Jim Keffer on the Biggest Threats Facing Auto Dealers Today

As the automotive retail landscape evolves, dealers are confronting new competitive threats from direct sales, digital retailers, and global automakers. In this episode, Jim Keffer, CEO of Keffer Auto Group, shares how his dealership group is preparing for the future by focusing on long-term strategy, operational flexibility, and sustainable growth.

Keffer discusses why direct-to-consumer sales remain the biggest long-term challenge for franchise dealers, what the industry can learn from Carvana's customer experience, and why used vehicles have become a cornerstone of his group's growth strategy. He also weighs in on the competitive threat posed by Chinese automakers, the state of dealership acquisitions, and why affordability continues to shape consumer demand.

Key discussion points:

• Why direct sales pose the greatest long-term risk to franchise dealerships
• What dealers can learn from Carvana's customer experience
• How used vehicles fit into Keffer Auto Group's long-term strategy
• The growing competitive pressure from Chinese automakers
• Why affordability and an aging vehicle fleet continue to support demand
• How Keffer Auto Group is approaching acquisitions and future expansion

Keffer offers a strategic perspective on how dealers can remain competitive while preparing for the next decade of automotive retail.

Inside Automotive with Jim Fitzpatrick is powered by CBT News, your go-to source for the latest news, trends, and insights in retail automotive. Subscribe for more interviews with top industry leaders, dealership innovators, and experts shaping the future of automotive.

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Transcript

Welcome And The Big Question

Jim Fitzpatrick 0:07

Welcome to Inside Automotive with Jim Fitzpatrick. How do you balance and manage today's risks while continuing to invest in tomorrow's growth? Joining us now is Jim Keffer, CEO of Charlotte-based Keffer Automotive Group, to share his perspective on the future of the car business and how he's navigating an industry that's changing rapidly. So thank you so much, Jim Keffer, for joining us on the show once again.

Jim Keffer 0:32

Happy to be here.

Jim Fitzpatrick 0:33

I think uh changing rapidly might be an understatement. That's exactly right. So first and foremost, before we dive into this, how is business at Kefir Automotive Group today?

Business Conditions And Opportunity Signals

Jim Keffer 0:44

You know, I think it's a mixed uh bag for us. Uh we have a lot of opportunity, which I would say probably most people uh you know listening or watching would have. And uh a lot of it is around brands, but it's also around the teams. And uh, you know, part of what we'll talk about, I'm sure, is you know, how adept we are at used

New Car Affordability Drives Used Demand

Jim Keffer 1:05

cars.

Jim Fitzpatrick 1:05

Yeah, yeah, for sure. Used cars is uh is the name of the game right now, especially with affordability issues, uh average price of a new car being fifty thousand dollars. Where is this going? I know we talk about it a lot here at CBT, obviously across all of the automotive media platforms out there, because that's a real issue, isn't it? I mean, this affordability situation.

Jim Keffer 1:25

Yeah, it it is, uh, of course. But you know, the the old saying is it's uh raining on both sides of the ball, right? So uh, you know, you you have to figure out, you know, how how do you go to market and what strategies do you use. But you know, there are a lot of other risk factors uh that have to be considered that are you know less tactical and I think more strategic long term. Sure. What what might those be?

Direct Sales And New Retail Threats

Jim Keffer 1:53

Well, uh if you look at the market as a whole, uh and you were going to try to size up the biggest risk factors, I I think you could probably reach consensus around um you know direct sales being maybe the number one. Uh and then you know, close second might be uh you know the the Amazon uh and um other other used car entrants uh like Carvana, uh, you know, that that are definitely impacting not just how people are buying cars, uh, but um you know what what the availability of inventory is, right? There's a lot more pressure uh on that side of it. But then then you also have just broader inflation as a whole, not just in the short term, but in the long term. When you look at the car business as a whole and you look at what the gross profits are, right, and how much that has gone up as an average over the last 20 or 30 years relative to how much rent has gone up and what you have to pay people, uh that then though those things point to a future where if that trend continues, what what do grosses have to be in the future? And and as grosses are compressed right now, uh that that makes it hard to look at that future and see, okay, well, how how's that going to pencil? But then uh, you know, you you have different in brands themselves where uh you know obviously it's great if you're a Toyota dealer right now. I am not, uh, but they seem to uh be very good at predicting the market and delivering what customers want, and then keeping an inventory distribution model that maintains kind of the sweet spot on the ground, which helps dealers uh, you know, not just manage their cost, but also, you know, get get better gross profits. And so uh, you know, there the difference between the value today of let's say a Toyota store or a domestic store, right, is a bigger difference than it's ever been. You know, if you go back 25 years, there wasn't that much difference. Today it's it's it's night and day. Night and day, right? So that then a lesser risk uh that we would think about, uh, but but not a big deal at the moment, uh, is the autonomous movement that still hasn't gone away, in spite of the fact that people were really kind of weirded out by the idea of sharing their car with six other people during COVID. Yeah. Uh, but but I think that is something that will continue to you know stick around and it and it's probably a longer-term risk. But I think the bigger risks are the direct sales model, uh, and then the the way other uh people are going to market, particularly uh what Carvana is doing right now, is their volume continues to increase.

