John Eichberger:
You know, you joined the Fuels Institute at our annual meeting in 2021, and we chatted about the impact of cost and economics. And you really kind of brought some perspective to what’s going on in the auto industry. I mean, 2021 was just a brutal year for your guys. Tell us a little bit about who your members are and kind of your big picture take away from 2021

Patrick Manzi:
Certainly. So at NADA, we represent franchise light vehicle dealers across the country. So those are your local Ford, Chevy dealers that sell new cars. We don’t represent the small mom-and-pop used car stores though. But we do advocate before federal agencies and government and Congress on behalf of the dealers. We offer regulatory guidance as well as some educational tools, among a lot of other things. And, it’s been a big year for us. There’s been a lot of challenges, a lot of new legislation coming out that has affected auto dealers. So certainly our regulatory and legal departments have, have been kind of working overtime, but as far as sales go, the story of 2021 was limited inventory from the semiconductor microchip shortage.

Patrick Manzi:
We really started to hear whispers of this just at the start of ’21. They were saying, this is only gonna last a few months. And here we are at the start of 2022, and production is still being impacted by this microchip shortage. The story really was that demand was out there to sell kind of our historical high benchmark 17 million units or so last year. But, the inventory was so pinched that sales came in at14.9 million, just a half a million more than the really severely COVID impacted year of 2020. So that’s the short overview of what happened with sales. But again, we’re, we’re looking halfway through the year of 2022 before we start to see inventories be able to build back up on dealer lots because there’s still so much demand out there.

Jeff Lenard:
And obviously the challenges with new cars put pressure on used cars and those exploded last year in sales. And weren’t they north of 40 million?

Patrick Manzi:
Well, I haven’t seen absolute final data yet. But, yes, I do expect it’s gonna be a record year for that, over 40, maybe even 41 million units by the time all the final data is counted. And you know pricing for used inventory was up a good bit as well. I have some data here, if you don’t mind, but in 2020, the average used vehicle at franchise dealerships retailed for $22,970 and in 2021 it jumped to $27,124, by far the biggest increase in used vehicle prices that we’ve seen on record. And then meanwhile, over at wholesale auctions, because you’ve now got, rental car companies, other big fleet players in the mix, looking to buy this used vehicle inventory, wholesale auction prices, set records consistently throughout last year. And, it’s likely we’re gonna see some more wholesale records here in the first half of 2022 as well.

John Eichberger:
You know, I don’t think there’s a better example of the impact of supply and demand you just described. I remember I, I bought a vehicle last year and traded in my vehicle and I could have waited two months, gotten a lot more money for my trade-in, but I probably would’ve waited six months for my new vehicle delivered. Yeah. And it was just this game. I remember talking to a friend of mine who works for an auto company, said, look, we’ve got like two days of inventory. That’s all we have. We usually have 10 to 15. There’s like six vehicles on my lot. I mean, how are we supposed to deal with that? You said that the chip shortage probably can continue till middle of this year. Is there, Once that’s resolved, how long does it take to recover an equilibrium so that the price is stabilized to reflect actual market conditions rather than the acute pain we’ve had the last 12 months?

Patrick Manzi:
I think, especially on the used vehicle side, we’re looking to 2024 before we start to see normalization there, because if the chip shortage eats away at production for the first half of this year, and dealers continue to sell everything that comes off the truck right away. Well, then we, can’t start rebuilding until the second half of this year. We ended the year at about 1.1 million or so units on the ground. The average in ’18 and ’19 was around 3.8 million. So a huge decrease. And just to get back to two and a half million, which is what a lot of the OEM say… They say they don’t want to go to the crazy high levels where they have to discount all the time, but they also wanna have enough cars for everybody.

Patrick Manzi:
Uh, so even to get back to 2.5, we’re looking mid ’23, into 23 as well. Just because, there, there are some estimates coming out from our friends at JD power that there’s roughly 5 million units out there of pent-up demand. So you’re gonna have, even for an example here, let’s say the retail demand is met, boom, like that. There’s still fleet customers who are rolling on these hundred thousand mile used vehicles that are going to rental fleets, et cetera. And so even once the retail side’s met, which has been the priority of OEMs throughout this whole thing, the fleet customers are gonna be there waiting.

