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EV disruptors like Rivian, Arrival hit familiar auto industry speed bumps

The slumping stock market and rising interest rates have made it tougher for EV companies to raise fresh capital from investors.


DETROIT — Electric vehicle startups that promised to disrupt the automotive industry by using a software- and technology-heavy approach are now scrambling to cut costs amid the type of industry slowdown that has bedeviled Detroit automakers over the years.

To remain a player in an increasingly competitive business as incumbent automakers introduce their own EVs, startups like Rivian Automotive Inc. and Arrival SA will need to tighten their belts and in some cases reinvent themselves, industry officials and analysts said.

In many cases, they are partnering with larger, deep-pocketed companies to aid their survival and provide access to funds.

Those who fail to control their spending or find the right partners could wind up like electric delivery van startup Electric Last Mile Solutions, which filed for Chapter 7 bankruptcy protection last month. Industry officials do not expect that to be the last startup to hit a pothole.

“Like every company that is burning money, you need to make the right adjustments so that you can get to the other side of the desert,” said Evangelos Simoudis, a Silicon Valley venture capital investor and industry adviser.

Even as overall new-vehicle sales have slumped during the COVID-19 pandemic, EV demand remains strong. Global sales of battery electric and plug-in hybrid electric vehicles nearly doubled last year to 6.6 million, according to the International Energy Agency.

On Tuesday, British startup Arrival said it planned to cut spending, reorganize its business and potentially shed 30 percent of its workforce in response to the challenging economic environment.

Arrival, trying to launch production of electric delivery vans, is following the lead of industry stars Tesla Inc. and Rivian, which have cut jobs as supply-chain snarls hobbled production, holding revenue below expectations and sending costs soaring.

Arrival said its $500 million in cash on hand would last until late 2023 with the proposed cuts. The question is whether that will be enough.

“One billion dollars doesn’t last very long in the auto business. That’s a redesign for a Malibu or something,” Cox Automotive executive analyst Michelle Krebs said.

No more ‘free money’

Partnerships or long-term contracts with financially strong companies are one lifeline for EV startups.

Stellantis CEO Carlos Tavares said on Wednesday that rising inflation is cutting off easy access to “free money.”

“This means some startups will have a little bit more difficulty to develop by themselves,” he said during an awards presentation to startups with whom the carmaker works.

Rivian not only has a large deal to supply vans to, but the online giant also is a major investor.

Rivian CEO RJ Scaringe told employees on Tuesday that job cuts were coming in order for the company “to stay ahead of the changing economic landscape.”

Lordstown Motors Corp., an Ohio startup that briefly had a larger market value than Ford Motor Co., has restructured, selling assets to and partnering with Taiwanese contract manufacturer Foxconn. The company on Tuesday announced its third CEO is less a year — Edward Hightower, a former General Motors and Ford executive who is also the first Black CEO of a U.S. automaker in more than 100 years.

‘Incredibly tough business’

The staff cuts and restructuring in the new EV industry reflect challenges common to all automakers, and some that are unique to small companies in a capital-intensive industry where even global economies of scale sometimes are not enough to assure profitability.

When Tesla CEO Elon Musk last month told top executives in his company in an email that he had a “super bad feeling” about the economy, and said the world’s most valuable automaker needed to cut its salaried staff by 10 percent, he was amplifying concern about the global economy other CEOs shared.

“This is an incredibly tough business,” said Barry Engle, a former auto executive who started a special-purpose acquisition company that merged with air taxi startup Lilium. “With the success of Tesla, it’s easy to forget that was a story that was 20 years in the making and along the way there were many points where they stared death in the face.”

In Tesla’s case, economic turbulence struck as the company was launching large assembly plants in Texas and Germany. Supply-chain bottlenecks had turned those operations into “money furnaces,” Musk told members of a Tesla fan club last month.

Detroit not immune

Detroit automakers are at risk too from rising money costs and persistent supply-chain problems.

At General Motors, executives look at a dashboard of market indicators “every day, every week, every month,” CFO Paul Jacobson told investors at Deutsche Bank conference in June. “I don’t want to end up in a situation where we walk off a cliff.”

So far, established automakers have been able to raise prices on their popular, high-volume combustion trucks and SUVs to keep cash flowing. GM, Ford and Stellantis have so far stuck to their full-year profit forecasts.

EV startups do not have established model lines churning out cash the way the Ford F-series truck lineup does. The slumping stock market and rising interest rates have made it tougher for new companies to raise fresh capital from investors. That intensifies pressure to start building and selling vehicles, and to slash expenses to conserve cash on hand.

Canoo Inc. shares got recharged on Tuesday when the company said it had landed the deal to deliver 4,500 delivery vans to retailer Walmart.

Canoo shares rose more than 50 percent, although from a low base. The company told investors in May its management had “substantial doubt” about the company’s ability to remain a going concern.

Automotive News contributed to this report.

More Americans Would Buy an Electric Vehicle, and Some Consumers Would Use Low-Carbon Fuels, Survey Shows

In CR’s largest-ever nationally representative survey, more than a third say they’d consider buying an EV today

A growing number of consumers are eager to buy a battery electric vehicle, especially if certain concerns related to EV ownership are addressed, such as creating greater access to charging, extending vehicle range, and lowering purchase prices, according to findings from the largest-ever nationally representative survey from Consumer Reports (PDF).

The survey of 8,027 U.S. adults found differences across racial/ethnic and income groups in terms of how people perceive EVs and the potential purchase barriers. Almost half of respondents also reported being unaware of existing federal and state incentives that would defray the purchase price of many EVs, sometimes up to $7,500 for the federal credit, key knowledge that might sway someone to make an EV purchase. 

With improvements to the nation’s charging networks, more lower-priced EVs coming to market, and increasing range from battery technology advances, many barriers to EV ownership are showing signs of breaking down over time. The survey results bear this out: We found that 14 percent of American drivers say they would “definitely” buy or lease an electric-only vehicle if they were to buy a vehicle today. That’s up markedly from the 4 percent who said the same in a 2020 nationally representative survey from CR of 3,392 licensed U.S. drivers.

Overall, our latest survey found that more than a third of Americans would “definitely” or “seriously” consider buying or leasing an electric-only vehicle) if they were to buy a vehicle today. Among their reasons: More than 3 in 10 U.S. adults say that it costs less to charge an EV than to refuel a gas car (33 percent), overall lifetime costs are lower (31 percent), and maintenance costs are lower (28 percent). 

