Episode 26: Rob Cochran, President & CEO, #1 Cochran

Welcome to Full Throttle Season 2, episode 6, where Jason Stein interviews Rob Cochran, President & CEO of #1 Cochran. Topics of discussion include inventory, interest rates, how to avoid cyber attacks in the future, and much more! 

0:00 Intro 
2:28 The CDK Situation
5:16 Rethinking Contingency 
10:28 Interest Rates and the Auto Industry 
14:00 Disruptive Risks for Dealers
19:24 China

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Transcript

We welcome you into the sixth episode of season two of Full Throttle, The Presidio Group's automotive industry podcast. I'm your host, Jason Stein, Director of multimedia and events at Presidio. On a regular basis full throttle serves as the industry's meeting point for great conversations with leaders across the automotive world. 

You know, to Jonathan's point, to your point, as rates go up, it will have more people based on affordability, saying, you know, this isn't this isn't the right time for me, and I'm sure that's part of the part of the influence on fixed operations that we're experiencing, which is a good thing, you know, from from that from that perspective. So yeah, if that the pricing and the payments need to be tempered to bring more of the market back. 

Our conversation with Rob Cochran, President and CEO of #1 Cochran comes at a pivotal time in the industry. Cochrane is not only navigating the issues related to the dynamic political landscape and his role as Chairman of NADA's Industry Relations Committee, at the time of our taping, he's in a dogfight with his own DMS provider CDK. Not that the turmoil is anything new for Cochran, who has seen his share of disruptions and disruptors. #1 Cochran is Western Pennsylvania's largest automotive retailer, founded in 1965, as a single point Pontiac dealership. The company today operates 28 new vehicle franchises representing 18 domestic and imported brands. #1 Cochran also operates three standalone pre owned stores, eight collision centers and a wholesale parts distribution center. Today, we hear about his view of the industry from all angles inventory to F&I as well as the future of the vehicle fleet, and even China. We talked about the changing role of technology, the changing consumer and his view on how dealers need to adapt and change in the future. It's Rob Cochran as my guest today on full throttle. 

Hi, this is Rob Cochran and this is Presidio's podcast, Full Throttle. 

We're usually seeing each other coming on or off the stage in New York, especially of late, but it is great to be, or at NADA, but it is great to be with my friend Rob, again. Welcome into the program. Thanks for being here. 

Thank you, Jason, it's great to be here.

Well, we can't go much further in the conversation without talking about the elephant in the room. So I you know, this, obviously, events may overtake even this conversation, but we can have a broader conversation. Let's talk about the CDK situation. Rob, you are a CDK customer. I know in my in my previous days that we we wrote about you being on the platform. Tell me what life is like on the ground for you today?

Well, it's there's certainly there's curveballs. And then there's curveballs like this. So this certainly have since since last Wednesday, it's now almost a week that we've been dealing with this. And it has been a challenge for our team. I'm proud of the way our team has responded. 32 rooftops with CDK technology that has not we've not been able to lean on it. So we have been, you know, the first day or two, I'd say was more paralysis. And then since then, just a lot of creative, a lot of creativity, a lot of innovation within our team, figuring out how to how to move forward and how to how to serve customers. So it is clearly not perfect. We're, we're hoping to be back on board with with CDK in the next day or two, based on this recording. But we you know, again, proud of what we've done. I think it will give us some lessons as we go forward as far as things that we might want to be considering or thinking about contingency plans, what if this were to occur again? All those types of thoughts, but right now really the the emphasis is on getting back up to speed, serving the customers, and then there'll be time to look back and make more strategic decisions as far as you know what to do to go forward and with without this type of mitigating this risk and a better way than we've done up to this point. 

Just when you think you've seen everything in the business, right? 

