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KONTOS KOMMENTARY: 2022 Kontos Outlook
KONTOS KOMMENTARY
2022 Kontos Outlook
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By Tom Kontos, Chief Economist, KAR Global 2021 was a banner year for wholesale vehicle values. On a full-year basis, we saw values above pre-COVID/2019 levels by 30% for the year, as a perfect storm in used vehicle demand faced a perfect drought in used vehicle supply—much of which was brought on by the chip shortage. As we look ahead to 2022 and what the year may bring for our industry, there are several key things to keep in mind and look out for as the year unfolds—consider this my Kontos Krystal Ball: Repossessions will probably be the “first responders” to the used car shortage. Because of government stimulus plus deferrals and forbearance programs that banks and lenders have provided, people were able to postpone or avoid potential repossessions. We will possibly now see an uptick in repos as these programs are slowly phased out—not back to pre-pandemic levels, but we should see increases. In mid-2022, I suspect we will be talking a whole lot less about the chip shortage, as manufacturers use creative new approaches to address this problem. New car inventory will move closer to normal helping used vehicle demand stabilize. I also anticipate more stable wholesale values—in other words no dramatic rises or falls in 2022. We will likely see a return to pre-pandemic seasonal patterns with the usual uptick during tax season in the spring, and a gradual softening the rest of the year. In general, I will be keeping my eye on the economy—focusing on employment, inflation and GDP growth. One area that is of major concern to many economists is inflation and the spillover impacts that might accelerate higher interest rates that could potentially make new and used vehicles less affordable. As we transition to renewables from fossil fuels and electric vehicles from internal combustion engines, it’s going to be costly and will take a while to figure out how we will produce and consume energy in a new way. These things take time and will be expensive in the near term. This is important to keep in mind, as we see more and more electric vehicles entering the car ecosystem. In short, 2021 brought us new records in pricing and new lows for inventory. I’m looking forward to analyzing trends for all of our customers and partners throughout 2022 with the hope that greater stability will be beneficial to both. n
Disclaimer: The views and analysis provided herein relate to the vehicle remarketing industry as a whole and may not relate directly to KAR Global. The views and analysis are not the views of KAR Global, its management or its subsidiaries; and their accuracy is not warranted.
Forward-Looking Statements: The statements contained in this report and statements that the company may make orally in connection with this report that are not historical facts (including, but not limited to, expectations, estimates, assumptions and projections regarding the industry and business) may be forward-looking statements. Words such as “should,” “may,” “will,” “anticipates,” “expects,” “intends,” “plans,” “believes,” “seeks,” “estimates,” “promises”, “likely to” and similar expressions identify forward-looking statements. Forwardlooking statements are subject to risks and uncertainties that could cause actual results to differ materially from the results projected, expressed or implied by the forward-looking statements. Factors that could cause or contribute to such differences include those matters disclosed in the company’s Securities and Exchange Commission filings. The company does not undertake any obligation to update any forward-looking statements.
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NIADA GOVERNMENT REPORT
NIADA, Washington Update
BY BRETT SCOTT, NIADA VICE PRESIDENT OF GOVERNMENT AFFAIRS
NIADA is your voice in Washington D.C., advocating for independent dealers, the used vehicle industry and small business. Here’s a look at the latest news and NIADA efforts regarding legislative, regulatory, PAC and grass roots activities.
LEGISLATIVE
President Biden’s top legislative priority – the massive social spending package known as the Build Back Better act – was effectively sunk in December, when Sen. Joe Manchin (D-W.Va.) announced he would not vote for it because of concerns about inflation, deficit spending and what he called an attempt to “reshape our society.”
But that doesn’t mean the White House has given up on salvaging at least parts of it.
Reuters, citing unnamed sources, reported the Administration is looking for a “reset” of the $1.75 trillion bill with an eye toward keeping its climate change proposals while reducing or cutting other items in an attempt to win Manchin’s support.
Manchin’s vote is crucial because the Senate is split 50-50 between Democrats and Republicans, and with the GOP solidly against the bill, every Democratic vote is needed to pass it using the budget reconciliation process.