“The survey shows that there is clear interest among Americans in reducing costs for transportation and lowering their environmental impact,” says Quinta Warren, PhD, CR’s associate director of sustainability policy. “It underscores some key concerns, but fortunately, many of these barriers to owning a battery-electric vehicle EV can be addressed through experience and education.”

There’s no denying soaring demand for electric vehicles and hybrids. Gas prices are at record highs, and Americans increasingly are turning to electric vehicles. EV sales rose 76 percent in the first quarter, compared with the same period last year, according to Cox Automotive, an information and services company. EVs promise reduced operating costs, and there are more choices on the market, with more models from various categories on the way

Consumer Reports conducted the survey to better understand demand and awareness of battery EVs and low-carbon fuels. It was partially funded by the environment-focused philanthropic group Breakthrough Energy and the Energy Foundation, a nonprofit organization dedicated to a safe, equitable economy powered by green energy. It was fielded Jan. 27 to Feb. 18, 2022, when the national average price for gasoline ranged from $3.34 to $3.52 per gallon. The price of gas has surged to a national average of about $5 per gallon for regular as of late June. (Download a PDF of the survey report.)

The survey results illustrate an EV landscape in transition, as more Americans become aware of the purchase option in a societal atmosphere of increasing concern about climate change and the role fossil fuels are playing. 

CR is committed to supporting sustainable transportation, reducing harmful emissions, and saving drivers money—so much so that fuel economy is a key factor in the Overall Score that we give to every car we purchase and test. As a result, the Overall Scores elevate good all-around models that are energy-efficient, helping shoppers make their purchase decisions and encouraging automakers to prioritize energy efficiency. CR also launched a Green Choice designation last year using vehicle emissions data from the Environmental Protection Agency, highlighting the vehicles that are among 20 percent lowest contributors to smog-forming and greenhouse gas emissions for their model year. You can find these Green Choice vehicles on our website and in our print publications. They are denoted by a green leaf icon wherever our ratings are presented.

Highlights From the Survey

EV visibility: Four in 10 Americans (44 percent) have seen a battery-electric vehicle in their neighborhood in the past month.

EV experience: 17 percent of all Americans have been a passenger in an electric-only EV in the past 12 months, and only 7 percent have driven one. Only 2 percent of Americans currently own or lease a battery electric vehicle.

Views on climate change: Seven in 10 Americans say the issue of climate change is personally “very important” (35 percent) or “somewhat important” (35 percent) to them. Three out of 4 Americans agree that human activities contribute to climate change. 

Erasing barriers: Charging logistics (61 percent) is the top barrier to getting an EV, followed by the number of miles the vehicle can go before needing a charge (55 percent) and the costs involved with buying and maintaining an EV (52 percent).

EV incentives: Almost half of Americans (46 percent) have not heard about any incentives available for electric-only vehicle owners. 

Demographic viewpoints: Our survey found that some groups are more likely than others to buy or lease an EV as their next vehicle:
• Males are more likely than females.
• Younger adults are more likely than older adults. 
• Americans with a higher education are more likely than those with a lower education.
• Americans with a higher household income are more likely than those with a lower household income.
• Americans who live in urban areas are more likely than those living in suburban or rural settings.

Low-carbon fuels: Overall, two-thirds of Americans (67 percent) say that given a choice, they would be likely to use low-carbon fuel in their personal vehicle if the cost per gallon were the same as the cost of traditional fuel.

Experiences With EVs Affect Attitude and Desire

Americans who have experience with EVs, including simply being a passenger in one, are more likely to be interested in purchasing one. Overall, only 7 percent of Americans have driven one in the past 12 months, whereas 20 percent of those who say they would definitely buy/lease an EV as their next vehicle, have driven one. This makes sense because EVs are relatively new and in some ways quite different from a traditional gasoline car. 

“Many EVs are enjoyable to drive, with quick, silent acceleration, and balanced handling, aided by their large, low-mounted battery,” says Gabe Shenhar, associate director of auto testing at Consumer Reports. “In short, they are often quite a treat to drive.” 

EV Sticker Shock

Of Americans who said cost-related factors were holding them back from getting an EV, almost 6 in 10 said purchase price was the biggest barrier. Of those, a larger percentage of white (60 percent) and English-speaking Asian Americans (66 percent) surveyed say “purchase price” is one of the cost considerations holding them back from getting an electric-only vehicle, compared with Hispanic (55 percent) and Black Americans (46 percent).

The attitude toward purchase price may be influenced by the attention given to pricey models currently on the market from Audi, BMW, Lucid, Mercedes-Benz, Porsche, Rivian, and Tesla. But mainstream automakers are introducing lower-priced models, including the Kia NiroSubaru Solterra, and Toyota bZ4X. Some shoppers may be surprised to learn that prices for the Chevrolet Bolt and Bolt EUV, Hyundai Kona, and Nissan Leaf have dropped. The 2023 Chevy Bolt now starts at just $26,595—putting it around $20,000 less than the price of the average new car. 

And for many EVs, the true purchase price may be even less than the sticker price because of federal, state, and even power utility incentives. Almost half of Americans (46 percent) are unaware that there are incentives available. “Tax rebates and other incentives can reduce the purchase price of EVs by thousands of dollars,” says Warren, CR’s associate director of sustainability policy. 

It can be tricky to determine which incentives are applicable to a given model because federal tax credit eligibility is based on overall sales volume. To make this easier, Consumer Reports’ Electric Vehicle Savings Finder highlights local and federal incentives and tax rebates, based on your ZIP code and the model you’re researching. This feature is part of our free membership at, requiring just an email address to access.

Cost of Vehicle Ownership

“Most EVs are less expensive to own than similar traditional cars,” according to Warren, “even when factoring a higher purchase price for a comparable gasoline-powered vehicle.” 

And yet, just over half of Americans (52 percent) who weren’t already committed to buying an EV said the costs of buying, owning, and maintaining it would prevent them from leasing or purchasing one. 

The views and concerns vary among different groups. Of those who say cost-related factors would prevent them from getting an EV, a larger percentage of Black (54 percent) and Hispanic (48 percent) Americans than white Americans (37 percent) say maintenance and repair costs are holding them back. However, a previous study by CR, conducted in 2020, revealed that EV owners spend around half as much on maintenance and repair over the vehicle’s typical lifetime as gas-only car owners do. EVs have fewer moving parts and fluids that need to be changed. Even the brakes tend to last longer. Plus, the cost of powering the car is also far lower, especially now with $5-per-gallon gas.