Jim Fitzpatrick 4:53

Yeah, and Carvana, as you know, has now jumped into the new car business and uh taken some Stellanus stores and uh just skyrocketed the volume by using uh kiosks on, you know, without uh a full staff that we um are familiar

Inflation Pressure And Brand Value Gaps

Jim Fitzpatrick 5:10

with on the on the new car side um of a dealership. Uh they've they've shown us that through a kiosk that's in the center of the showroom, um a kind of a 10 by 10 cube, if you will, um, that people seem to be okay with that. And they've increased the volume at a couple of those uh Stellana stores substantially for the size of the market that those stores are in.

Jim Keffer 5:31

Right, right. Exponentially. But I but I think when we talk about the risk, right, you uh may maybe back up a little further than just specifically this tactical approach to how they're selling and say, well, when you look at the two uh biggest success stories of the last decade in the car business, it has to be Tesla and right now Carvana, right? So what do they share in common? Uh and and what they both share in common is they both almost went broke many times. Right. Uh and they they lost hundreds of millions or billions of dollars. And so that creates uh a barrier of entry uh when when you think about how these companies got started, but it also creates a challenge in the rest of the world because when you look, for instance, you know, say five, ten years ago, or you know, whenever Tesla's really taking off uh and they and they're enjoying 90 to 100 times uh price to earnings ratios, yeah. And let's say you were sitting around the board of directors at one of the domestics, who might have been four to six times earnings, and you probably say, well, gee, I'd rather have some of what they're getting. And so um, you know, it stands for reason. They're their directive is to maximize shareholder value. And you know, last time I checked, 100 is better than four.

Jim Fitzpatrick 6:53

Yeah.

Jim Keffer 6:53

Uh so the challenge is though, when the incumbents, right, in the game start trying to make decisions that are similar to decisions made by the new guys who almost went broke several times and had the advantage of analysts in the stock market who are willing to reward them for being forward-thinking. Well, now you you take uh you know the folks at Ford and they decide, okay, well, I know we'll split it in three and call it EVs and whatever, right? And they so they're trying to make those decisions, but when the decisions you're making are more about chasing the the valuation, it can become uncoupled from the how do we sell the most cars and make the most money, right? Right. Right. Particularly how does how does a franchise dealer make the most money? And then this is why you see Scout jump up or Pulestar, because hey, if I am uh a manufacturer and direct sales are going to be rewarded by the market, then let's let's do that, right? And so then you get into the challenges behind the franchise laws and each state and what can happen there. And so the yeah, there's there's just an awful

Tesla And Carvana Valuations Explained

Jim Keffer 8:10

lot of risk in that. Uh, and and the the hope is that you know the manufacturers continue to look at how do we build great cars that customers are actually gonna want, you know, improve our distribution processes to get them as close to Toyotas as we can find.

Jim Fitzpatrick 8:25

Right.

Jim Keffer 8:26

Uh, and I think if we do those things well, then you know there's great upside for for everyone.

Jim Fitzpatrick 8:33

Yeah.

Jim Keffer 8:33

Um, but the innovation is gonna continue to happen. And so, you know, one one of the things that we did several years ago in terms of weighing, okay, we're gonna keep growing because uh, you know, either grow or get out. I think those are the two viable options. Uh, and we didn't want the other one. So we uh we looked up a guy named Gideon Mallerby. Uh he's a South African who does strategic consulting uh and and really neat guy, but he he helps you map out and you take a T uh square there and you and you say, okay, let's let's put uh you know one of your biggest risk factors on the X-axis and the second biggest on the Y-axis. Uh and then let's kind of evaluate a scenario where maybe on the top here we have uh you know the direct sales takes over 100%. On the bottom, you have franchise dealers stay exactly as it is. Yeah uh and then you have the other factor, and maybe that's you know, the whole world goes to autonomous cars, and now that makes more sense for Hertz and Avis than franchise car dealers. Or over here you have, well, it stays exactly the same. And the key is to try to look and say, no matter which of those things happens, we we have to predict and create a future where we can be successful in any of those quadrants.

