In this inaugural episode of Presidio’s Podcast Full Throttle, automotive retail legend Mike Maroone sits down with host Jason Stein to talk about the state of the industry, ponders issues around affordability and talks about the buy-sell market heading into 2023.
In this inaugural episode of Presidio’s Podcast Full Throttle, automotive retail legend Mike Maroone sits down with host Jason Stein to talk about the state of the industry, ponders issues around affordability and talks about the buy-sell market heading into 2023.
Inventory may be normalizing. Incentives are still scarce. And dealer profitability has never been better. But there is a serious issue that is lurking on the retail horizon.
It s called affordability.
Jason, I think it's the number one problem for auto retailers today. But more importantly, it's the number one problem for consumers
Some of it is, is that the mix of products that were produced, were not driven toward affordability, they're driven toward margin.
This is Full Throttle, the Presidio Group s automotive industry podcast.
I m your host, Jason Stein, Presidio s marketing and communications advisor, and host of SiriusXM s Cars and Culture on Business Channel 132.
On a monthly basis, Full Throttle will serve as the industry s meeting point for great conversations with leaders across the automotive world.
Our aim is to provide insight from the insiders and meaningful conversations with thought leaders who make news.
We start our series today with entrepreneur, investor and second-generation auto retailer, Mike Maroone, CEO of Maroone USA.
And we begin where 2022 ends.
Hi I'm Mike Maroone, and I'm on Presidio's podcast, Full Throttle.
Well it's appropriate that I book in my last venture with my new venture and welcome in my longtime friend, Mike Maroone. Mike, how are you?
Jason, it's great to be with you. Thanks for having me on today.
It's a pleasure to have you as the opening guest on full throttle. Let's talk about the throttle that is the industry. More importantly, at the retail level, what you've seen, really over the course of the last couple of years, but let's start with inventory. It's been the subject, Mike that has dominated the industry for the better part of COVID and post COVID. Where are we right now? How do you feel about the inventory situation?
Well, Jason, the inventory situation is is beginning to normalize, but at the very early stages. But what's interesting is it varies widely by OEM. Some of the OEMs that had vibrant inventories last summer are very short now and vice versa. So it's a very fluid situation, it's improving, in part, as some of the domestics are taking the vehicles that were missing chips, and shipping them this quarter. So we are seeing a surge. But the allocations on the other side are not that robust. So it's a, it's fluid. It's interesting, the supply imbalance has made for a very profitable time for retailers and it'll be interesting to see how we manage through this next chapter.
Could you ever have imagined a situation like this?
Not in my wildest dreams. It's, you know, we were used to higher day supply higher incentives, and they seemed to ratchet up more and more and more every year. And now we're just on the other side of that it's created different kinds of problems.
And those problems, I mean, one of them is affordability. And you and I have talked about this a lot, the affordability or the lack thereof, primarily created from the first problem that we talked about, give me your view on affordability in the marketplace.
Jason, I think it's the number one problem for auto retailers today. But more importantly, it's the number one problem for consumers, consumers are hit with four different things that drive this affordability issue. First of all, the OEMs have increased prices quite dramatically, in part due to their costs, in part due to lack of supply. Second, everybody knows we have much higher interest rates. Third, there is an absence of incentives. And then there's also an absence of leasing alternatives. So all four of those things put a tremendous amount of pressure on consumers, and we feel it in the marketplace. Some of it is, is that the mix of products that were produced, were not driven toward affordability, they're driven toward margin. And that impacted us both on the new vehicle side and the used vehicle side. In the trades we're getting we're quite expensive on the more expensive new product.
Long gone, it seems, is the day that a either a couple starting out and wanting to buy a first vehicle for their family, or even a young person starting a new job being able to afford a an entry level sedan. We don't talk about sedans much anymore. And it's driven both of those groups out of the marketplace, right?
It really has and what has driven him to is it's driven him to used vehicles where again, we have an affordability problem. But you can remember way back when when they had first time buyer program and college graduate programs and all these incentives to get people in their new cars. We haven't heard about those in a long time. So again, the used vehicle business has benefited. But it's a it's a very difficult thing for consumers
That $500 offer that you get if you'd signed up for a certain credit card. Right?
Exactly.
So a lot of a lot of challenges. But opportunities, where are the opportunities today, in your opinion?
Well, I think the opportunities are is to manage our margins and manage our inventories in a different way. I think we've realized that, quote, unquote, giving vehicles away to earn more of those vehicles is not the strategy to pursue. So the opportunity is to manage the margins, the opportunity is continues to be to source use vehicles in creative ways. Until affordability no longer becomes the issue. And I'm not sure when that'll be.
On the challenge side, there's several one is the units and operation what we refer to in the industry as the UIO is badly affected by the last two years. Or if you're in the GM side where they had an extended strike almost the last three years. So it's, it's going to pay, we're going to pay a price for that in our parts and service departments. And we're gonna have to work really hard to earn our guests' maintenance business because we're not going to have the UIO, and the mechanical breakdown that we've had in the past. I think the other challenge which is really interesting is all the OEMs are talking about turning your inventory, almost daily, we get graded by all of them, are we turning faster in our competition? Are we turning faster in other regions? And it's going to be that turn versus margin challenge, that will be really fun to navigate, because obviously, we want to earn our unfair share. We also want to keep our margin. And I'd say the third thing is our challenges as margins restore to a more normal level, how do we get more efficiency and more productivity so that our associates can continue to earn really good paychecks and good bonuses, which they've enjoyed the last couple of years? So right now we're thinking about how can we become more efficient? How can we help people be more productive?
There's nonstop conversation and, and and nonstop activity around the subject of electrification? And it seems that in this current era that we're in, it's the only topic that exists right now. What are your thoughts on transition, and the rollout that is coming over the course of the next 12 To 18 to 36 months?
