Car Dealers Are Losing Leverage
As lots fill with new and used cars, discounts return and profits slip away.
Here are today’s highlights:
Restaurants that invested in technology now have the ability to experiment with pricing.
OpenAI is making it easier for even no-code businesses to build customized versions of ChatGPT.
The SBA’s Growth Accelerator Fund is taking applications.
The growth of women-owned businesses is outpacing the market.
The Morning Report will observe Martin Luther King Day on Monday and return on Tuesday. The 21 Hats Dashboard podcast will publish as usual on Monday.
The post-pandemic balance of power is shifting away from car dealers: “It could mark a reversal of the Covid-era changes to the auto industry, which dramatically lowered production and retail inventories, while boosting carmaker and dealer profits. Inventories on dealer lots — both new and used — are climbing toward pre-Covid levels, analysts say, which is starting to put downward pressure on prices. ‘We officially bid farewell to the seller's market that has defined the last four years,’ said Jonathan Smoke, an auto industry analyst, on a call this week laying out market research group Cox Automotive's views on the coming year.”
“Before the pandemic, dealers were typically offering incentives worth roughly 10 percent of the purchase price to would-be buyers. Such sweeteners fell to 2 percent during the acute phase of supply disruptions in 2021 and 2022 that saw auto inventories collapse, according to Cox. Now they're coming back up: Discounts have risen to nearly 6 percent of selling prices.”
“As is often the case in the post-pandemic world, consumers might not feel like they're getting a huge deal any time soon. After all, automotive prices have soared in the last few years. New vehicle prices are up 20 percent on average from late 2019. And used vehicle prices are up more than 35 percent.” READ MORE
Lou Mosca says the economy is doing great for the big guys, who have an easier time raising prices, but remains a challenge for business owners: Plus, he says, the banks are not helping because they just do not want to lend any more.
The SBA’s Growth Accelerator Fund is taking applications: “The Small Business Administration on Monday announced that organizations can now apply for its annual accelerator competition, where winners could walk away with up to $200,000 in cash. The Growth Accelerator Fund competition invites organizations to compete for cash prizes from $50,000 to $200,000. Now in its 10th year, the competition aims to advance small business R&D efforts and also encourages large entities like universities and research organizations to forge partnerships with small businesses.”
“The agency splits the competition into two stages. The first stage offers recipients $50,000, and focuses on organizations that have the capability to build out ecosystems for a given business sector. So that's something that might fit universities or research organizations, which can leverage resources to expand sectors such as quantum computing or resilient infrastructure to name two examples from the SBA.”
“Stage two should catch the attention of business owners, since it's where they can receive direct assistance from stage one winners. Stage two awards can be used for training and mentorship opportunities or putting entrepreneurs in touch with new customers and suppliers. The SBA aims to award up to $3 million in the first stage and up to $5.75 million in total, according to an agency spokesperson.” READ MORE
OpenAI is opening an app store to help people—and businesses—create and share customized versions of ChatGPT: “The new store is called the GPT Store. People who spend $20 a month for a subscription to OpenAI’s ChatGPT Plus service can browse the store for custom chatbots that provide a wide array of services, including those that recommend books, teach mathematics and search through scientific papers. The store will ‘help you find useful and popular custom versions of ChatGPT,’ the company said in a blog post.”
“Seasoned software developers have long used ChatGPT’s underlying technology, GPT-4, to build their own applications, including search engines and automated tutors. The app store is a way for a new audience — individuals and small businesses with no experience as software developers — to distribute apps based on the same technology.”
“The GPT Store is opening after OpenAI created a service in November that allows people to build custom chatbots called ‘GPTs.’ Anyone can quickly customize ChatGPT for a particular task without help from additional software or computer code.”
“The website AllTrails.com, for instance, designed a chatbot that recommends hiking trails. Khan Academy, a nonprofit education group, built one that can help people learn to write computer programs. Over the last two months, three million customized chatbots have been created, OpenAI said.” READ MORE
More restaurants are moving to dynamic pricing: “Industries that can change prices in real time have the technology to do that. Restaurants and their customers were not as digitally inclined where food was concerned — until the pandemic. ‘After the pandemic drove the industry towards more digitization, then it became much more easy to change prices based on a variety of factors multiple times,’ said Ashwin Kamlani, CEO of Juicer, which sells a service that allows restaurants to rapidly change their prices on their digital menus, whether that be online ordering or a drive-through. Its clients include Salad Box and Carrot Express.”
“What we’re talking about, Kamlani said, is a difference of say 50 cents or so for $10 wings. If it’s Super Bowl Sunday and everyone’s ordering them, the price might go up slightly. But dynamic pricing is just as or more likely to lower costs for customers.”