Jim Fitzpatrick 9:57

That's right. That's right.

Jim Keffer 9:58

And and that was a really uh you know um hard exercise to go through. But I think the thing that we came out to, and that's why, you know, when we started talking, uh we said use cars, right? Because where you have the most control, at least in the short term, is is in that space.

Jim Fitzpatrick 10:16

That that's right. That's right. You don't have OEMs to contend with, and uh you don't have uh the same limitations that the OEMs will put on you. So um and you didn't it was interesting.

Jim Keffer 10:26

It's not entirely true, uh because there there is still in some cases, you know, you have to sell a certain number of CPO cars and then the C and there there is some control and and how that's done, but still you have the most flexibility there for sure.

Jim Fitzpatrick 10:42

Sure. You didn't mention on that, um, I guess they gave they they four-squared you on that, it sounds like with the We're gonna go payment, trade allowance, monthly, but what are we gonna do? Um but uh kidding aside, you didn't mention Chinese vehicles, which is is also, I think, this pending threat to the automotive industry on a global basis. Obviously, we're kind of on an island here, as as uh my friend uh Michael Dunn says, uh that that you know we're uh the Chinese vehicles are being sold everywhere but in the U.S. And of course that is uh that's pending, right? Even the president says, well, I'm I'm kind of open to the idea under s under certain circumstances, but uh that's a real threat as well, right?

Jim Keffer 11:24

It absolutely is, and certainly a bigger threat than uh autonomous cars. That was probably in my notes uh that I left on my desk uh the this morning when I uh came up here. But yeah, that uh I I think um that that one may be the hardest one to solve currently. Uh and uh I think you know finding ways to become more efficient uh on the on the OEM side with the legacy costs that they have in in personnel and the and the labor costs are are extremely high, uh pension costs. Uh but yeah, I mean I I I still am somewhat optimistic uh in in America and the ability to innovate. You know, we we've kind of been the leaders in that space. Sure. And although you you can never take for granted that somebody's gonna figure it out, um there are again, you know, more more risk factors now. I from a dealer franchise existence, however, I don't necessarily look at them as the biggest because it may be that they would get in and you know, let's say they they come in and that forces two brands out of business, much like Saturn went out of business, but then you know it gets backfilled that same location and it's a franchise dealer selling a Chinese car. Right. So in that scenario, uh a franchise dealer could do exceedingly well, uh, you know, because now you have a new entry to the market that has a tremendous competitive advantage. And and so that that is a a huge risk to the car business uh as as a whole,

Scenario Planning With A Risk Grid

Jim Keffer 13:05

but not necessarily as much to the franchise system.

Jim Fitzpatrick 13:08

Right, right. The um uh many of the dealers that I talk to on this on this topic will say we've got to keep the Chinese out, that it's a major threat to the automotive industry as we know it. It's not a competitive marketplace for obvious reasons because of the Chinese government involvement and what have you. But then when I say if in the event they're allowed in, would you want would you be a hand raiser to be a franchised dealer of a BYD or what have you? And many have said more than haven't, uh yes, I I would be. And um what one said recently, I'd have to be, because uh, in order for my group to, you know, survive and what have you, I'd have to be in there and be selling Chinese vehicles. Where do you stand on that?

Jim Keffer 13:49

I I think that uh, you know, the the reality is that there has to be a level of pragmatism to a person uh who is a business owner and has a responsibility for a lot of families. Uh and and so from from a values perspective, your preference is always going to be to make sure that the home team wins.

Jim Fitzpatrick 14:11

Yeah.

Jim Keffer 14:12

But when when you look at the reality of automobiles today, there was a lot of this sentiment years ago, right? And people, my dad among them, you know, didn't want to sell the Japanese cars, he wanted to sell American. Uh and so if you look at how that worked out, uh, you know, everything is international today at some level or another. And some would argue that that some of the the Japanese cars are more uh American built than the American cars are. Uh and so with with you know suppliers in different places all over the globe, yeah, uh, you know, I think it is an international world. The challenge in this case isn't just it's it's a foreign company that is a uh you know lower cost producer. Uh it's a company or a country rather, or you know, the area that that is our biggest threat, you know, from a military standpoint and ideology that that goes along with that. And so um, you know, I I would rather not be in that space uh unless it was something that you needed to do uh in order to stay alive and keep your the families that you're responsible for employed. Sure. But also have some regulation that made you feel comfortable that you know the you you were you were not doing something that was creating uh you know a a threat to the country.