First of all, I think it's very exciting to have new product. Certainly, there's an alignment with clean air and people's desire to make the world a better place. I don't think many people can debate that anymore. Secondly, EVs are really fun to drive. You've driven I've driven them and they're exciting, they accelerate well, they're really a new experience for drivers. But then there's a whole rash of problems. And the rollout itself, I think, is going to be very bumpy. It's obvious, we've got changes in the way governments support or don't support EVs, people still have range anxieties, the charging infrastructure in the grid are nowhere near where they need to be. There's just a bunch of issues. And I believe that the rollout is going to be a little bit slower than was projected, there's a lot of conversations about electric vehicles coming to market. But the reality of is there's very few on ground. Positive is when we take them in use cars, when we take an EV in as a used vehicle, they sell almost immediately. So we know there's demand, there's not a lot of supply. And there's plenty of challenges, but I think it's going to be a great era. Now, there's plenty to worry about. But there's also a lot to be excited about.
And I think there's a lot to be excited about with internal combustion engine still as as a bit of a run out. Right.
No doubt about it. In it some of the meetings that I've been to some of the national meetings, dealers have been very enthused that they're about the plans to continue. The ice vehicles, especially in the pickup trucks and sport utilities, which hold a lot of margin for manufacturers, hold a lot of margin for dealers, and a lot of demand for consumers.
And there are issues related to you alluded to this moment ago, Mike, but there are issues related to the rollout, the transition of manufacturing facilities, a new workforce and new platform. And that doesn't even get into the fact that the infrastructure, if we were to flip from a single digit, low single digit percentage of sales to a high single digit, where are you going to charge most of those vehicles and a lot of dealerships don't want to put in charging stations to have dealers kind of or to have customers sit around and charge their cars. So I'm guessing.
I think that this thing will all evolve. And I think there'll be such a massive investment in charging infrastructure, I'm pretty confident that will be solved. But I will tell you, I'm happy to be on the retailer side, Jason, on the OEM side to have to make the investments, they're making an Eevee in hybrids and in ice engines. I mean, those are massive investments and over time, I don't think anybody can support all three of those paths. So I think that EVs will come. But there's a lot of issues that need to be dealt with. And these are fun problems.
One of the issues that will need to be dealt with is that capital infrastructure at the retail level, the the spending and investment that would need to occur. And that has fueled a lot of talk of M&A. You've been on the buying side here over the course of the last few years. Give me your view on where we are with M&A today.
M&A is really interesting. There is a major disconnect between sellers asked and buyers willingness to pay and all of it is based around what's that business going to earn. And what kind of cash flows are going to drive on a normalized basis. It's easy to talk about multiples and many of the firms, Presidio being a leader, talks about this multiple for this franchise. What nobody can predict is what's this next chapter going to be in 23 and 24 in terms of profitability. So I think there's an impasse, there's also other issues of, you've got dramatically higher costs and real estate. So when interest rates were very low, real estate investors were much more aggressive. And so when you go to do comparable sales and valuations are real estate prices are extremely high and interest costs for borrowers are very high. And typically in an M&A transaction, buyers finance 50% of the goodwill and a certain percentage of the real estate, and those interest costs are really driving the price up. So not only is there a lack of willingness to pay multiples on 21 and 22 earnings, there's also a bunch of other factors that really make it more difficult. And these things will normalize over time. We've been through these chapters before. But I don't expect a lot of M&A activity until we really see what normal will be.
I mentioned you being on the buying side, tell me a little bit about Maroone USA Today.
Well, Jason, we have one transaction that will be closing on December 1, it's in one of our core markets in Colorado. And it's an interesting transaction because the family that's the seller has been in the business for decades, and has a culture that is very, it that aligns really well with our culture, the values are similar. And we're really excited, I obviously can't talk and name that store until it closes. But it's a good cultural fit, it's a good market fit for us. And we're excited. You know, every year we're looking at a lot of opportunities. And we've made a number of acquisitions in the last several years, but we're being very careful to look at the fit, make sure that we've got the talent that we've developed internally, that can complement the talent of the seller. So we're excited about this chapter, we're excited about our new acquisition, and continue to look for other look for other opportunities that fit.
You have one foot in Colorado and one foot in Florida would you have a foot in a different state, if you had three feet?
Jason, we've talked about that a lot within our family. And I think those two markets are markets that excite us. I have resonance in those market. Those markets are growing markets. Most importantly, we've got real talent in each of those markets. And giving people an opportunity to grow is one of our core principles. And you know, we talk about it a lot in organization and I feel very obligated to deliver growth opportunities for our people and for our family.
I talked to you, finally, I talked to you in my final chapter at Automotive News with one of my final podcasts on Daily Drive. And I talked to you in one of the first podcasts on Daily Drive, which of course was almost two and a half years ago now. Learnings over the course of those last two and a half years and where we sit today?
Jason I think it's it's pretty simple. You've got to stay nimble, you've got to stay flexible. And you know, I was taught very long time in the business don't get too high when things are good and don't get too low and things are bad. Just keep working hard. Stick to your founding principles. And and everything will work out pretty well. And that's why when I look at things like EVs and I look at high acquisition prices and labor challenges, say this too will pass. Let's just keep doing the things that we've done over the course of time and stay true to ourselves.
He is the inaugural guest on Full Throttle, Mike Maroone, thank you so much for being with me.
Jason. It's a privilege and it's an honor to be with you and I wish you great success with Full Throttle.
Thank you.
Thanks to my guest, Mike Maroone.
And thanks for listening to Full Throttle, powered by the Presidio Group.
Come back to us in January for our next interview on this platform.
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