John Eichberger:
You know, Jeff, one of the things that Patrick said at the fuels conference I thought was poignant is people buy vehicles, not based necessarily on the total MSRP, but on their monthly payments. And he showed a slide that monthly payments the last 12, four to 18 months went of like a hundred dollars dollars per month for used and new cars. And that’s while they’re extending the loan term. The impact on family economy economies from vehicle prices. and then you added fuel prices at $80, $85 a barrel… I mean, the pinch on the family economy is on. And I don’t know how long it’s gonna take to clear that out and get us back to an equilibrium where people feel comfortable that their transportation costs are not going to take a disproportionate share their income.

Jeff Lenard:
Oh, absolutely. And, Patrick typically in a given year, fuel costs, I believe transportation costs are in that five, 6% range of total family income, obviously a lot more this year. With fuel retailers, we often hear when prices go up, it’s, it’s gouging. It’s obviously somebody’s up to no good. I would imagine the same thing is happening at the auto dealer level where the frustration is taken and out. And if you don’t understand what’s going on with chips and some of these other things that you have some explaining to do in how the market works. And obviously you’ve done that here and you do that regularly, but are there customers that just don’t understand what’s going on and assume that something somebody’s taking advantage of the situation?

Patrick Manzi:
Hmm. You know, I bet you, there still exists that marginal customer who’s just kept their head in the sand all year. But I mean, by this point, we’re reading stories about this every day. So I would expect most people know what to expect either just from talking to a friend or a neighbor and saying, you know, I’m really having a hard time finding the car I want, do you know what’s going on? While early on, I think that was a big issue, now I think you’re seeing a lot of people rolling those used cars for far longer than they would’ve in the past. We’re seeing service and parts revenue go up at the average store too, because customers want to keep their car going until it’s not even necessarily the pricing that may keep some customers away, but maybe you can’t get the color you want. Maybe you can’t get the trim and engine combo you want. And then there’s a long wait. All of those factors add up to put pressure on these customers and put pressure on these older vehicles that they continue to run.

Jeff Lenard:
And I guess John, thinking that through, if people are spending more on cars and if they aren’t able to get a deal, where do they look to cut back? And I think that’s the concern for fuel retailers. Is it going to be octane? Is it going to be doing something inside the store? Is it gonna be some other behavior? And I don’t know if that’s something that the Fuels Institute’s also looking at.

John Eichberger:
We haven’t looked at that in particular; we’re we are more focused on the consumer behavior, especially when it comes to their purchase decision. Patrick, you know, we’ve heard the wives’ tales as I classify it, when prices go up, people change their vehicle, they shop for more efficient vehicles. They downsize their vehicle and we’ve always countered. Look, people have needs. If you have a family of five, you’re not buying a subcompact car. I don’t care how much gasoline is. But we’ve also shifting a little bit, the pressure from government ESG investors, the auto manufacturers to transition to EVs electric vehicles. I mean, from the dealer on the ground perspective, when gas prices go up, are customers coming in, “Hey, I need to get a more fuel, efficient car.” Are they willing to pay for that? And as we start looking at hybrids and electric vehicles, are they asking for them, do they care? Or is it kind of like just the well off well-informed or the ones thinking, yeah, I’m gonna give this a shot. I mean, are we starting to see this type of mass transition to interest for this?

Patrick Manzi:
With respect to your first question, shifting away from bigger cars to smaller cars now that happened about a decade ago when gas prices topped $4 a gallon. But back then you have to remember, people were driving pickups built in the late nineties, early two thousands. They’re still getting 10 MPG. Today you can get a pickup that gets 25. So, more than a hundred percent increase in your fuel economy. And in real terms, most places are still under four bucks, a little over $3. So there’s less of the shifting categories, but what consumers are demanding and you’re seeing manufacturers now offering hybrid power trains on pickups, three row SUVs. The Toyota Sienna minivan is only offered as a hybrid because they believe that customers are willing to pay for those incremental gains in fuel economy.

Patrick Manzi:
In the van I mentioned, let’s figure an old V6 van probably got 20 MPG on its best day, and they’re quoting 30 for the Sienna. So that’s a huge, huge increase. And if you’re doing a lot of driving that can really bring down your total cost of ownership. So, while it’s not where we aren’t yet, seeing everybody want an EV there’s, we are definitely seeing increased sales for EVs, but some of these transitionary power trains are really gaining popularity with consumers, be it the hybrid or the plugin hybrid, because they’re in the popular segments.

Jeff Lenard:
Is there any country that best may show what the land, what the future looks like for EV sales in the U.S.? I know everybody touts Norway where something like 80% of the cars right now that are sold are EVs. But if you look at places like China, I think one out of six EVs are now sold in China. It’s been an explosion of sales there, but is there a model that might play out closest to what might happen with the U.S. as EV sales will grow?