“‘If there are slow times in a restaurant, and there always are, those are great times for restaurants to use discounts or discounted pricing to encourage guests to order during those time periods,’ said Noah Glass, CEO of OLO, an online ordering platform used by restaurants like PF Chang’s and Five Guys. ‘It’s really about kitchen maximization.’”
“There are apps now like Dorsia that let (very) high paying diners make last-minute reservations at places they would otherwise not be able to. In a more pedestrian sense, restaurants know who is ordering through third-party delivery apps like Uber Eats and DoorDash, and they sometimes charge those customers more, because the delivery services take a cut and these kinds of orders aren’t as profitable for the restaurant.” READ MORE
The growth of women-owned businesses is outpacing the market: “‘We were kind of surprised to find that Covid turned out to be such a positive time for women-owned firms,’ said Val Jones, senior vice president and senior lead strategy consultant with Wells Fargo. ‘Even though women essentially missed out on PPP dollars at first, once the cash flow started, these firms not only found their footing, but they thrived in many cases. Their revenue and employee growth were substantial.’ So what were the factors behind the growth and impact on the economy?”
“Between 2019 and 2023, the number of women-owned businesses increased at nearly double the rate of those owned by men, increased their share of the workforce by 3.5 times that of men — and nearly 5 times as high in 2022-2023 alone — and outpaced the growth rate of men by 82.4 percent.”
“‘It’s interesting to look at the dynamics in play during that time,’ Jones said. ‘Lots of women were out of the workforce because of children being home due to school lockdowns or job layoffs, but they had more money in their pockets thanks to pandemic checks and lesser costs associated with expenditures like childcare. All of those factors gave women a lot of room to grow.’”
“Women-owned firms also exhibited adaptability by employing strategies such as shifting to online sales by adding e-commerce and using social media and live-streaming, in addition to adding new services such as virtual consultations, classes and events, and partnering with other businesses.” READ MORE
Remote workers are missing out on promotions: “For a while, remote workers seemed to have it all: elastic waistbands, no commute, better concentration, and the ability to pop in laundry loads between calls. New data, though, shows fully remote workers are falling behind in one of the most-prized and important aspects of a career: getting promoted. Over the past year, remote workers were promoted 31 percent less frequently than people who worked in an office, either full-time or on a hybrid basis, according to an analysis of two million white-collar workers by employment-data provider Live Data Technologies. Remote workers also get less mentorship, a gap that’s especially pronounced for women, research shows.”
“Nearly 90 percent of chief executives who were surveyed said that when it comes to favorable assignments, raises or promotions, they are more likely to reward employees who make an effort to come to the office.”
“In the online survey of 1,325 CEOs of large companies in 11 countries, conducted last year by professional-services firm KPMG, almost two-thirds of respondents said they expect most employees will be working in offices full-time in another three years.”
“‘People may not like it, but I can’t build a company by playing to the lowest common denominator,’ says Vineet Jain, Egnyte’s chief executive. ‘If you don’t show up and work with the rest of your colleagues, it’s showing a lack of connectivity and a lack of ownership.’” READ MORE
The latest addition to the wedding industry? Content creator: “Wedding content creators typically deliver hundreds of shareable photos and videos within 24 hours of a wedding. By contrast, traditional wedding photographers provide couples with preview images within a week of their event, and they’ll have to wait up to six weeks for their full photo gallery and as long as four months for the video. While traditional photography and videography still remain a top priority, more couples want to document, via social media, the in-between moments not normally captured.”
“A 2023 Instagram poll of more than 2,600 brides and grooms conducted by Joy, a digital wedding-planning platform, found that 94 percent of couples said that social media played a big part in the planning of their wedding. Sixty-two percent felt pressured to have an extravagant event and showcase it because of what they had seen shared on Instagram, TikTok, and Pinterest.”
“Content creators use a smartphone to capture candid, behind-the-scenes (or BTS) moments, then edit the photos and short-form videos, and set them to trending audio or the couple’s favorite songs. They post the finished product to the couple’s preferred social media platforms. Couples can also choose to receive raw content that they can edit and post themselves.”
“Pricing will often depend on the content creator’s time spent on-site, usually starting at six hours and up to three days of coverage, and the amount of content delivered. This includes edited reels, highlight videos, and hundreds of unedited photos and short-form videos sent over Dropbox or Google Drive.” READ MORE
Gen Zers are fueling a boom in non-alcoholic spirits: “Gaba Labs is one of a slew of startups that have sprung up in response to a greater awareness of the harms that drinking poses: Health-conscious younger people are drinking less than Millennials or Baby Boomers when they were the same age. Worth less than $1 billion in sales globally, nonalcoholic spirits make up only a sliver of the $650 billion spirits market, but they’re booming. They’re poised to grow around 30 percent annually in the coming years, versus 6 percent for conventional spirits, according to the market research company Euromonitor.”