Yep. Yeah, just you know, we've got to be talked, there's COVID, you would have expected this? And then this thing comes out and it's just it's mind boggling, but yet maybe it's not maybe you know, if we as we as we think about all the threats that are out there in cybersecurity and we hear that we we observe different companies that are going through things and there's still a little bit of you know, I think within all of us, there's still a little bit of thought, well, that's too bad for them, but we're doing what we should be doing. And you have a key vendor that gets hit, and that, that, you know, that brings everybody down. And that's what we're experiencing.

Especially in light of this outage, how are you thinking about the risks and maybe best practices, and as you just said, contingency having backup plans, that must get you to rethink all of that? 

It does, it does. And, again, there will be a process that we will follow, we've not yet gotten into that process where my executive team will meet will will probably speak to outside other peers within the industry, what they may be thinking about, but we should not put ourselves in position to be able to be brought to our knees, because something happens to a key vendor. As important as that vendor is, we have to be there have to be a better strategies for all of us. So I don't know what that means. I just know that having having one. You know, allegedly right, allegedly having one hack out there in the in the, in the stratosphere, being able to do this to an industry. We've got to be better than that. 

Yeah, yeah. And the fact that so much talk right now is circulated around the fact that well, if it's not this vendor, then it's a different vendor next time. And, and and how to protect the business model as a whole. Yeah. 

The business model, the customers, all the things that we're responsible for protecting.

And in the end, Rob it's just, it's the customer that matters anyway, right? 

Correct. Correct. So I think we've done a good job, as you know, as good of a job as could could could have been imagined based on where things were last Thursday. But it's still an inconvenience for our customers. And it's still a lot of, it's still a lot of heartburn for our team members. Dealing with things that came, you know, came out of left field. 

I heard an analogy yesterday, somebody said, "Well, if a customer goes to a restaurant and in orders a meal, and they go to pay, and they can't pay because the cash register is broken. That's not the problem that the customer has. It's that's the problem of the system." 

Correct 

Fair. Right. 

Very, fair. Yes, fair.

What are you seeing in the marketplace right now? Interest rates, how are they affecting consumers? Where's where's demand? And maybe as it relates to interest rates, how is it affecting dealership expenses, particularly floorplan?

Yeah, well, floor plans up certainly from where it was. At the, you know, the same period last year. We we've been pleased, we've been pleased with, you know, the first half of this year, volumes up both in the new new car segment, used car segment. Obviously, the the the profitability of, you know, on the on the sale of the vehicles is is curtailed from what it had been in prior years, we expected that. The, the servicing parts business is quite strong, our collision repair business is quite strong. So we're doing a good job from a from a model standpoint, with all the touches that we have of our customers. We're able, you know, our volume, as I said, the volume is up, I would expect as we get into the second half of the year for the year over year increases, maybe to be maybe to be more challenging to realize as significantly as we have in the first half. But we're still bullish. We're still bullish, and I'm still bullish on, on on the business. And on the current state of the industry. There's there's certainly some headwinds, interest rates when they we know when that when interest rates go up, it creates affordability challenges, it heightens the affordability challenges that have occurred with the inflation that we've we've experienced in the economy and vehicle prices. So we're, we're sensitive to that. And I'm sensitive to that. And I think the industry and the OEMs need to be sensitive to the, to that segment of the market that is being challenged and that slice of the market that may be getting priced out of being able to say I'm gonna I'm gonna go buy a new car or even a used car, I have to wait. So that's not a good thing and all of the technology that has been put in the cars, a lot of a lot of times for safety reasons or even, you know, from for emissions, electric vehicles and such, we can't lose sight of the fact that there, there are many, many people that are out there that depend on transportation and reliable transportation and they need to be able to afford it. So it is a factor. It is a factor. But that factor notwithstanding, we've been pleased with, with what has occurred thus far, in 2024. 

Cox economist Jonathan smoke told me that he felt that higher rates generally are the biggest factor dragging the industry and maybe even the broader economy, that people are customers are sitting on the sidelines, maybe waiting for rates to fall, do you? You're not seeing that?