Patrick Manzi:
It’s interesting because I believe both of those places heavily incentivized or I should say heavily disincentivize the purchase of an ICE vehicle. You know, I’ve heard tails in China. I’m not still sure if this goes on, but you had to enter a lottery if you bought an ICE vehicle to get a plate, but if you bought an EV you’re guaranteed a plate. So, I mean, if it’s your choices, I might be able to drive, buy this car and not be able to go anywhere, or I can definitely use this as it’s intended. I think that will push a lot of people in that direction. I don’t think we’re gonna see those type of incentives here in the U.S. I do think though that there’ll be some cash on the hood or tax credits.

Patrick Manzi:
And, you know, we at NADA have been working with a lot of the federal agencies just to communicate to them that whatever incentives are out there, they have to work in the showroom. And the way to make Americans change their buying habits is to make it affect the monthly payment. That’s what it is. That’s what it’s all is either bring that payment down to this, to a comparable price of an ICE vehicle, or something along those lines, because, let me pull up my little cheat sheet here, just because I wanted to share this with you. I pulled some more data from JD Power’s website last year: the average new vehicle, of all power trains, was $43,000. If you just pull out just battery electric vehicles, it was $56,653, so 14 grand more for the average BEV. And that’s a lot, that’s a couple hundred dollars, maybe $300 a month, monthly payment. Um, so you’re gonna have to bring that down if you want to incentivize the customers to do that.

John Eichberger:
I think you made a good point that we’re starting to see these alternative powertrains hybrids, the electric in the type of vehicle customers want to buy, they want to buy utility vehicles. They want to buy pickup trucks. They’re not buying a whole lot of sedans unless they’re buying luxury cars. And we’ve been tracking this for the last 20 years and the trend’s not slowing down, but we’re starting to see these power trains in these models. I think hybrids last year got up to close to 6% of sales, which is huge. And I think that’s because the makers were planning that during the CAFE, under the Obama era. I’m very interested see how the electric pickup trucks fair. A lot of hype, lot of interest. How many are they gonna produce compared to how many wanna be purchased? I mean, that’s the big question is, I think they’re gonna solve a demand curve, but are they gonna do it on volume? And that’s where I’m really questioning where that the trajectory goes.

Patrick Manzi:
These first few models I think are gonna just be gobbled up by the people who are really into the new hot thing. And then we will slowly see if they work on the job site, if they work for towing, et cetera, for what people want to use a truck for, for putting, you know, five people in all your luggage. I mean, I think they’re perfect still. You can still probably do a big trip, a three or four hour trip and it’s really no issue. But that’s what I’m interested to see is how people who use some of these utility vehicles for work react to them. Because I think that’s gonna be the thing that will pull people out of their gas engines, diesel engines in those segments,

John Eichberger:
If they can use it, you mentioned towing and you’re right. I mean, so I’ve got a plug-in hybrid Wrangler and I’ll take it all gas to the trail. I’ll give to the trail, I have a 25 mile of estimated range on electric, flip to electric, nice, quiet rock crawls, a lot of fun. It’s a seven and a half mile trail. I have like less than five miles left of range because the pressure on the battery to go over those rocks was a lot higher than going on the highway. And so I think the duty cycle on an electric vehicle mode is very different. I think it’s going to take customer to while to understand that sure, your vehicle may be rated 300 miles. That really depends on how you drive it.

Patrick Manzi:
That’s a 72-degree day on flatland.

John Eichberger:
It’s like if you stomp on the gas in an ICE engine at the green light, you’re going to get lower fuel economy. If you do that in an electric vehicle, you are going to to get less range. I mean, it’s a combination that people need to realize that it’s not a guaranteed range.

Patrick Manzi:
That’s true. And the other issue, I think too, is we have a lot of winter climates here in the U.S. And that’s something that people are gonna have to get used to as well.