Jim Fitzpatrick 15:49

Yeah, for sure. What do you think, Jim, we can learn from a Carvana um and some of these some of these disruptors out there? Um obviously, you know, it's at the end of the day it all boils down to the customer and what their what their desires are and that customer experience. Um when I interview people that have purchased vehicles from Carvana, the first thing they go to is not price or the vehicles that they're buying. They go right to the process. You know, it's an easier process. We don't have to go to the dealership, we don't have to get, you know, for the lack of a better term, you know, jerked around, you know, by a by a car dealer, you know, we we don't have the best reputation out there.

Chinese Vehicles And Franchise Reality

Jim Fitzpatrick 16:25

And we can pick up our phone or go to our laptop and have the vehicle deliver it. It's very easy. Um yes, they feel like maybe if they negotiated a dealership, they could get a little bit better price, but even the savings on the price isn't worth it for them to go through the experience. Can we learn something from a Carvana? And if so, can the industry pivot to provide a better uh experience to to to gain back those buyers that have left um the franchise dealers to purchase a good pre-owned vehicle, backed by a great service department and a great reputation? I mean, it it seems to me like we've kind of um sent up the white flag on the on that and said, hey, you know, Carvana is thriving only not because of the car, but really because of the sales process.

Jim Keffer 17:14

I I think uh there's a couple of things that I I look at there. And um one of them, which seems to be a bit of a disconnect, and it may have changed since I looked, but the last time I looked on Google uh in our local market, the uh the Google rating was like a 3.8, uh lower than almost every franchise dealer in town. I'm going to guess that though that that had less to do with the experience upfront and more to do with title work or other other maybe challenges in the customer service thing that they they haven't figured out yet. And um so I I I think that uh I tell my my friends all the time, uh kind of jokingly, that you can have the car uh the carbana experience at our dealership. All you have to do is say, I'd like to pay sticker, and they will make it very fast and friendly, and you can be out of there. The challenge is that culturally we're sort of programmed that this is what we're supposed to do with the franchise guy. Yeah. And then the the other guy coming in, you know, we can do that. That's why you know Sonic tried the one price thing, and even after a lot of of heavy lifting, apparently have have gone back in the other direction. And and it goes back to kind of the way the analysts look at incumbents, is the same way customers look at the incumbents. They they expect a certain norm from them, right? Uh, and and even if they offered it, they wouldn't take it because there's the the fear that I could get a better deal somewhere else. And so, you know, when you look at the huge number of um uh you know of cars that Carmax is selling in, or Carvana rather is selling in their uh Stellantis stores, I I think they're not selling Dodge Chrysler Jeeps, they're selling Carvanas. Yeah. And and that is something like, you know, Tesla became cool and people want to get on the cool bus.

Jim Fitzpatrick 19:05

Yeah.

Jim Keffer 19:05

And you know what what's hard is that the way to get cool is to lose billions of dollars, almost go broke and hang on, but then make it. And and it it puts you in a space that you know somebody else can't easily duplicate. So I I would say that a dealer could offer the exact same experience, you know, and it might not have as good a packaging because of what the customer's expectation is. And so I think we have to find ways to innovate. I think we have to find ways to create niches and values, but also maybe go back to some of the same old stuff, right? There are promotions

What Dealers Should Learn From Carvana

Jim Keffer 19:45

and things that you can do as a dealer to be very nimble and and really show people like this is what the lowest payment, lowest price, biggest discount, highest percentage off that we can offer. And those are the benefits of buying from somebody who has a program that is flexible and doesn't just have one price. Yeah. But in the world that we live in now, where so much is controlled by the manufacturer's uh you know, pricing strategies and what you have to do to be able to qualify for co-op, it's a little bit more difficult to do that. Uh but it in that world, if if we find that flexibility, then we can offer better deals. And ultimately, you know, customers like things that are cool, but if you know in a very uh cost-conscious world because of the affordability issues, if you can save them a thousand dollars, they're gonna do that all day long. Yeah. Uh, and and most of the data that I've read says that you don't save money by buying from Carvana or Carmax. It is the experience. And so I I think dealers have to be challenged to find ways to be a little bit more innovative. And certainly the technology is continuing to get better, you know, the uh the online sales technology, and uh but but I think that will take specific dealers and dealer groups uh who keep looking for a little better way to market it, because it really is, I think, more about the customer's perception than you know whether you use roadster or some some other tool to sell the car.

Jim Fitzpatrick 21:16

Right, right. Yeah, good point. Very good point. As we close out, um do you find it interesting that with all that's going on on a macroeconomic situation and and and world affairs uh that we see today with uh the war in Iran and and gas prices and interest rates and what have you, that that the industry is still running here we are halfway through the uh uh year and we're at 16.2, 16.3 SAR um for new cars, um not that bad as as things are, right?