Charging an EV

About 6 in 10 Americans who weren’t already committed to purchasing an EV say concerns about where and when they would be able to charge it (61 percent) and how far that charge will take them (55 percent) have been holding them back from buying. In particular, concerns for charging logistics are greatest among white and English-speaking Asian Americans at 67 percent for each group. 

The good news: There are now more than 48,000 U.S. public charging locations, often with multiple charging connections, and many more on the way. Fifty percent of Americans say free public charging stations are the charging option that would most likely encourage them to buy or lease an electric-only vehicle, followed by 47 percent who say it is the ability to charge where they live, and 45 percent who say easy access to fast-charging public stations. Only 10 percent considered workplace charging to be the most important option. 

For those who can charge at home, CR has found good wall-mounted charging units for $500 to $700. Installing one costs from $492 to $1,191, according to HomeAdvisor. EV range is commonly around 250 miles (far more than most people typically drive each day), meaning that overnight charging can satisfy most drivers’ common needs. Experienced EV owners consider range to be much less of an issue than non-owners, supporting this assertion.

Hybrid Savings

For those not ready to commit to a full-on EV, hybrids can be a smart alternative and save owners a lot on gas. A hybrid combines a gasoline engine with an electric assist, allowing the powertrain to optimize its operation for maximum fuel economy. With a regular hybrid, the engine and brakes generate electricity, so you never need to plug in the car. 

As an example, trading in a 2017 Chevrolet Equinox V6 for a 2022 Toyota RAV4 hybrid (another small SUV) could save $1,775 a year in fuel costs, based on our tests and gas at $5 per gallon. That’s almost $9,000 in fuel savings over five years. Moving to a pricier Toyota RAV4 Prime plug-in hybrid would yield even greater savings, while providing a balance between 42 miles of local electric-only driving and the long-distance range and convenience that gasoline provides. (For the RAV4 Prime, the total range per tank and one charge is 540 miles.)

The Promise of Low-Carbon Fuels

Running vehicles on electricity is just one way to reduce harmful greenhouse gas emissions in transportation. Another is a shift to low-carbon fuels derived from clean, often renewable sources. Some low-carbon fuels are designed to work in regular gasoline-powered vehicles, and others may require new powertrain technology. The term “low-carbon fuels” refers to a range of solutions, but it is most often associated with ethanol and biodiesel developed from plants. It also encompasses other energy sources such as hydrogen, liquified natural gas, and propane. 

The survey focused on “drop-in fuels” that could be used in current vehicles without modification. The results show that Americans are quite receptive to the possibility of using these in their own personal vehicles, and they see the value in their use for other applications, such as aviation. 

Two-thirds of Americans said they would be likely to use low-carbon fuel instead of traditional gasoline in their personal vehicle if the cost per gallon was the same as the cost for traditional fuel. 

Those who are more likely to purchase an electric-only vehicle are also much more likely to say that they’d use low-carbon fuels in their personal vehicles and if they had the choice would choose a flight on a plane that uses low-carbon fuel.

The survey showed that there is the willingness to shift to another fuel type for its environmental benefit, however, it is important that the cars be designed to use it. Today’s regular gas typically is 10 to 15 percent bio-ethanol, a plant-derived fuel. Higher concentrations require a flex-fuel engine designed to handle the different chemistry, including a special fuel pump and fuel injection system. 

“When it comes to reducing fuels’ carbon emission, there are several things we can do,” says Mohammad Tayarani, PhD, senior policy analyst at Consumer Reports. “As automakers roll out more electric vehicles, there are other low-carbon fuels that could complement the transition to EVs. Plus, there is huge potential for low-carbon fuels to power planes, boats, and other transportation for both freight and people.

Shopping for an Electric Vehicle?

See our hybrid/EV ratings and buying guide.

Car sales continue hot streak, but market shows signs of cooling

Auto makers are likely to report a slowing U.S. sales pace for recent months, as dealers have ready buyers but a lack of inventory

By Nora Naughton  By and Mike Colias

U.S. car sales continued at a blistering pace in the second quarter but showed some signs of slowing in June, as the number of vehicles on dealership lots continues to dwindle.

General Motors Co. reported a nearly 40% increase in vehicle sales for the second quarter compared with the same period a year ago. The Detroit auto maker’s sales were also up compared with the first quarter, but less so, rising 10% over that period.

Sales for Stellantis STLA -5.73% NV increased 32% in the second quarter, compared with the April-to-June period a year ago. The Jeep brand owner’s growth from the first quarter was more modest, up 3% in the second quarter compared with the first three months of the year.

Volkswagen AG VOW -3.54% reported its best first-half U.S. sales in nearly a half-century while managing tight supplies. The company now has about 32,000 vehicles in inventory while aiming to sell around 30,000 vehicles a month, said Scott Keogh, chief executive of Volkswagen’s North American subsidiary.

“We’re losing some sales opportunities,” Mr. Keogh said.

The auto makers’ results mostly reflect analysts’ expectations that the rate of new-car sales growth is beginning to fall off from recent months, when car shoppers turned out in near-record numbers, buoyed by excess household savings and pent-up demand from the pandemic.

Customers are still clamoring for a new ride, dealers say. But it has become harder for salespeople to match buyers to vehicles because of the lack of inventory resulting from a computer-chip shortage that has hobbled car production since winter.

“We really don’t have enough cars to go around,” said Joe Shaker, owner of Shaker Automotive Group, which sells several brands in Connecticut and Massachusetts. He said his Ford -1.81% store is carrying about 14% of its normal inventory.

New-vehicle sales in the first half of the year are expected to reach about 8.3 million units, according to an estimate from J.D. Power, a 32% increase over the same period in 2020 and up nearly 1% from the first half of 2019.

The rate of sales slowed considerably at the end of the second quarter, falling to an annualized selling pace of 15.4 million, according to research firm Wards Intelligence. That is down from April, when the industry was on pace to sell nearly 19 million vehicles for the year. The industry tracks the annualized sales rate as a measure of market strength from month to month because it strips out seasonal factors.