Jeff Lenard:
Speaking of that, the commercial really grabbed me in seeing the EV truck that your power goes out in your home. You just plug in your truck and everything’s cool. You can go back to cooking your everything in your refrigerator doesn’t spoil now…. I don’t know how long that works as your generator, but that’s a really fun added benefit. You can’t get from a regular car and I think things like that may play out, in addition to some of the things that we’ve seen with traditional surveys where the two things that people look for in EVs is either I care about, environmental issues, green issues, or I care about free gas because charging is free, even though it’s not free so those are the two dominant issues. I don’t wanna pay for gas anymore, and I wanna do something about the environment. And then you throw in that, Hey, here’s a little thing that EVs can do that nobody else can do. And I don’t know how it’ll play out and which segments we’ll be looking for, what as we go down the road. But I assume NADA’s looking at some of those

Patrick Manzi:
Kudos to Ford for taking that terrible situation in Texas. And that those couple news stories written about those F150s… I mean, I don’t know if those were planned for the F-150 lightning, but I bet you they got a call saying you better get some outlets in that thing. But, you know, that’s certainly one of the benefits. You can use it as a generator. I’ll tell you, we had a snowstorm. My house is all electric power power went out for the day. I would’ve liked to have one of those trucks parked outside. It’s interesting, you know, the top reasons consumers buy cars: payments, and safety. Those are typically one and two. They maybe flip here to year, but that’s, that’s the deal. That’s what they want. And it’ll be interesting to see some of these extra feature, if that’s the final thing. If, everything is safe, if everything is roughly the same price, what’s the feature that’s gonna pull you over. So, t’s certainly interesting and I’m excited to see it, too.

John Eichberger:
There’s certain categories of vehicles that they’ve talked about electrifying, and, you know, Jeff, you mentioned added benefits on a EV driving an electric vehicles. Fun. They’re quick, they’re an absolute blast, but I was in a Tesla Roadster years ago on a test drive out in Palo Alto with chairman of NACS, we pulled up the red light and this thing, snaps your head back when you accelerated, it was so fast. And a Porsche GT3 rolled up beside us… Boom, boom, boom, boom, boom, boom. And I looked at the chairman of NACS and, you know, we could beat him across the line. He just laughed. He’s gonna look and sound so much better doing it. Because that roaring. And so I’ve heard this, this argument that the challenger’s going to come in all electric. And I’m just wondering how many muscle car enthusiasts want a quiet car?

John Eichberger:
That’s just going to be this mix of, “Yeah, the capability may be superior, but the experience is gonna be different.” To what extent is experience for the customer important. I know that that payments, the various things that needs to happen, but there’s still a tangible, emotional connection to vehicles for a lot of customers. Is that starting to wane? We’ve heard a lot of people say the car is not what it used to be. It’s just a commodity. I don’t believe that. Are you guys seeing any change in customer mentality with regards to their passion for vehicles?

Patrick Manzi:
Well, what I’d say is, just those connections that consumers want, I think that’s one of the things that helps me inform my forecast for the end of the decade. We’re still thinking maybe 15 to 20% EV penetration in the new vehicle side, by the end of the decade, and then hybrids, plug-in, hybrids, maybe another 20% or so. Um, so that means there’s still going to be ice vehicles out there for the customers that want them. And I think we will likely see them from manufacturers who produce enough EVs and high so that they can still make the V8s or whatever it is. It’s a long way of saying that, I think at least in the short term, over the next decade or so, those options will exist for customers who want them, but at the same time, I would say that Dodge maybe loses some people because I don’t wanna be the guy with the loud car waking my neighbors up, but maybe if you have this electric thing that looks cool and you’re not gonna bug your neighbors with it, maybe that brings some people into the brand.

Patrick Manzi:
So I could see it kind of going both ways.

John Eichberger:
Yeah.

Jeff Lenard:
I know that predictions are always difficult and you talked about, it might be a couple more years before everything works its way through the system. And you know, John and I, we’ve seen going to auto shows over the last couple years the importance of chips, because, really, itcars have four wheels and they do so much more than take you around. They are your entertainment system, they’re all kinds of things. So unless you have a car with manually roll down windows and all those things, it’s gonna need some chips. But are there any other things that you see over the next year or so related to what might happen in the auto market, whether it’s new cars or used cars?

Patrick Manzi:
The big story is just meeting that pent-up demand. That’s going to be the biggest challenge, because a lot of new car buying people, they’re different, maybe from your average used car buyer. Alot of people who buy new cars are doing pretty well right now. They’ve maybe gotten some raises, they’ve, been employed for most of the most of these past few years, but their discretionary spending has gone down some. So I think there’s a lot of people out there who are in the market for new car and meeting that demand is gonna be the key. Because until we meet that new car demand, used prices are gonna be high, and we’re not gonna start to see them come down any, which is something that I’m concerned about because you want to be able to meet the needs of the average American family. They still need transportation. They still need to get around. So kind of solving this inventory crisis on the new side, I think it’s going to go a long way towards helping improve vehicle affordability for, kind of your median household in the country.

