... with Dr. John Coles from ACV — [Market Update]

Welcome to ACVs in the passenger seat. What's up everybody, it's Matt Miller-Dore here and with me now one of my favorite guests Dr. John Coles. John, what's up brother? Thank you Matt. It's great to be with you man and I love getting to spend time with you and our audience. Like there's so much going on. It's fun to imagine ourselves sitting in a car, talking about the auto industry. So I look forward to these conversations. You know, in speaking of sitting in a car, Stephanie Stewart who are producers and editors on stuff, we're actually trying to figure out a way to where I can get in a car and actually have somebody in the passenger seat riding around doing a podcast. So that's the come and you might be the first guest on that. So just be careful what you wish for because I may put you in the actual passenger seat of the podcast. So just be ready, right? You know, okay cool. So listen, you know, I kind of want to, with this podcast, John, I kind of want to steer away from, you know, how, you know, we're doing, you know, curtain, certain things on the marketplace, right? I want to talk about more inside of what's going on the market right now. I was doing a podcast a few weeks ago and I always say being an automotive is a rollercoaster of emotions, right? You know, there's like everything's going good, you know, and you know how when you get that rollercoaster and you go down your stomach like comes, that's what I feel the automotive market is sometimes. But what I want to talk about on this podcast is, you know, how ACV is leveraging AI machine learning data and how dealers and you even said this morning on our weekly sales call that dealers are using more data to put deals together. So give me a rundown on the market right now. You know, we're wearing Q2 of the year, Q1 was a little, little weird, let's just be honest, you know, but it was strong. I mean, go ahead and think you won't be strong. Yeah. Yeah. Q1 was strong. I think we're seeing some of the dynamics come back as we see more and more consumer activity a little bit of the pent up demand we've talked about for years. Starting to come back, everything's a little wonky though sometime, right? February. Yeah, no strong. You got the usual confluence of events, delayed tax rebate season by March, April, right? You see some compression and then it starts to come out in the wash as we go through April. So we were seeing some pretty, I'll say normal abnormalities and that's a weird statement to make, but given some of the tariff noise, even we sit here today and we've got updates from over the weekend on some of the tariff events, look, we've been signaling as ACV. That is the actual cash value of a car we'll look entering into May. It was already starting to correct you and seeing some delayed tax and some compressed demand with care of concerns and consumers were starting to pull back a little bit and as a result, dealers were starting to pull back as we entered May. I think what's going to happen as we go through the back of this year, Matt, is we're actually going to see some normal trends return that will surprise people. What do I mean by that? We've spent the last 60, 90 days, whatever it is, talking about tariff, tariff risks, tariff impacts on auto and now we're looking at, okay, price depreciation came starting to come back into play, you saw tariffs announced with a 90 day pause with China and now we're going to see some normal depreciation trends come in. But people weren't expecting that and so it's going to be a little tricky just to catch up with the day-to-day news, but normality is happening. It just doesn't feel that way. And it's so weird like Friday, I was reading the news and everything and everything was still kind of like you said, walkie and then boom, another, and I had even saying the word tariff was like, hey, we're easing it and then it just goes back up again, which is good. And I love hearing the word normality because it's been so weird the past four or five years, right? So just out of the norm, it's like how do you put your finger on the pulse to get a real feel of what's going on? So with that being said, you know, we've heard a lot about inventory usage, consumer and taxes. It's all like that. What kind of behavior are you seeing in the wholesale segment in this response? Does that make sense? What I'm asking? Yeah. And so when I look back over the last two months, right, we saw wholesale and some of the retail profit margins hit elevated levels because of the uncertainty because of the risks that were entering the market, we saw profit come up as we enter this, you know, new quarter as we walk through May and to June and we see some of the more normal patterns. And I think one of the bigger surprises is going to be the profit levels that we saw in spiked periods over the last few years. And we saw again in some pockets of retail going through March and elements of April. I shared with a large dealer partner, don't benchmark your whole years profit margins off of March, you know, April, you'll set up your teammates for failure, right? Exactly. But see some hard pivots and just how we think about margin dynamics, truth rest of this year. And then next year, a Q over Q, right, how is first quarter of next year? How do you send benchmarks for teammates? We're in the early stages of that as an industry. And so some of that wonkiness, I think, will be explaining it and trying to understand it for probably the next 12 to 18 months, even as we come back to a more normal, yeah, older cars. You're not CPO eligible. You're going to move them to the end market. How do you navigate that normal again? It's going to take some time. So I like what you said just then and you told you you're talking to a dealer partner. You're saying, Hey, don't, don't do this. Look at this. Are there specific segments of that like, is it EVs, is it pickups, is it sedans, is it luxury vehicles? We spoke about that briefly this morning. You know, what, you know, what is, what is trending in different directions with those type of models? Does that? Yeah. The, the luxury segment, I think, is going to, it has been the hardest to guide some of our partners as the data fluctuates in more extreme ways, right? There were notes from analysts across the auto and finance sector that were highlighting the potential impact of tariffs. And the biggest hits were really to some of your higher end luxury segments in