a used car shortage. It’s going to drive pricing up, or at least that’s the prediction, and we have a business model for that.
Amaton: How are you sourcing used car inventory?
Carson: Trades are what you want to live on if you can, 60% if possible. But it’s been really tough as there are no new cars to get trades. We had a guy at the (auto) auction lane standing next to (a representative from) Enterprise, and they can’t get cars. If they have zero cars to rent, they don’t care what they pay for a car. It’s been an ongoing issue. If you own a Toyota, that’s a good problem.
Young: We have some stores that have exclusive off-lease auctions for their brands, which is great. Otherwise, we want to capture the trade 90% to 100% of the time. Additionally, we are purchasing vehicles off the service drive and are tapping into our customer loyalty programs. We are also doing we-buys as we are fairly well known in the market.
Amaton: Over the last few years there has been a lot of discussion around EVs. We’ve seen great demand in many markets. We’ve seen the need for infrastructure to grow. But recently, it feels things have shifted with the new administration. When it comes to the consumer, what are you seeing?
Young: EVs are such cool technology. If you haven’t had a chance to drive one, I recommend you do. The demand in our market has not really built a large EV customer base, maybe 2-3% of our overall sales. It’s not a drastic number. Hybrids are on another scale. Our customers view hybrids much like they do an ICE vehicle, just one that gets better mileage.
Carson: We went to the national Toyota meeting in Las Vegas. The first five cars they showed us were electric cars. Some of that was because it was in October (2024). I would say hybrid is Toyota’s deal. They push those.
Every administration wants to get involved in cars, but I think there is no way we can get to 2036 with 65% of vehicles being fully electric. That’s not going to happen.
And we still have to do a better job of talking about this. We still have people come in and when we talk about hybrids they say ‘We’re not plugging our car in.’
If you buy a Toyota now it’s probably going to be a hybrid. They have driven the price of the batteries down low enough.
Amaton: We are now almost four years into that big push into full EVs, and there are consumers now looking to trade. What is that transaction look like?
Young: First off, this customer is a more affluent customer. So, they pretty much know what they want to do. They understand on the first transaction there was a large rebate that came with it plus some depreciation in value. So, to be able to push them into another EV or another vehicle, we can help them out. We just want to take in the EV they are trading at the right number.
The EVs are not holding their value quite as well. There is a used number of around $25,000 where you get a $4,000 tax credit. If we can get an EV in that price range, it works great for the customer. But some of the EVs we tend to struggle with or sit on the lots longer are the really expensive ones, because the tax credit is all gone. So, we have to be cognizant of where that value is depreciating and be able to account for that and how long it might take to sell.
Carson: There is definitely a market for EVs. It’s just the world we’re in is fluid. You have to have an electric vehicle by this year, and then something changes. I have driven a bunch of them, I enjoy it. The technology is there.
Amaton: A hot topic has been regulations. It looks like the CFPB has been neutralized. Has that had any impact on what you are doing?
Young: I think you need to operate a business as if the CFPB is right around the corner and you are going to be audited at any time. You need to operate with transparency and do everything to do right by the customer. If you take care of the customer and the community, the regulations shouldn’t be a concern.
It’s great that they are neutralized, although I think there needs to be some regulation. But some of it was too much regulation. It wouldn’t take a ton of work to change what we are currently doing. They want transparency, customers want transparency.
Carson: The car business is a relationship business. The manufacturers still montor us. There is still some of that (regulation) still there.
Amaton: Is the regulation going to push to the state level?
Young: Yes, that has already started. I would prefer it be localized because we are a massive tax contributor to this state. We have grounds to have discussions with our local regulators. I feel like we can work together to put out something that is mutually beneficial.
Carson: I think it needs to go to the state level. (Young) hit the nail on the head talking about tax revenue. Dealerships are so important to these states.
Amaton: Digital retailing has a lot of definitions. That grew with the pandemic. Where do you see consumers on their shopping journey?