John Eichberger:
I see some parallels between what we’re dealing with now and the Great Recession, because when the Great Recession hit people couldn’t afford to buy cars and they were holding off, especially commercial customers, they waited, they were holding onto their pickups and their utility vans a lot longer. And then when the market started coming back, you saw an increase in truck sales and every said, “Look, Americans are in love of trucks.” Well, yeah, we are. But the commercial side, they had delayed the replacement by five years. Yeah. And so now they have to delay the replacement because there’s nothing to replace it with. And so I can see a surge in demand after the next three years because these companies are run their trucks as hard as they can, they’re ready to replace them, but they can’t cause they just can’t get anything. So I think your comment on will the electric vehicle serve the commercial industry and the fleet and the workers. That’ll be interesting because by the time we start getting inventory, those guys are going to be hungry to buy a new vehicle. And it’ll be very interesting. Will they take the plunge to buy the EV?

Patrick Manzi:
You know, I like that new little small Ford Maverick with the hybrid powertrain, the shop truck. And it seems to me like if you get used to that, it’s not too big of a leap to go to that full EV and, for the duty cycle of your average workman, pest control people, shop runners, et cetera, an EV could really work for that because you’re not towing a lot. You’re probably going less than 200 miles a day. You can charge it home. And you’re right. I do think that in a couple years, once this is all behind us and more of these models can come out, that the commercial industry could adapt. It’s not going to be class eight trucks hauling freight across the country, but your small, independent operators. Yeah. EVs could do it, could really help them out a lot. I think with their fuel costs and their running costs and their costs for their business.

John Eichberger:
And know Jeff that’s exact, what we’ve been saying at the Fuels Institute is let’s deploy the proper solutions for the right duty cycles, the right use cases. Let’s capitalize on that because if you try to electrify everything at once, we’re going to fail. But there’s certain segments of the economy that electric vehicles make ton of sense. And others not quite so much yet, maybe later down the road, it may not quite so much yet. So I think it’s going to be very interesting as an observer and a market analyst to watch what happens. I’m just glad I don’t have to sell any vehicles. Because that does not sound like an easy job at all.

Patrick Manzi:
It’s tough these days. Yeah.

Jeff Lenard:
Yeah. Well, when you talk about 50 to 60 million units moving a year, whether it’s new or used, that has massive implications on the economy, it has massive implications on society and it has massive implications at the retail level. How do we sell fuel? So Patrick, I have a feeling we’re going to be talking again because of the implications of, of the, the automobile market.

Jeff Lenard:
Well, you hear that music. That means it’s our time for our little palette cleanser with our trivia that we’ve started this year for podcasts. And today we have some President’s Day trivia it’s related to presidents and convenience stores. So Patrick, here’s our question today. Wawa, which sells an awful lot of gas began as an iron foundry way back in 1803, it didn’t start having convenience stores. It was known as Wood Brothers back then. They didn’t add convenience stores till a lot later, but there is one president who worked for the company since 1803. Is it Joe Biden? And these three of these are not correct. One of them is correct Joe Biden. He worked at the store as a summer job in the 1960s. Is it Abraham Lincoln? He helped collect delinquent accounts in the 1840s. Is it Martin van Buren? His law firm helped incorporate the new company in the 1800s. And I believe John, it was part of the “van Buren gang” too, back then, if you know, Seinfeld. Or was it Herbert Hoover? His engineering firm conducted site surveys surveys in the 1910s to get the company new sites. So Joe Biden, Abraham Lincoln, Martin van Buren, or Herbert Hoover?

Patrick Manzi:
I’m going to go with Hoover,

Jeff Lenard:
John?

Patrick Manzi:
I know the answer. I’m not allowed to participate.

Jeff Lenard:
Okay. The answer is a Lincoln. Abe Lincoln. He helped collect debts. They had some, property in Springfield, Illinois. They, they hired this young, recent, law firm graduate. And, apparently he wasn’t very good at it, but they do have two canceled checks from him. Lincoln, that’s not bad company.

Patrick Manzi:
I’ll just say in my household, we’re a Sheetz family. Not a Wawa gang gang. So can’t blame me for this one.

Speaker 5:

Jeff Lenard:
Well, thank you for…

Speaker 5:
… the rivalry continues!

Jeff Lenard:
Convenience matters is brought to you by NACS and produced in partnership with Human Factor. For more information, visit convenience.org.

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