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AutoNation’s Jackson: New Tech Could Hurt Used Cars

May 2, 2017

By Tariq Kamal

Toyota has pledged to install its “Safety Sense” technology throughout its lineup, including the subcompact Yaris. In response to an investment analyst’s question, AutoNation’s Mike Jackson said advanced safety tech could adversely affect the sales and values of older used units. Photo courtesy Toyota Motor Sales USA Inc.
Toyota has pledged to install its “Safety Sense” technology throughout its lineup, including the subcompact Yaris. In response to an investment analyst’s question, AutoNation’s Mike Jackson said advanced safety tech could adversely affect the sales and values of older used units. Photo courtesy Toyota Motor Sales USA Inc.

FORT LAUDERDALE, Fla. — A scheduled conference call to report AutoNation’s first-quarter results led to a memorable exchange between the company’s chief executive and a Morgan Stanley analyst. Mike Jackson, who serves as chairman and CEO for the nation’s largest auto retailer, engaged with Adam Jonas, the lead author of a recent Morgan Stanley report that warned used-car values could fall by as much as 50% within the next five years.

In the report, Jonas and his team listed a number of contributing factors, including an oversupply of new and off-lease units, rising interest rates and stretching loan terms. They also warned that autonomous and semiautonomous safety technology, which has begun to migrate from the highline ranks to mass-market vehicles, could make older units unappealing to used-car buyers. Some might be persuaded to invest in newer units for safety’s sake; others might wish to minimize their insurance premiums.

During the question-and-answer period at the end of the conference call, Jonas asked Jackson if he shared his concerns.

“I can’t get anyone in the auto retail space, new or used, to admit that there’s any risk of potential obsolescence in the value of those 11-and-a-half-year-old cars on the road in a world where new cars could be five times safer for 100 million miles … because they say it’s never happened before,” Jonas said. “I understand this is a bit theoretical, but do you see any scope for any link between tech moving in an unprecedented way and used-car values moving incrementally … towards an obsolete or uninsurable value?”

True to his reputation, Jackson was frank in his response.

“So, listen, I don't think it's a theoretical question at all, and I think it's a very profound question,” he said. “The industry is going to have to come to grips with it.”

When car buyers visit a dealership after being out of the new-car market for several years, they are “absolutely, positively amazed” at the new safety technology, Jackson added, and they have demonstrated a willingness to pay for it. But he believes they will remain “sensitive” to price, and proliferation of improvements to the technology will be incremental.

“I don’t see a moment where you obsolete everything that’s on the road because something has come along that’s absolutely so ‘Shazam’ … at a price that someone’s willing to pay that they say, ‘I just won’t have a pre-owned car,’” Jackson said.

Jonas pressed the issue, using Toyota — one of AutoNation’s biggest suppliers — as an example. He noted the Japanese manufacturer has pledged to install Toyota Safety Sense on every passenger car it manufactures for the North American market by the end of this year. Jonas asked Jackson whether Honda and Nissan would be forced to respond in kind and whether, for competitive reasons, he thought the Toyota move "is significant enough to accelerate going standard for the industry?”

“Yes, I do,” Jackson replied. “I think the benefit is so compelling that it's a true differentiator, and everyone will figure out when and how they can follow as fast as possible. And it'll become, over the next several years, almost the price of admission.”

Comments

  1. 1. Don Rice [ May 03, 2017 @ 10:00AM ]

    Makes me wonder how this guy became the head man. Obviously he does not understand the used car market as a whole. The different levels of buyers by credit and price range will never change in this industry. He needs to get out in the sunshine and meet the real world. Buys will always be there to buy the used cars because they are necessities, and the price limit and payment limit will always decide the purchase. Many buyers never even ask the price of used cars, just how much are the payments and how much down. Do you really believe the dealers are going to drop a price that is not questioned by the buyer just because some idiot analyst is trying to get some publicity? Dumb story written by a person that most likely needs to stay inside his office with his head in a computer, rather than project the future about something he knows little about. If anything the used car market will remain close to the same or even go up because the outrageous price tags now will cause many new buyers to become repossession candidates and they will fall back into the used car market paying whatever it takes to get a new ride.

  2. 2. George Remington [ May 03, 2017 @ 02:13PM ]

    Please let me know when poor people are going to stop buying used cars and try to finance expensive ones, just to get more technology and safety features. What a pipe dream....

 

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