Analysts attribute the deceleration to withering dealership inventory. Dealers started June with about 1.5 million vehicles on their lots or en route to stores, down 42% from the same time in 2020 and down 23% from the start of May, according to Wards Intelligence. The diminishing selection is driving prices to record highs.

The average new vehicle sold eclipsed $40,000 for the first time in June, according to an estimate from J.D. Power, with car shoppers routinely paying above sticker price.

“We’ve been in a full-fledged supply crisis since about June of last year,” said Tyson Jominy, automotive analyst for J.D. Power. “Meanwhile, we have very, very robust demand among some of the wealthiest consumers.”

Consumers are flush with savings from federal stimulus payments and from hunkering down during the pandemic. Interest rates remain at historically low levels and used-car values have soared, giving consumers higher trade-in values when buying a new vehicle.

The unusual market dynamics—bare dealership lots, eager shoppers and heady pricing—are expected to last at least through the end of the year, analysts and car executives say. Despite the dynamics, many auto makers and dealership groups have reported record profits in recent months, bolstered by the stronger pricing and lower costs.

Bob Carter, Toyota Motor Corp.’s North American sales chief, said strong consumer confidence helped the company to its strongest first five months of the year ever, despite having to manage a raft of supply-chain problems.

“We have lots of problems, but I have zero complaints,” he said.

Toyota TM -1.00% typically would have roughly 330,000 Toyota and Lexus models on dealer lots in June. It expected dealers to finish the month with around 70,000 vehicles on hand, Mr. Carter said.

Toyota’s second-quarter sales increased 73% over the prior year, but showed signs of slowing in June, down about 35,000 vehicles from the month before. Rival Honda Motor Co. HMC -2.68% reported a second-quarter sales increase of nearly 66%, while its rate of sales also declined in June from May.

Hyundai Motor Co. reported its best-ever second quarter, selling 240,005 vehicles in the April-to-June period. That is a 69% increase from the quarter a year ago. The pace slowed in June, when the company sold 72,465 vehicles, down significantly from May when they sold more than 90,000 cars.

Kurt McNeil, GM’s vice president of U.S. sales operations, said GM dealers have less than a week’s worth of supply of large sport-utility vehicles, whereas normally they would have enough inventory to last three months.

He said GM expects the semiconductor shortage to ease, but he doesn’t see the situation on dealer lots improving much before the end of the year, and expects inventory to be constrained through 2022. GM said Thursday it ended the second quarter with 211,974 available vehicles, compared with 334,628 at the end of the first quarter.

“There’s so much demand that vehicles are just going to sell” as soon as they hit dealer lots, Mr. McNeil said. “We’re just going to be drastically low for the foreseeable future.”

Pickup trucks and SUVs, significant profit generators for GM and rivals Ford Motor Co. and Stellantis, have been disproportionately hurt by the chip shortage, according to data from research firm LMC Automotive. As a result, the Detroit companies posted falling market shares through the first five months of the year, while Toyota, Honda and Hyundai gained, LMC said.

Toyota outsold GM by about 46,500 vehicles in the second quarter, the first time in more than 20 years that any company has outsold GM, and the first quarter ever that the Japanese auto makers has outsold its Detroit rival, according to car-shopping website

On Wednesday, Ford said the chip shortage will force it to cut output across more than a half-dozen U.S. factories in July.

Auto makers in general have given priority to the production of their most popular models, while dealers have begun to assign incoming vehicles to customers in an attempt to expedite shipments to their stores.

Subaru Corp. FUJHY -0.15% said it has sold 20% more vehicles in 2021 relative to last year. The Japanese auto maker blamed the chip shortage for the rally stalling in June, however, when it sold 20% fewer cars than in the same month last year.

Higher used-vehicle prices also are helping drive new-car sales, analysts say, because shoppers are eager to leverage the higher value of their trade-ins. Used-vehicle prices on average were up an estimated 36% in mid-June from a year earlier, according to auction firm Manheim Inc.

The hot used-car market and dearth of shipments from the factory have left car dealers scrounging to feed their pre-owned vehicle lots.

Mr. Shaker said the new-vehicle selling price is no longer his priority in negotiations. Instead, he is telling salespeople to find customers who have a used vehicle they are willing to trade in.

“Right now, it’s far more important for us to sell to someone with a trade-in, because we need more vehicles to sell,” Mr. Shaker said. “When you’re running out of cars, a customer with a trade at least gives you two bites at the apple.”

– Ben Foldy contributed to this article.

Drivers endure near-record gas prices during July 4 travel

Gasoline prices drop below $5 a gallon as a record number of drivers are expected to hit the road over July Fourth weekend, according to AAA

 By Omar Abdel-Baqui and Hardika Singh

Americans are still paying close to $5 at the pump. That isn’t going to stop them from hitting the road this July Fourth, analysts say. 

The average price for a gallon of gasoline Friday was $4.84, compared with $3.12 during the same day last year, according to data from OPIS, an energy-data and analytics provider. 

Yet many drivers aren’t changing their pump habits much, despite the 55% year-over-year increase. 

Amanda Kovacs—a 41-year-old housecleaning business owner in Lorain, Ohio—traveled roughly 130 miles to Columbus, Ohio, this week for her daughter’s college orientation.

“It’s down to, ‘OK, do I have enough to put $20 in?’” said Ms. Kovacs, who said she’s limiting the amount of groceries she purchases to afford gas. 

Bart Melek, head of commodity strategy at TD Securities, said he expects few Americans to cancel July Fourth travel plans because of high gas prices. AAA predicts that auto travel will hit a record this Independence Day weekend, typically one of the busiest travel periods of the year. It expects 42 million people hitting the road, compared with 41.8 million last year.

Mr. Melek said he attributes the consumer resilience in part to many Americans saving cash during the Covid-19 pandemic and to the low unemployment rate. 

Most of all, people are making up for lost time, Mr. Melek said. And with expensive airfare, unreliable flight schedules and a lack of public transit options in much of the U.S., driving is one of the few options left for Americans looking to travel domestically this summer.

There will be some demand elasticity, Mr. Melek said, meaning more people may eventually change their habits as the prices remain around $5 a gallon. “But I think this is a particularly special time when we all just want to get the hell out and do fun stuff,” he said. 

Gas prices have dropped 18 cents a gallon since June 14, when they peaked at $5.02 a gallon. The drop isn’t expected to persist, said Tom Kloza, global head of energy analysis for OPIS. OPIS is owned by News Corp, the parent company of The Wall Street Journal. 