The White House is considering cutting back or cutting out measures such as paid family leave, universal pre-kindergarten and home healthcare, as well as placing an income cap on increases in the child tax credit to target the money to low-income families while extending that credit for 10 years, as Manchin had previously proposed.
Reuters’ sources said the slimmed down bill would still likely cost more than $1 trillion.
NIADA joined more than 80 trade association and business groups in signing a letter to House and Senate leaders opposing the “multi-trillion-dollar tax increase included in the Build Back Better bill” and asking them to “focus instead on the challenges confronting American families and businesses today – rising prices, labor shortages, and ongoing supply chain constraints.”
REGULATORY
The Federal Reserve Board and the Consumer Financial Protection Bureau announced the dollar thresholds used to determine whether certain consumer credit and lease transactions are exempt from Regulation Z (Truth in Lending Act) and Regulation M (Consumer Leasing Act) in 2022.
By law, the agencies are required to adjust the thresholds annually based on the annual percentage increase in the consumer price index for urban wage earners and clerical workers, known as CPI-W. Transactions at or below the thresholds are subject to the protections of the regulations.
Based on the annual percentage increase in the CPI-W as of June 1, 2021, the protections of Regulations Z and M generally will apply to consumer credit transactions and consumer leases of $61,000 or less in 2022.
Private education loans and loans secured by real property (such as mortgages) are subject to Regulation Z regardless of the amount of the loan.
POLITICAL ACTION COMMITTEE
Last month, NIADA’s political action committee increased the reach and scope in Washington with the addition of Christina Perez as NIADA’s new director of government affairs. NIADA-PAC will be Christina’s primary focus.
She’ll work to get association members engaged in the PAC, as well as raising awareness of the PAC and educating NIADA member dealers about the importance of participating.
She’ll also be involved with lobbying on Capitol Hill to advocate for independent dealers, the used vehicle industry ad small business, and will represent NIADA in meetings with members of Congress and other government entities.
GRASS ROOTS
Florida: The state’s Department of Highway Safety and Motor Vehicles could suspend Carvana’s dealer license because of delays in transferring titles to vehicles sold by the online auto retail giant.
Television station WFLA in Tampa reported the department sent an email to Carvana in December giving the company until Jan. 31 to resolve all title-related issues and submit title applications for vehicles sold before Dec. 21, 2021. Otherwise, FDHSMV said it “may commence administrative action to suspend Carvana’s dealer license in Florida.”
The email said FDHSMV “remains concerned with Carvana’s apparent inability to comply with the provisions of Florida law requiring a dealer to apply for title within 30 days of the sale and the impact that has on Florida consumers.” WFLA said the email exchange between the department and Carvana included a spreadsheet showing 300 vehicle sales nationwide dating to late 2019 in which the title has not yet been transferred – more than 100 of them in Florida.
Carvana, America’s second-largest used vehicle retailer, reached a settlement with Florida regulators in 2021, according to WFLA, agreeing to pay $500 each to 12 customers who had waited three to eight months to receive their titles. It had previously had its license suspended for 180 days in Wake County, N.C., for violating the state’s dealer licensing laws – including failing to deliver title work in a timely manner.
North Carolina: On Dec. 1, 2021 a state law went into effect making catalytic converter theft a Class I felony and requiring businesses that buy used catalytic converters to get documentation and maintain detailed records on people who sell the devices to them.
According to the National Insurance Crime Bureau, catalytic converter theft claims to insurance companies rose 326 percent – from 3,389 to 14,433 – between 2019 and 2020, as the prices for the metals inside them, including platinum, palladium and rhodium, have risen sharply.
North Carolina is among 10 states that enacted new laws regulating catalytic converters and their theft or sales in 2021. Virginia State Sen. Frank Ruff Jr. said he plans to introduce a bill based on the North Carolina law that would make the theft of a catalytic converter a felony and would require anyone in possession of one that had been removed from a vehicle to be an authorized scrap seller or have a bill of sale, receipt or other documentation. n
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