Carson: Digital, of course. (Parent company) AMSI has their own tool, Toyota has their own tool. I am starting to see at my store that face-to-face connection again and some negotiation. It’s unique to see.
Young: The majority are starting some of the process on line. It could be a matter of what tool they are using that could push them into the dealership. At the end of the day most customers want to drive a vehicle, sign some paperwork, and take the vehicle home.
Amaton: Amazon is partnering with Hyundai in purchasing a vehicle online. What has that experience been like?
Young: We are part of Amazon’s program with Hyundai. We want to be able to provide whatever service the customer is looking for. You need to keep that door open and let anyone who wants to walk through it. We have not had huge demand for the Amazon at-home buying. I’d say it provides more leads to us than it does the home deliveries.
Amaton: What are the technologies that help credit unions be better and faster lenders? Where would you rate relationships when it comes to partnerships with lenders?
Young: it’s number one in my mind. You can invest in all the technologies you want. But I credit the relationships that got me to this position. Its relationships with these lenders that have helped me out and in turn I do whatever I can to create a mutual partnership.
Carson: It’s a relationship business. I would recommend when you go into your dealer, sit down and meet with the dealer. There are so many credit unions in my area. The job the credit unions have done to create loyalty is incredible. People will pay a point and half higher (to borrow from their credit union). They don’t care. They have a relationship with their credit union.
Young: It’s not always about just doing deals and the trench work. With our group, we throw a lot of events and our lenders support us, and vice versa. If you are struggling with relationships with dealers, look at who your point-person is. Do you come out of your brick and mortar buildings to participate in whatever dealers are doing?
Amaton: Where does CUDL fit in?
Carson: Where I am we have to have CUDL and we have to have credit unions. There are too many people involved. Dealerships have changed, too. We have worked on our culture.
Young: CUDL has been an integral part in that relationships between us and the credit union. When I was a new user to CUDL I remember opening it up and seeing I had access to all these credit unions, and could jump on the rate sheets, could see who I could call, and there was a communication platform when I have submitted a deal. It’s a great place to start.
On the personnel side, if I want an introduction to a credit union on CUDL, they have walked me right in and introduced me to anyone there.
Amaton: What about e-contracting?
Young: It’s huge in our dealerships. It’s being done by our manufacturers. We have some stores running at 100%. Some banks are doing e-contracting that are not our OEM. When you have a large amount of deals you are e-contracting and you move to a credit union and have a paper contract, there are definitely some differences. E-contacting is cleaner and more professional and more accurate. When it’s more accurate it can help ensure funding is quicker. And when you have adopted e-contracting, you are positioned for whatever the next technology is.
Audience Question: What about fraud?
Carson: Fraud is running rampant. I always said when you don’t think like a thief it’s hard to beat that, and we don’t think that way. It’s about going the extra mile. In Knoxville we are surrounded by so many other states. Doing the processes and making sure everything is correct is your safest way.
Young: We have invested in some companies that are watching our backs for us. Even the credit bureaus are doing a pretty good job at helping us monitor it. It is prefect? No, these guys are really good. We lock everything down. At our dealerships, if anyone gets access to your office we stamp it with ‘This deal has been stolen by the corporate finance team.’ We are learning as we go.
Audience Question: What about autonomous driving? How it will change the future of auto buying? What is your level of concern?
Young: It’s a great question. In our market we are not seeing a large portion of that. But everything starts in the big cities and coasts and works its way inland. It’s a legitimate question. I think the manufacturers want to do everything they can to not lose marketshare. I think we may be helped out by the manufacturers to make sure there are vehicles we can sell, whether to autonomous buyers or customers who want to own the vehicles. All of it points to less cars needed, but the manufacturers are really focused on pushing marketshare. It’s certainly something to watch.
Carson: Toyota created a city in Japan where it’s all autonomous driving. I think you will see it for sure.