“Prices go up like a rocket, and they come down like a feather,” Mr. Kloza said.

There are some early signs that suggest record prices are prompting at least some Americans to change their driving habits. Gasoline demand in the week ending June 25 is down 6.3% compared with the same period last year, according to OPIS. Demand for gasoline in mid-to-late May fell to its lowest levels in nearly a decade, according to government data.

With consumer inflation also at record highs, many drivers are making more calculated budget decisions. 

“Gasoline prices to consumers are top of mind,” Mr. Kloza said.

Julie Pargo, a recently retired hospital administrative clerk living in Toledo, Ohio, drives about 150 miles every few months to visit her three children in Columbus. 

She spends about $70 filling up her 2018 Buick Envision. To save money, she has started strategizing her grocery shopping trips and where she buys gas.

“It’s sad when $4.69 sounds like a deal now,” she said. The average cost of a gallon of gas across Ohio was $4.78 on Friday, according to OPIS.  

Mr. Melek cautions Americans not to expect relief at the pump until after the busy summer driving season. More oil on the market and an easing of refinery bottlenecks could drag down prices. The Federal Reserve accelerating interest-rate increases could also decrease demand by potentially kicking off a recession, he said.

“There’s a light at the end of the tunnel—maybe a bit of a faint light—that we won’t reach until well past the summer,” Mr. Melek said.

The Biden administration has tried to urge the U.S. oil industry to boost output, but with existing refineries running near capacity, there is little that can be done short-term to ease the supply gap, analysts said.

Gasoline demand and prices typically hover around their highest levels in July and August. Any disruptions to refineries, which sometimes occur during the summer hurricane season, could lead to higher prices at the pump this year, Mr. Kloza said.

A May report from JPMorgan suggested retail gas prices could jump to $6.20 a gallon by August. Mr. Kloza said that isn’t likely without significant supply disruptions in July. 

Several agencies at the state and federal levels have taken measures to slow increasing prices. Some states have suspended their gas taxes. The U.S. Environmental Protection Agency issued an emergency waiver in April that allows gas stations to sell high-ethanol content gasoline this summer, despite concerns about increasing air-polluting emissions. 

The Biden administration has also tapped oil supplies from the U.S. Strategic Petroleum Reserve, releasing 1 million barrels of oil a day.

Ms. Pargo, the retiree in Ohio, said she would drive to visit her family across the state more if prices weren’t so high. 

“You do have to think about, ‘Do I really want to spend $70 just to drive there?’ ” she said.

General Motors slowly ramps up electric hummer production

Auto maker has a waiting list of 77,000 but is making about 12 a day, trailing pace of similar offerings from Ford, Rivian

By Mike Colias

The waiting list for General Motors Co.’s GM -2.42% new GMC Hummer electric pickup truck and related SUV model recently topped 77,000 prospective buyers. Most are likely in for a long wait.

GM’s renovated Detroit factory, where about 700 workers build the Hummer, has been producing around a dozen of the trucks a day, people familiar with the matter said. That pace is unusually slow for a vehicle in production for more than six months, manufacturing consultants say, and trails rival offerings from Ford Motor Co. -3.45% and Rivian Automotive Inc. RIVN 1.42%

Hummer production at GM’s Factory Zero, which underwent a $2.2 billion overhaul to build electric trucks, is on schedule, a company spokesman said. The ramp up has been slower than normal in part because the truck was developed from scratch using a new electric-vehicle platform. GM wants to ensure quality as it introduces the new technology, he said.

Output will increase sharply in the second half of the year, he said, largely because GM by late summer expects to begin using its own battery cells from a new factory in Ohio that it built with its joint-venture partner, South Korea’s LG Energy Solution. The Hummers built so far have used outsourced LG cells.

“Our ability to satisfy that demand is only going to improve as we bring on vertical integration of battery cell production,” a GM spokesman said. “You can expect to see hundreds of deliveries grow to thousands later this year.”

He added that customers are willing to wait for the Hummer EV because of its unique features. The Hummer has a longer driving range and faster charging times than rivals and has other features that make it difficult to compare it to other EV trucks on the market, the GM spokesman said.

Investors are watching closely as GM, Ford -3.59% and others test the nascent market for electric pickups, which is expected to emerge as an important battleground as car makers move into electric vehicles. Pickup trucks have long been the top-selling and most profitable vehicles for Detroit’s auto makers.

Auto makers are pushing to get electrics to market while also grappling with a computer-chip shortage and other supply-chain constraints that have curbed vehicle output and sales, particularly on gas-powered cars.

Compared to the Hummer, Ford is making about 150 of its F-150 Lightning electric pickups per day on average at the company’s factory in nearby Dearborn, Mich., a spokesman said. The company began production of the new truck in April.

EV startup Rivian RIVN 1.19% built about 2,500 of its new R1T pickup trucks in the first quarter, the company said. Rivian and GM both said they began production late last year.

GM hasn’t disclosed a sales target for the Hummer, which is priced from around $85,000 to $110,000 depending on the model. Lightning prices range from about $40,000 to more than $90,000; Rivian’s R1T is priced from around $80,000 to $95,000.

Because of the Hummer’s higher price, GM likely is planning significantly lower sales volumes than those competitors, said Sam Fiorani, a vice president at research firm AutoForecast Solutions. He expects GM to position its Silverado as the direct competitor to Ford’s Lightning.

EVs make up less than 2% of unit sales for GM and Ford, and the market for electric pickups is untested. Still, executives from the companies over the past few years have been touting their electric-vehicle strategies amid surging investor interest in Tesla Inc. TSLA -0.30% and other EV players.

Recently, investors and Wall Street analysts have questioned whether GM—among the first of the traditional auto makers to outline big EV ambitions—has ceded a head start to some rivals. The electric version of the Chevy Silverado pickup, is scheduled to go into production next spring, about a year after the Lightning’s launch.

In an interview this month, GM Chief Executive Mary Barra said she doesn’t think GM has been given enough credit for the Hummer, which has drawn media praise and went on sale ahead of the F-150 Lightning.

“We have 70,000 reservations for the Hummer. We’re delivering on it,” she said. “Frankly it’s a little stunning to me that people want to discount the Hummer.”

GM on Friday is scheduled to report second-quarter sales for the Hummer and the rest of its U.S. lineup.