Jim Keffer 21:47

Yeah, you know, if you go back and and you know, so some of the uh purchases got suppressed during the COVID and then supply chains and then the affordability has been a challenge, and so we just haven't caught up. Age of the fleet now is 13 years up from 11. And so, I mean, I don't know about you, but I usually look in the rearview mirror every time I hit the brakes because I don't know if the guy behind me is going to be able to stop. You know, if you go appraise a few cars today, there's a lot of them that you know they're not looking that that great. And so I think people need to buy cars. Yeah. Uh and and there's also the difference in the economy now between there's there's a bigger gap between the haves and the have nots, and and the the people who have the means are just going to keep buying cars. Uh and so I think you know, at some point uh you know we could see the SAR increase. What I find a little bit more interesting is you know, still the number of people out uh buying dealerships and the demand and the number of transactions that are going. Uh, because I think you know, we want to continue to grow as well. But you know, we need to do it with the eyes wide open to all the risk factors that we've talked about today. Uh, and if you can still make your head go up and down after you've considered all of those and that four square that you talked about, uh figure out a way to make money in in any one of those environments, uh, then uh then I think okay, hitch them up. But you better get better and better

Fleet Age Demand And Used Car Sourcing

Jim Keffer 23:10

at used cars in the process because I I think that's gonna be the difference maker.

Jim Fitzpatrick 23:14

Sure. Sourcing used cars. Um we saw so many dealers since COVID using the service drive as a great way to acquire cars. Are you doing that at many of your dealerships?

Jim Keffer 23:25

Uh we we are, but it's like so many other things. It comes down to that one person.

Jim Fitzpatrick 23:31

Yeah.

Jim Keffer 23:31

You know, you you find uh you know a great GM doesn't do 15% better than another GM. They do 200% better, and it's the same in the service lane.

Jim Fitzpatrick 23:42

Yeah.

Jim Keffer 23:42

You know, both of those positions require a certain kind of personality that causes you know enthusiasm to be shared and uh then pe people to feel, think, and act in a certain way. Uh and those people are really tough to find, but we're continuing to look because yes, that is you know extremely important to the business right now with uh the the difficulty in in trying to buy source vehicles.

Jim Fitzpatrick 24:07

Will we see more acquisitions from Kefra Automotive in the balance of 2026?

Jim Keffer 24:12

I I I would say more than likely not between now and the end of this year. We had four stores we bought over a couple of years, uh, and we're still trying to get the right equations to those. We made some changes and thought, well, let's let's buy in different parts of the country because you know we found out from COVID and virtual conversations like this one that you don't have to be right there.

Jim Fitzpatrick 24:34

Yeah.

Jim Keffer 24:35

Uh but small, smaller markets, every market's a different dynamic, and there's a learning curve that goes with that. And I think one of the ways that you can manage risk is to you know live in the house that you built and not get too far out over your skis. I I think one one of the other components is is expense control, you know.

Acquisition Discipline And Cost Control

Jim Keffer 24:55

So be smart about what you have and and don't just assume, well, it's all going to be great and we're gonna be able to do this. You know, it's it's work, particularly with our model. When you buy stuff that isn't performing as well and you try to turn it around, you know, anytime you make a change, there's two things that can happen. And as I've always shared, only one of those is good, right? So sometimes it's it's the second one that happens and that then you're you know working on on fixing that. So there's a lot of that that we've been doing, but you know, doing that with our eyes wide open because it's not the first time, you know. And so uh may maybe the first quarter of next year would be a better time to you know jump jump back on.

Jim Fitzpatrick 25:33

Sure, sure. Well, I wish I had a whole nother hour to spend with you because I want to go over AI and fix stops and some of these other issues that uh are pressing for today's dealer, but uh time will not allow us. So I'd love to do a follow-up with you if that's okay. Yeah, yeah, yeah.

Jim Keffer 25:48

Happy to do it. We could spend a half hour on the AI and all the other tools because there's there's so much that you know, the digital world is expanding faster than the universe, and the uh expense associated with trying to cover the same number of bases to get the same number of leads is going up exponentially, and that's not a great formula for cost control.

Jim Fitzpatrick 26:07

Agreed. Well, I look forward to our next time together. Jim Keffer, CEO of Kefir Automotive Group. Thank you so much for joining us and giving us so much time this morning. But uh but I'm gonna hold you to that. I want to do a follow-up because I want to get your take on all these other issues. So thank you.

Jim Keffer 26:21

Always happy to talk. Have a great day. Great, you too. Thank you. Thank you. Thanks for watching. Inside automotive with Jim Fitzpatrick.