Well, we're seeing. I mean, there's the demand has been temporate. So clearly, the demand is tempered. It's not it does not feel like it did last year. So we be acknowledge a tempering demand. But even even with that, we've been reasonably pleased with the state of our business. But it you know, to Jonathan's point, to your point, as rates go up, it will have more people based on affordability, saying, you know, this isn't this isn't the right time for me, and I'm sure that's part of the part of the influence on fixed operations that we're experiencing, which is a good thing. From that, from that perspective. So yeah, it, the pricing and the payments need to be tempered to bring more of the market back.

In our Presidio quarterly report, we've we've called this period that we're in right now, Rob, the great normalization, that we're normalizing everything kind of back to where it needed to be and it's a transition, and it's a transition from enormous highs and everything that you and I have gone through in this, you know, the post COVID sort of world. Do you characterize it that way? Is it the great normalization?

Here's what I would say, I actually do, I do have a plan every year for for, for our business advisors and I spoke spoke to this a few months ago, I do not know, I am not qualified to say what normal is.

And I think I think it is dangerous for anybody in this timeframe to say, well, this is this is what normal is here. Here. We've got all these factors coming at us. EVs, mandates, what that what's that going to do? This affordability challenge, what that's going to do. Other technology going in the car driving the cost of cars up digital retailing, where that plays, all these factors that are that are impacting our industry. So to think that we'll just look backwards over the last 20 years and say, "Well, this is what normal is, and it's just going to return to that." I have a hard time buying into that, buying into that logic. I rather because I think when you buy into that logic, you're more, it's more likely that you're going to be caught flat footed. So I'd rather the message to our team is we need to be on our toes, and we need to be ready to pivot. And whatever the customer whatever, you know, however, we can best serve the customer, and at the same time, great productivity and efficiency in our model, that's what we've got to be focused on. So normal? I don't know, I'll let you know. I'll let you know after we get there. What feels normal or not but right now I don't know.

Well, we'll have another conversation in a decade and figure out what normal is.

 Yeah, there you go. Yeah. 

But nonetheless, lots of disruption in the marketplace. You just You just highlighted three or four things, and the disruptive threats for dealerships in general are, are all are all that you just mentioned. So what's the long term risk for the franchise model? Or in general? What are the disruptive risks for dealers?

Yeah, well, I'd say, from my standpoint, the the, the medium term risk challenge question that I think about starts with EVs and the the the EPA mandates and what that how that is going to play out and there's a lot of thoughts all over the board on how that plays out. But when you when you speak to, I think from from from many dealers stand

point, they'll there's there are some there will be like, Well, if the election goes a certain way, this is not going to be as big of an issue, and I'm not that worried about it. I think that's, you know, I think that's overly optimistic to think that something like that is just going to mitigate much of what we've been talking about for the last three, four or five years. So it to me, there's this customer trajectory. There's a mandated trajectory, there is a gap, a significant gap, particularly in certain parts of the country, like the ones that we, you know, that we do business in. And then there are these overlying obstacles like infrastructure and charging systems. So it really is, is hard for me to see how we get there. I think the manufacturers, and I've been pretty vocal about this, they have to do a better job in a market by market scenario saying here is, in order for us to hit our threshold, here's what we need from you in hometown, USA. So that dealer can get their head around, okay, this is what my manufacturer my OEM expects me to do. And then at that point, there's either, okay, I'm aligned, or this, you know, I don't see how we're going to do this. And then there needs to be follow up discussion with creating alignment between manufacturer and dealer in this path. That hasn't occurred yet. It really hasn't occurred yet. And it needs to occur as we as we go forward. Otherwise, we could, you know, the complexity of this and the federal mandates, the California mandates that are in you know, a number a number of these ZEV states, the calculus that is going to be required, the complexity that is gonna come into our system, the inventory, you know, you know, certain dealers in certain states are going to have ICE inventory, certain dealers aren't going to be able to get the ICE inventory. It just is, and then from a customer standpoint, who wants that? We're not creating it, we're not creating a system, or we're, we're, we're at risk with creating too much complexity in a system that is supposed to be customer friendly, because of this, this, this combination of the government trying to try to impact a consumer customer demand trajectory. So um, that's, that's a concern. I think that's the biggest, near medium term concern that the industry has and should be focused on. 