Recession might not be the big risk for car stocks

Supply constraints make a return to 2008-style discounting hard to imagine. The question is what will happen when those constraints end.

By Stephen Wilmot

Don’t worry too much about a recession hitting Detroit. The real concern should be normalizing supply.

The U.S. new-car market is stuck in a low but lucrative gear as manufacturers struggle with production. General Motors warned Friday that its second-quarter profit would be lower than previously expected due to parts shortages curtailing deliveries to dealers. First-half sales across the market came in at about 6.8 million, according to Wards Intelligence, down 17 percent from the same period last year. 

Market share is being driven by vehicle availability more than desirability. Toyota outsold GM in the U.S. for the first time last year, and again in the first quarter, because the Japanese company initially handled procurement challenges better. But it too has succumbed lately; GM regained its old spot atop the sales charts in the most three months.

Yet supply constraints have created surprisingly profitable conditions for dealers and manufacturers. With few new vehicles on lots, the average price of a new one hit a fresh record of $45,800 in June, according to an early reading by J.D. Power. The losers have been consumers and parts suppliers, which are typically locked into long-term contracts.

Without many signs that the environment is changing, the question is why Detroit auto-maker stocks, which were very strong in 2021, had such a terrible first half. GM and Ford both fell 46 percent —much worse than the broad market.

The obvious answer is rising recession risks as interest rates rise. The average new-car loan cost 5.08 percent in May, up from 4.45 percent a year earlier. In the 2008 downturn, manufacturers had excess inventory and discounted aggressively to keep cash flowing to support their high fixed costs.

But a recession might not make so much difference in the current new-vehicle market which, in addition to being supply-driven, is now the preserve of the affluent. Buyers with incomes of less than $50,000 now account for less than a quarter of sales, down from roughly 40 percent at the start of 2016, according to Cox data.

Another concern is high pump prices, which ought to make the gas guzzlers Detroit specializes in less attractive. There are some signs of shifting tastes in the used-car market: Prices of small cars have been stronger than those of pickup trucks lately, says Charlie Chesbrough, senior economist at Cox. With inventories much lower for new vehicles, though, the trend might not feed across soon.

This isn’t to say that Detroit had a great second quarter. Rising raw-material prices are starting to squeeze auto makers more as supply contracts get renegotiated. The cooling used-vehicle market won’t give their financial-services arms the tailwind they got last year. Profits are surely past their best.

Still, the real test of car makers’ mettle will come when supply once again exceeds demand. Manufacturers say they won’t fall back into the old trap of overproducing, but this is hard to believe when the industry still has significant excess capacity and investment in electric-vehicle production will lead to even more.

However this plays out, normalization could take years. As supply gradually recovers, risks from a slowing economy need to be set against the benefit of pent-up demand. Consulting firm AlixPartners doesn’t expect U.S. new-vehicle inventories to start rising meaningfully from their current multidecade lows until 2025. That could mean the next few years are more comfortable for car makers than recession-obsessed investors seem to think.

Cars don’t offer value at the moment, but car stocks just might.

Tesla, Ford and GM raise EV prices as costs, demand grow

Auto makers mark up electric vehicles to offset rising battery-material costs and capitalize on the interest caused by higher gas prices

By Mike Colias

High gasoline prices are prodding more people to consider an electric vehicle. But car shoppers are likely to face sticker shock at the dealership, too.

Auto makers have been raising prices on electric cars, partly to offset the soaring cost of materials used in their large batteries. Car executives also are capitalizing on strong consumer interest in EVs, as a new wave of plug-in vehicles hits the market.

In the past few months, Tesla Inc., TSLA -0.05% Ford -2.76% Motor Co., General Motors Co., GM -1.76% Rivian Automotive Inc. and Lucid Group Inc. have increased prices on certain electric models.

Last week, GM tacked on $6,250 to the price of GMC Hummer electric pickup-truck models, which now range from around $85,000 to $105,000, citing an increase in commodity and logistics costs. The waiting list for the recently released truck is about two years, a GM spokesman said.

Tesla this year has increased prices three times for a performance version of its top-selling Model Y SUV, adding a total of about 9% to the sticker price, which is now $69,900, according to Bernstein Research.

Overall, the average price paid for an electric vehicle in the U.S. in May was up 22% from a year earlier, at about $54,000, according to J.D. Power. By comparison, the average paid for an internal-combustion vehicle increased 14% in that period, to about $44,400.

The companies say they are trying to offset a recent price rise in raw materials that go into the batteries to power electric cars, by far the most expensive component of an EV. Prices for lithium, nickel and cobalt have roughly doubled since before the Covid-19 pandemic began, according to consulting firm AlixPartners LLP.

Ford finance chief John Lawler said last week that rising EV commodity expenses have wiped out the profit margin on Ford’s Mach-E SUV. Ford has raised prices in an effort to offset the cost inflation, he said.

Major auto makers are rushing to roll out a range of electric vehicles, motivated by tightening air-pollution regulations, shareholder concerns about climate change and Wall Street’s enthusiasm for the growth potential of EVs.

The amount of money the auto industry has earmarked toward EV development has doubled over the past two years, AlixPartners estimates. Companies are expected to spend $526 billion combined on the transition to EVs over the five-year period ending in 2026, the firm said.

Elevated raw-material prices could complicate that effort, analysts say. Profit margins on EVs are small relative to gas-powered cars because the cost of the large battery pack to power such vehicles was high before recent inflation, as much as one-third the total vehicle cost.

To protect their bottom lines, car companies need to work closely with materials producers—even directly with the companies mining lithium and cobalt, for example—to ensure supplies and control costs, Credit Suisse analyst Dan Levy wrote in an investor note this month. Tesla, GM and other car makers have signed such direct-supply deals.

If raw-material costs eventually ease, car companies may need to reduce prices to sustain demand beyond early adopters, Mr. Levy said.

For now, auto executives say they generally aren’t worried about price increases hurting consumers’ appetite for EVs.

Demand for models now hitting the market has been stronger than many of the companies expected when they set their pricing plans a few years ago, executives have said. Some new EVs have racked up tens of thousands of reservations and yearslong waiting lists.

“The demand for EVs right now is extremely robust at Ford. So we have the opportunity, we believe, for pricing,” Ford Chief Executive Jim Farley told analysts in April.