terms of the absolute dollar amount. Now maybe on a percentage basis, as it, it was lower, right, you look at a used, a used Mercedes, right? And you say a new Mercedes is going to cost, you know, tens of thousands of dollars more. That used Mercedes, now it becomes a hotter commodity. Now with a 90 day pause, that luxury segment is going to come back down. And so that is probably one of the higher volatility segments. Is that luxury? We've already seen it correct somewhat, but I anticipate ongoing fluctuations over the coming months, ending on what's signal? And that's what we'll get to machine learning. But that's where you really have to stay on top of the current dynamics, don't overbuild the inventory, go over by saying, you know, it's always up and to the right on you vehicle values. It's not. So basically don't stock what you don't need. Stock what you, what you see is your wheelhouse. So let's go back to that. We talked about machine learning. So how is our AI and machine learning leveraging the data to make dealers' lives, let's just say a little easier, a little smoother, a little to bring in that normality, right? But like I said, a lot of dealers are embracing AI machine learning and data. But how are we using that to educate our dealers? Yeah. So two big areas that I think are important to break out. machine learning and then the broader AI chatbot craze, I'll call it, there's a lot of value in it. But I also use that term craze because all of a sudden, everybody's talking about it. Machine learning gives you the ability to adapt quickly and consistently in a structured way to what's happening in the market AI and large language models. The chatbots, it helps explain what's happening. We've been providing both sides of that coin, but when you think about the current market dynamics and volatility, what we're doing is leveraging the real-time dynamics in our marketplace into our machine learning models to say, hey, we already saw prices start to appreciate at more normal rates over the last two weeks. Everybody also catch up a week or two later, but we're watching real-time viewing and bidding and price changing habits in the market and projecting that forward. Now explaining what's happening, that's how you use chatbots, that's how you use GPT or the ACBAI capabilities that we're rolling out in mass. We're talking about explaining what's happening, but behind it, you've got to have a hard quantitative model that knows how to adapt to current data that's consistent. I want to tell you, I love chatbots, in fact, if I don't use it at least 5, 10 times, 20 days a day, sometimes I'll let it compose my emails, but I'll tell you, when I send those emails, I get replies back, they go, we know you didn't write this because with my Southern slang, they know it'll have that berberage in my talk, so they're like, chatbots, you did this. It kind of exposes me a little bit, so I have to be careful on that. Let's talk about pricing trends to the same time last year or even, and I hate even saying this word, and I'll be glad when it goes away, but the pandemic COVID, at one time when everything came out, it was like, man, I'm seeing some trends back in 2020, but how do you think pricing trends compare? Is it the same, is it more aggressive, less, I mean, the dealers learn from that? I mean, it's just, I talked to them and it's all over the spectrum. Yeah, I want to anchor on kind of that last comment you made, did dealers learn from it? I think one of the big things that dealers would say is, what are you hoping I learned out of the absolute chaos of the last five years, right? I think that point you made earlier around stock what you know you can sell, stock what you're good at, stock what you understand your community means, and you can make a margin on. That's what we should learn out of the last few years. Now when we think about, okay, normalize depreciation trends as we go through this year, yeah, there's volatility, but when you take one or two steps back and you look at some of the volatility getting smoothed out, the reality is you've got to go back to the basics. When somebody walks into your store, how are you pitching a vehicle? Don't assume it's appreciating like in 2021 and use cars rusting out are going to be worth more so you can buy anything. Don't assume that consumers desperate for whatever you're selling because or and more vehicles are getting delivered. Now, are there pauses? Yes. Paying attention to the real time hard data versus a quick summary, be it on Twitter or some other social media source or out of chat GPT, if you anchor on those quick summaries for how to manage your business, you're going to miss the macro trends and the stable consistent decision making opportunity that machine learning tools, ACB pricing and high quality modeling afford you. That has to be in your process as a small, medium or large, used car, new car dealer. You have to have the data as part of your consistent process. Yeah. And you may have hit on this early, but I want to circle back to it. Let's talk about consumers, right, consumers are still doing their homework. They have an abundant amount of tools to where they can research vehicles, do what they got to do, but what, you know, what are we hearing in each store is different. But can you highlight consumer behavior? I mean, do you see what's trending, what they're, what they're looking at? Because I know and I may be going down the road here, but I know at one time that we could actually, in full dealers of what type of vehicles they should be holding on their lot due to the word you just said a while ago, your demographic area, right? So with the consumers, are they staying part for the course? Like, what do you, do you have anything on that? Yeah. So I want to hit on two things. First kind of current consumer dynamics and then some of the tools and ways you and our dealer partners can and should get ahead of ongoing consumer trends. So current consumer dynamics over the last two, three months, we've seen the definition of what somebody meant by affordable change a little bit. You think through the tail end of last year, we talked about affordability, affordability, right? The average monthly cost for a three to five year lease was going up, affordability, affordability. Even personally, a couple of friends and looking through the data, when they said, hey, I need a used car because of some of the tear of conversations and the ongoing concern, we saw