“Whether big or small, these companies are all chasing after younger customers. Among 18- to 26-year-olds in the U.S. and Japan, more than half claimed not to have consumed alcohol in the previous six months, according to data provider IWSR. In a separate Gallup Poll survey, 62 percent of American adults under age 35 said they drink, down from 72 percent a decade ago.”
“As [David Orren, CEO of Gaba Lab] tells it, Sentia is not Gaba Lab’s main act. His co-founder, scientist David Nutt, has spent decades developing an entirely synthetic alcohol substitute called Alcarelle; it’s even more effective at creating a pleasant buzz without any downsides. Their ultimate goal is to sell the compound to other spirits makers.” READ MORE
California’s largest insurer has raised home and auto rates by 20 percent: “The increases, which were approved by the state's Department of Insurance, are expected to affect more than five million Californians. The new auto insurance rates will go into effect on Feb. 26 and the homeowners insurance rate will go into effect on March 15. Initially, State Farm sought to increase its auto insurance rates by 24.6 percent and its homeowners insurance rates by 28.1 percent, citing wildfire risks and skyrocketing construction costs.”
“Karl Susman, president of the Susman Insurance Agency in Los Angeles, took a more measured approach, arguing that the steep rate increases seen recently are due to rates being ‘artificially repressed’ because of regulation and the pandemic. ‘Carriers are playing catch-up to rate—which everyone hates,’ Susman told The Standard. ‘I hate it too. I don’t like getting clients calling about rates going up 20, 30, 40 percent.’”
“Unlike homeowners insurance providers, auto insurers are legally required to write a policy for all ‘good drivers.’ Last month, regulators issued an enforcement bulletin in response to complaints about waiting periods, questionnaires and other stalling tactics.”
“The Department of Insurance approved a 30 percent average rate increase from Allstate that will go into effect this year for its auto insurance policies. Geico also got the green light to raise its average car insurance rate by 12.8 percent after initially requesting a 20.8 percent hike. Those rate increases are expected to impact nearly three million drivers.” READ MORE
A Facebook page chronicles the deaths of food-delivery workers in New York city: “Just over three years ago, [Sergio] Solano and relatives who are also delivery workers started ‘El Diario de Los Deliveryboys en La Gran Manzana,’ which translates to ‘The Journal of the Deliveryboys in the Big Apple,’ a Facebook page with aims both practical and informative. The page would act as an online support network, a space to alert of bicycle thefts, traffic accidents, and discriminatory encounters reported by Spanish-speaking immigrants who brave the urban frenzy to satisfy a New Yorker’s takeout cravings. Along the way, it would chronicle the job’s twists and turns. Soon after the page was up and running it became clear to Mr. Solano that the project would tell a bigger story: Compañeros die regularly on the job. More than 40 have died since the page went live in late 2020, by Mr. Solano’s latest count.”
“On the Deliveryboys page, a stream of photos bears the names and faces of the fallen. Most of them are immigrants from Mexico or Guatemala who are part of an estimated cavalry of 65,000 food delivery workers in New York City.”
“A report by the city published in November 2022 said that the fatality rate among food delivery workers who don’t use a car was 36 deaths per 100,000 thousand workers from January 2021 to June 2022. That rate surpassed that of workers in construction (seven deaths per 100,000), which had historically been the deadliest industry.”
“Last summer, when Eduardo Valencia, 28, was killed in an accident while he was working, his story, too, became the focus of the Deliveryboys page. Mr. Valencia had come to the city from Guerrero as a teen, said his mother, Guadalupe Nepomuceno.”
“His dream was to save up enough to carve out a comfortable living in his hometown, she said. ‘He wanted to build his house, return to Mexico and never return to New York,’ Ms. Nepomuceno said in Spanish. But Mr. Valencia’s homecoming would be inside a coffin.” READ MORE
THE 21 HATS PODCAST
New Year’s Resolution? Make. Some. Money: This week, Shawn Busse, Paul Downs, and Laura Zander talk about why 2023 was so challenging for them and what they plan to do differently in 2024. “Last year was a year when I knew I was going to be making a bunch of investments and didn't expect to show much or any of a profit,” says Paul. “And I absolutely nailed that goal.” Shawn, meanwhile, explains how his new marketing scheme is working, and Laura says she’s addressing her issues by going shopping — shopping, that is, for businesses.
“She’s now bought a total of six, and she offers a step-by-step guide to how even a relatively small business can grow through acquisition, including what she’s looking for (mostly companies in distress), how she sets a price (she aims to recoup her cash outlay pretty quickly), how she finances the deals (not with a bank!), and how she integrates her old and new operations (that can be a bear).
You can subscribe to the 21 Hats Podcast wherever you get podcasts.
Thanks for reading, everyone. — Loren