“We’re in a world where it almost seems like [limitless] in terms of willingness to pay,” Rivian RIVN 1.63% Chief Executive RJ Scaringe said at an investor conference this month. Rivian in March raised prices by around 20% on some models. However, he said: “We don’t believe this will forever be the case.”

GM departed from the trend this month by cutting the Chevrolet Bolt’s price in the U.S. by about $6,000, to about $27,000, among the least expensive EVs on the market. The company said it wants to position the car, which was subject to a large safety recall last year to fix faulty battery cells, as an affordable option.

Higher gas prices are stoking interest in EVs, according to a survey this spring from car-shopping site TrueCar. More than half of respondents said they were more likely to consider an EV because of rising prices at the pump.

Some EV buyers qualify for a $7,500 federal tax credit. GM and Tesla electric vehicles no longer qualify because those companies reached a manufacturer sales cap of 200,000 vehicles.

Still, electric-vehicle sales in recent months accounted for only about 5% of overall U.S. sales. Car companies eventually will need to make EVs accessible to more than the affluent, said Tyson Jominy, vice president of data and analytics at JD Power.

“For mass consumer adoption, the industry still has to find a way to get cheaper EVs to market,” he said.

It is unclear whether car makers will reduce prices on their existing electric models if commodity prices eventually decline. Tesla Chief Executive Elon Musk said this spring that cutting prices in the future is a possibility.

Mr. Musk told analysts during Tesla’s quarterly conference call that Tesla is trying to anticipate its own cost increases, and stay ahead of them. He said some suppliers were asking for increases of as much as 30%.

“The current prices are for a vehicle delivered in the future, like six to 12 months from now,” Mr. Musk said. “So this is our best guess.”

Rebecca Elliott contributed to this article.

FTC proposes sweeping new UDAP rule affecting motor vehicle dealers

By Mike Alford, Chairman and Jeff Weber, Chairman, Regulatory Affairs Committee

On June 23, 2022, the Federal Trade Commission (FTC) proposed a rule that would impose a wide range of unwarranted and ill-advised new duties and restrictions on motor vehicle dealers. (A summary description of these proposed new obligations is set out below.) The FTC’s proposal relies on the agency’s authority in section 5 of the FTC Act to issue rules that prohibit unfair or deceptive acts or practices (UDAP). However, the FTC fails to provide sufficient support to justify its sweeping set of proposed duties and restrictions.

NADA is mounting a comprehensive and detailed response to the proposal, which will defend the highly competitive and pro-consumer benefits of the optional, dealer-assisted financing model, and show that, in fact, the FTC’s proposal is likely to harm consumers.

In addition to proposing sweeping new obligations, the proposed rule seeks comments to justify even more expansive regulations. Specifically, in its proposal the FTC asks 49 sets of open-ended questions on issues related to the proposed duties and restrictions, including (1) whether they should be expanded (e.g., “should additional restrictions be placed on all add-ons?” and “[s]hould the Commission consider… requiring retail installment sales contracts to include a clause prohibiting financing-contingent sales, prohibiting the dealer from transferring title to a trade-in vehicle or performing any repairs or reconditioning before a sale is final or requiring dealers to return trade-in, deposit, and fees, if financing is not approved?”) and (2) how the market operates (e.g., “Do dealers already calculate a figure equivalent to the Offering Price for every vehicle in their inventory?” and “[h]ow many add-ons do dealers typically offer, and how many of those are sold regularly?”). 

These unusually broad inquiries are more typical of an Advanced Notice of Proposed Rulemaking when an agency seeks information that could potentially lead it to issue a proposed rule. The FTC’s omission of this preliminary and vital step casts serious doubt on whether its proposals are the result of neutral, thorough and carefully considered market research into the auto purchasing process.  

The FTC has provided the public 60 days to respond to the proposed rule after it is published in the Federal Register. NADA will seek an extension of time to file and then submit an in-depth response to the FTC’s proposal that will further educate the FTC on the array of consumer benefits provided by dealers, and explain how the many flaws in the FTC’s proposed rule will threaten those benefits.

The duties and restrictions in the proposed rule generally include –

  1. A prohibition against misrepresentations involving any of 16 different activities related to the advertising and sales process;

  2. A requirement that dealers disclose:
    • a vehicle’s “offering price” (the full cash price a dealer will sell or finance a motor vehicle to a consumer excluding only required government charges) in any advertisement or communication with a consumer that references a specific vehicle or any monetary amount or financing term for a vehicle;
    • an “Add-on List” on each website, online service, or mobile application (or, for other forms of communication, a website, online service, or mobile application where a consumer can view the Add-on List) that includes an itemized list of all of the dealer’s optional “Add-on Products or Services” and the price of each item (or, if the price varies, a price range the typical consumer will pay for the item);
    • that the purchase of “Add-ons” is not mandatory;
    • the total amount a consumer will pay to purchase or lease a vehicle when the dealer makes any representation about monthly payment amounts;
    • the amount of any consideration provided by the consumer; and
    • whenever comparing payment options and discussing a lower monthly payment, that a lower monthly payment will increase the total amount the customer will pay to purchase or lease a vehicle (if such statement is true);

  3. A prohibition against charging for any “Add-on Product or Service” that would provide no benefit to the consumer (with certain types of products identified);

  4. A requirement that dealers make certain disclosures and conform to other requirements, including obtaining a newly defined and redundant form of express and informed consent, regarding such optional “Add-ons”; and

  5. A requirement that dealers retain for 24 months an extensive set of records that include, among many other items, all advertisements, sales scripts, training materials, and marketing materials regarding the price, financing, or lease of a motor vehicle; all “Add-on” lists and all documents describing such products and services; calculations of loan-to-value ratios in contracts including GAP Agreements; and copies of all written consumer complaints related to a wide variety of topics.

McDonald’s tightens restaurant ownership rules as it looks for new franchisees

Burger giant adds new standards to owner reviews; ‘A new franchise term is earned, not given

By Heather Haddon

McDonald’s MCD -1.14% Corp. is planning to make some of the biggest changes in decades to the franchising system that underpins its U.S. operations, as it seeks to reinvigorate its base of restaurant owners.

Executives this week notified the burger chain’s franchisees that they will have to go through a more stringent review every 20 years to keep their restaurants, according to an email to franchisees viewed by The Wall Street Journal. McDonald’s will consider new factors, like performance history, as it asks owners to apply to keep their locations. The company will consider new factors, such as customer complaints, to determine which McDonald’s franchisees can add new locations.