the definition of what affordable was shift, a little bit newer and more expensive, got you. That dynamic, as we see some of the tear of talk, maybe come off the table, maybe get slowed down or just table flipped and we'll see what happens, right? Some of that definition may change where consumers say, you know what, I don't need a 2022, I don't need a 2021, they're still in low supply given the supply constraints we saw through COVID. And so looking at a 2017, 2016 may come back on the table, depending on how affordability drops and is part of the conversation. Now in terms of staying ahead of it, some of the things that we've done from a machine learning side and from a large language model side are, we're pulling in data from how consumers are viewing vehicles on our dealer's site to support dealer partners and saying, this vehicle, you've got all kinds of hits and you're one of the few dealers in your area with that vehicle. Now the, that's on the machine learning side, on the LLMAI chat GPT side, hey, consumers in your area, generally like this kind of car, here's some reasons, here's a pitch, and they like these colors. It's a narrative explanation of some of the hard data that we're observing. That fusion map is going to be key to success over the next one, six, 12, 18, 24 months because I'm sure our dealer partners, I've seen some of the stuff that's rolling out, they've now got nine different chat GPT summary, and I think about it like, you want to struggle to make a decision, ask nine different people, they're thinking on something and make it out like it's informed while not inciting any source material, okay, great, do you have a better sense of how to make this decision now, right, not how we equip people who are already overwhelmed, getting hit with multiple decisions every minute, got to use tools to provide clear, consistent, high quality focused recommendations, and that's going to be key to our success and to our dealer partners, capturing emerging consumer trends. Totally great, and I think you hit it on there. So last question, because we definitely have Doug Deepen, you get some great insights, so how can ACB staff, we have our market report, we have our so many things going on, how can we as a company and you and your talks help dealers make smarter, sourcing decisions in an environment where let's just be honest, they can't afford to sit on aged inventory, and we are seeing some aged inventory in that mix, right, you know, days to turn are a little longer, oldest vehicles are a little longer, right, and those are the vehicles they're trying to get to the consumer, but the consumer like you just said is, hey, I'm looking this color, this model, but how can we encourage dealer with smarter sourcing decisions with the ecosystem that we have? I love using the ecosystem that ACB has, you know, valid question. Yeah, I think the biggest recommendation I would have for our dealer partners is take as much of the emotion out of it as possible. And it hits 30 days, have a reprise algorithm in ACB max, we have tools for automatically repricing, but this isn't about just one tool, like how do you take the emotion out of a car by car decision? How do you make it? So when you're looking at buying a car, you're purely using something like a proxy bid based on a market price, and you don't think about it anymore, you're purely looking at what are my stocking needs and auto buying or getting alerts when that inventory comes available. If you're scrolling through eBay, scrolling through Amazon, you're gonna buy stuff you shouldn't be buying. Gosh, man, tell my wife that I need to get my wife and she do, yeah, so anyway, yes, say it though, it's you just, you get a nerve, just, we'll talk about it, yeah, you use the recommendation engine. Use our filters, use ACB max to surface this 60 day sedimentary, you got to cut B, right? What are the decisions that you tee up even before you have to make them, even before you have a conversation? It doesn't have to be a hard firm policy, maybe, you know, I'm sure you and I buy stuff on Amazon. We don't need either. I do that. You got it. Okay. Don't put that on me. You're right. You got a flexibility, but having the majority of business governed by good rules, best practices and automating it positions you for success before you have a hard conversation. And that is where tools and max filters in our marketplace, recommendations that we're already telling you, hey, you've successfully purchased and flipped these kinds of cars. You made money on these kinds of cars. We recommend it for you. Look at structured recommendations, guardrails, guidance and processes. If you're flying by the seed of your pants in a time where the profit margin is going to come under compression again, you're in for a rough ride. No, I totally agree. John, I'm going to tell you, dude, as always, you bring the knowledge, you're laying the hammer down. I mean, just good stuff, you know, and it definitely provides us, you know, us to get dealers, you know, how to use our data in a market that, let's just be honest, it shifts daily, you know, we'll be running along. And then, like I said, we go down that roller coaster and it jumps down. So John, I want to thank you so much for joining, you know, me as always in the passenger seat. You know, anything you want to close with, you know, saying, hey, be on the lookout for this or, you know, what's one sounding word of advice you can give to dealers when we close down this podcast? Well, first, Matt, I'm going to say I look forward to being in a physical passenger seat with you in a car for the next podcast. But my parting word is watch what's happening, set your rules, don't get too tripped up by the emotions, the message, the tweet, the chat GPT summary of the day. What is your North Star and stick with it? This is going to be a testing period, as you see, even more up and downs, but stay the course or seeing residuals follow normal patterns. That's insane. Yep. Stay the course, celebrate everything and you will be so much more at peace and efficient and profitable over time. I love it. I love it. And listen, everybody listen. That's a wrap for this episode. Thanks for listening again, guys. We got some great episodes coming. We're still working to get content out. And as always, John, thanks for running along in the passenger seat, brother. I appreciate you. You have absolutely met pleasure to be with you. I brother. In the passenger seat with ACV.