And at the same time, you're watching the pendulum swing back the other way, where many manufacturers are saying, well, hang on, we're actually into plug in hybrids now. 

Well, they are, they many of them are. Because that's where consumers, there's been more demand from a customer standpoint. So I applaud, I applaud them for doing that. I think they need to do more of that. But it they're going to get gets back to the government and what what is going to what is going to allow each of these OEMs to meet whatever the requirement is of a government in 26, and 27, and 28. And how that formula matches up with what the customer is actually willing to do.

You're going to spend your time post-election leaning in as hard as you possibly can to make sure that what the scenario that you just described does not happen? 

Well, I've been active, certainly I've been active and NADA's has been active. I have I you know, I am involved. From an NADA standpoint, I think we've been working hard on that. So we, yeah, that from from my personal standpoint, it's it is the biggest issue the industry in the near term faces so I'm gonna be as active as I need to be. 

Yeah. A couple more things. China, speaking of disruptive. China, vehicle makers, opportunity or disruption with new entrants choosing a franchise model possibly?

Well, there it's both. It's both, depending, again on how the pendulum swings. And as we see, you know, I I've seen various reports of of Chinese automakers and just, you know, a few things that I observe. Many of the automakers, many of the legacy automakers have have done partnerships with China in different parts of the world and in their home market in China and so in some cases in other in other areas. And so, how does that, you know, what does that mean for us in the US? How is that going to play out? How does that play out particularly as the requirement for EVs get ramped up? And we know that the Chinese, the Chinese scale, that you know, they're, they're scaling of EVs is several years ahead of us? So I don't know the answer to that question. But it it is a it is as you term it a disruptor over over the medium to long term. It clearly is a disruptive force and however that ends up playing out we'll, for those of us that are, you know, are, are stakeholders in this industry, we have to be aware of that we have to be, we have to be watching that. 

And finally, another seems like this is all we're talking about, but disruption again, on the AI side, and the potential for solving pain points in the dealership. Are you solving pain points? Do you think that there's a pathway to solve pain points using artificial intelligence? 

We're beginning we're beginning to look at it. I mean, there's there's, there's, and I'm no, I'm not a tech expert, but I there's there's opportunities with artificial intelligence with we're doing different things in the service service lane, with appointment setting, follow up with customers, those types of activities. And I think you'll see, you'll see AI continue to get smarter, and continue to play a larger role in in certain activities with that we've we've always, you know, that have that are been necessary as part of auto retail. And there's also opportunities in the administrative area, in the in the back house functions. So we are focused on it as a company. I don't know how quickly it will go. I think it may in some cases, it may go more rapidly than we would expect now. And I think in other cases, there may be things that we envision happening now that don't go as quickly. But it's a it's a space that will help continue to evolve and reshape how retail how retail occurs. And you're seeing it in other in other retail, right, not just auto retail, you're seeing it in other areas, and you just you're watching it to me I watch that and I wonder Hmm, how does that? How will that apply to what we do if at all? Maybe it doesn't apply, maybe it takes a little longer time to apply to self serve concept. What does what does that mean for us? So we just need to be thinking about it, observing it, and, and asking, asking questions as far as what our customers will come to expect from us. 

Wonderful. Always great to catch up with you. Rob, thank you for sharing your thoughts on what is a ever changing and entertaining time in the automotive industry. 

Thank you so much. Pleasure, Jason. 

Thank you, Rob. 

Thanks again, my guest, Rob Cochran. And thanks for listening to Full Throttle. Come back to us later in the month for our next interview on this platform. Email me with suggestions jstein@thepresidiogroup.com or go to the website, thepresidiogroup.com. Follow us as well on LinkedIn. And thanks for listening to the program. We'll see you next time.