In a shift that could affect some of the chain’s longest-tenured restaurant operators, McDonald’s is also requiring that some next-generation heirs put up more cash to keep operating their locations—and to designate a single family member as the operator. Current McDonald’s franchisees can designate several heirs, such as the children of a parent owner, to take over their McDonald’s restaurants as part of their agreement with the chain.

“This change is in keeping with the principle that receiving a new franchise term is earned, not given,” McDonald’s said in the message to franchisees regarding the changes.

Franchisees run 95 percent of the company’s U.S. restaurants. McDonald’s anticipates it will begin to implement the franchising changes next January.

McDonald’s, the world’s biggest fast food chain, relies heavily on its franchisees, who own and operate McDonald’s locations while paying the chain royalties to use its branding, marketing and supply chain.

The arrangement, which is also used by fast food giants like Wendy’s Co. and Burger King, is a way for restaurant companies to focus on high-level operations while entrusting day-to-day operations to individual operators, who maintain a stake in the performance of each restaurant.

The pandemic fueled tensions between many franchisees and corporate parents across restaurants, hotels and retail shops, as both sides navigated an unprecedented disruption to business. Franchisees pushed back on store upgrades, promotional discounts and fees they said were excessive in light of the crisis. Companies imposed shifting rules in response to changing government mandates.

Many fast-food restaurant chains recovered their sales from the pandemic last year as Americans flocked to their drive-throughs, boosting franchisee profits. Valuations of chain restaurant franchises grew, prompting turnover as some owners retired and sold their businesses.

McDonald’s in the past year has been assessing how it can attract operators who come from more diverse backgrounds, along with franchisees who cultivate a good environment for workers and abide by the company’s corporate values. The new policies are meant to advance those goals, chain U.S. president Joe Erlinger wrote in a message to U.S. owners and employees viewed by the Journal.

Some McDonald’s owners said they were caught off guard by the new rules. Chain franchisees are scheduled to meet with company executives next week, and some owners said they intend to push back at the changes. The National Black McDonald’s Operators Association sent a message to franchisees Thursday asking if they should issue a vote of no confidence toward company CEO Chris Kempczinski.

McDonald’s declined to comment.

More than 1,750 McDonald’s locations exchanged hands last year, up from roughly 750 in 2019 and 2020, the chain’s most recent franchise disclosure document shows. The total number of U.S. restaurants stood at 13,679 last year, compared with 13,912 at the start of 2019.

The company counted more than 2,400 U.S. restaurant owners as of the end of last year.

Some critics have said that McDonald’s hasn’t done enough to help recruit Black people and other minorities into restaurant ownership in recent years. McDonald’s last year said it would offer $250 million in low-interest loans to new franchisees over the next five years to help increase diverse ownership of its U.S. restaurants.

McDonald’s owners generate some of the largest annual sales per restaurant among any U.S. fast-food chain, but it is costly to get into franchising at McDonald’s. Total initial investment needed to operate a traditional McDonald’s franchise ranges from $1,366,000 to $2,450,000, including a starting franchise fee of $45,000, according to the disclosure document. Franchisees pay rent and service fees based on a percentage of total sales.

Chain executives this year have signaled to owners that they want its franchising group to evolve. During an address at the company’s global convention in April, Mr. Erlinger said that McDonald’s wanted owners who were committed to operating great restaurants, and that could come from outside its current franchisee group.

“Everything, or should I say everyone, we need to build the future of McDonald’s isn’t in this room today. We must attract the right people and we will do that together,” Mr. Erlinger said during his remarks to company employees, franchisees and suppliers, a recording of which was viewed by the Journal.

Franchisees have been on edge about the company’s push to recruit new owners. Some owners also have bristled at a new grading system of their restaurants that the chain plans to roll out in January 2023 to encourage better operations through inspections and more training.

Used-car sellers not running out of gas just yet

CarMax is thriving despite sky-high used-car prices, rock-bottom consumer sentiment

By Jinjoo Lee

Last year, used-car retailers were on a roll, fueled by new-vehicle shortages, low interest rates and a strong consumer. Are they starting to run out of gas?

Not quite yet. CarMaxKMX -3.13% the largest such retailer in the U.S., reported on Friday that its total revenue grew 21 percent in the quarter ended May 31 compared with a year earlier—higher than the 18 percent increase analysts polled by Visible Alpha were expecting. Net income was largely in line with expectations. Its shares rose 7 percent in midday trading.

The boost in revenue was mostly thanks to higher prices: While CarMax sold 11 percent fewer used cars, consumers had to shell out $6,311 more per vehicle on average, a 28 percent increase from a year earlier. The company made a gross profit of $2,339 per used car, an increase of $134 compared with a year earlier.

Despite still healthy numbers, it is worth noting that this was the second consecutive quarter of declining units sold year over year, indicating that inflation and rising interest rates are squeezing some consumers out of the market. CarMax noted during its earnings call on Friday that the sales mix has shifted toward older vehicles, with cars four years old or less comprising about half of sales, down from the two-thirds seen a year earlier. Cars in the roughly six-year-old range typically comprise about a fifth to a quarter of sales but made up about 35 percent of revenue in the latest quarter.

Certain trends that kept used-car retail business on full throttle are now slowly reversing. New-vehicle inventory remains tight, which is helping keep prices high on both new and used cars. But used-vehicle supply is starting to return to 2019 levels. As of mid-June, new-vehicle inventory was down 70 percent compared with the same period in 2019, according to Cox Automotive. Used-vehicle inventory has recovered and is down just 11 percent over the same period. Meanwhile, consumer sentiment about buying conditions for vehicles had plunged to the lowest reading in the history of University of Michigan’s survey in June—even worse than perceptions of the housing market.

Another place to watch is CarMax’s lending business, which could start facing pressure as higher interest rates mean funding costs become more expensive. Last quarter’s healthy interest margins largely reflected those from previous years because CarMax has an “earn over time” rather than immediate “gain on sale” accounting model, CarMax noted during Friday’s call. Seth Basham, equity analyst at Wedbush, noted in a research report that the spread between CarMax’s loan rates for consumers and its own funding cost has narrowed to the lowest level since 2008.

CarMax shares remain down about a quarter year to date. There is no cliff in sight, but used-car retail is certainly headed downhill.