Cox Automotive Chief Economist Jonathan Smoke Discusses Vehicle Affordability, EVs, and Much More

Year-end sales data has been released for the auto retail industry, and there is a lot to break down. If you want to find out what 2019’s trends could indicate about the headwinds and tailwinds for the rest of this year, then you’ll want to tune in to what our next guest has to say. Here to talk in-depth about what dealers can expect from industry trends and developments moving forward in 2020 is Jonathan Smoke, chief economist for Cox Automotive.

Related: A Year in Review and 2020 Industry Predictions from NADA’s Chief Economist Patrick Manzi

VIDEO TRANSCRIPT: 

Jim Fitzpatrick: Hi, everyone. Jim Fitzpatrick with CBT News. Thanks so much for joining us today. Today I got a special guest in our studio, Mr. Jonathan Smoke. He’s the Chief Economist for Cox Automotive. Welcome back to the show, Jonathan.

Jonathan Smoke: Thanks, Jim, it’s good to be back with you.

Jim Fitzpatrick: Sure. So, before we get into predicting the future for 2020 and beyond, let’s talk a little bit about some of the things that jumped out in 2019. We had another strong year, as you know, with a SAAR of 17 million, arguably one way or the other, but-

Jonathan Smoke: Yes, well, we eat out the 17 million because of two things. Rounding, it was technically just shy of 17 million in terms of the actual volumes of light vehicles sold. There are some people that are also adding in medium-duty trucks and that’s the source of the 17.1 when you hear it. But the real factor was fleet. We had a second year in a row of significant increases in fleet. We think the total last year actually was a record historically, there’ve never been more vehicles sold into fleet.

Jim Fitzpatrick: And why is that, do you think?

Jonathan Smoke: It was essentially the continuation of the tax reform benefits that commercial businesses are able to largely expense the cost of the vehicle dramatically changing the economics of having a fleet. So we heard from many different types of businesses over the last two years that they were rethinking and expanding fleet. They were looking at refreshing fleet obviously. So we did expect it to be another year of growth, and it was.

Jim Fitzpatrick: Okay, will that continue that trend into 2020?

Jonathan Smoke: That’s one of the key assumptions that we’re making about this year. No, we don’t think so. Even if you look at 2019’s performance as the year progress, the year over year gains were diminishing and by the time we hit the fourth quarter, we were actually seeing year over year declines. So, we think we were at that point where most people had expanded the fleet, most people had refreshed the fleet and you don’t need to do that every single year going forward, you go into a cycle. Plus combine, if you look at the weakest part of consumer and business sentiment for the economy, it’s businesses that were less inclined to be investing at the end of the year. And if you’re not inclined to be growing your business, you’re probably not inclined to be growing your fleet. Again, it sort of reinforces that view that we don’t think fleet’s going to be dramatically down maybe 100,000 units, still near record levels, but not growing and not offsetting the weakness that has been more on the retail side of business.

Jim Fitzpatrick: Okay. Okay. Let’s drill down a little further and talk about EVs. What’s your take on that for 2019 and then move into 2020 on the EV topic.

Jonathan Smoke: So 2019 still saw growth in EVs. It was one of the few segments that actually had year over year true gains and volumes in a slightly declining market. Most of that story was the continuation of the Tesla story and it was the model three being fully available and delivered throughout the year. But just like we did with fleet, very similar trajectory, the growth in EV was extremely strong in the first half of the year, started to slow down as the year progressed. I actually think this year is going to be a watershed year that is going to disappoint many because we may not see much growth if any in the EV segment, because we’re at the end of a cycle with Tesla’s original models.

Jonathan Smoke: A lot of the new launches are happening this year, but many of them are more in niches that aren’t going to have dramatic volumes like Tesla brought to the market and some of the bigger new Teslas and new future sources of high volume vehicles won’t come early enough in the year in a materially [inaudible 00:03:53] volumes. But we think we’re on an ever kind of march towards a future that by 2025 6% of new vehicles sold, we believe will be EVs.

Jim Fitzpatrick: 6% by 2025?

Jonathan Smoke: Yes.

Jim Fitzpatrick: Okay.

Jonathan Smoke: And that sounds low, but from where we are today at 1.4%, it’s a pretty decent rise and especially in a market that we think is likely to be down, slightly to not growing over most of that period.

Jim Fitzpatrick: Why do you think that that market is so stagnant? Is it just consumers are not jumping on the bandwagon?

Jonathan Smoke: Combination of factors. Definitely all of our research data says that the consumer does not have the interest and appeal in EV that the industry does. So, in fact, we did a bunch of surveys in December and we asked a range of consumers to dealers, to media, to OEMs what they thought the share of EV would be by 2025 and consumers were half of what the industry thought. So there’s reservation. So why is there reservation? Well, price is clearly a factor. Most of the EV market today and Tesla’s success is really in the luxury segment. And those vehicles are not primary daily driver vehicles that are being purchased, which helps to offset the other key issue, which is anxiety about range and how long the battery is going to perform. And there’s a lot of anxiety on that front. So a lot has to be done there.

Jonathan Smoke: And then finally, infrastructure. Big strides are being made in chargers and the infrastructure being put in place. But it’s an urban phenomenon. The vast majority of Americans are not in those locations. And so there’s limited appeal outside of the big Metro areas in the country.

Jim Fitzpatrick: Okay. Yeah. The styling too of the vehicles. That’s a big one too.

Jonathan Smoke: Yeah, of course. We’ve been witnessing this big shift towards SUVs, and here to date most of the offerings have been sedans. And so there has been that part of the market not aligned with consumer expectations. But that’s where some of the excitement for the future comes, because you have all these pickup truck offerings in the works that will be very interesting. Whether it’d be Tesla, Rivian, Ford, Lincoln, you name it.

Jim Fitzpatrick: They want to jump in-

Jonathan Smoke: Bringing out trucks.

Jim Fitzpatrick: Yeah. They do see that though, the manufacturers do see that as the future of the industry, don’t they? Because if we’re sitting here-

Jonathan Smoke: Absolutely.

Jim Fitzpatrick: … in not just 2025, but 2050, when you can go out that far, then what does it look like? Because I think, in my own humble opinion, that you will hit a point in time where it will click with the consumer, especially with the manufacturers bringing some pretty cool models out that people can adapt to and say, “This is a model that I want to drive.” As soon as that happens, it could really go from 5% or 6% 2025 to 50%.

Jonathan Smoke: Yes. Yeah. We haven’t reached that moment that it clicked by 2025 in that math. But you’re absolutely right. And it also reinforces the more vehicle EVs that are being sold the more that are actually still in the VIO, the vehicles in operation, out there, the more the infrastructure becomes cost-effective to actually have a charger. That’s one of the challenges on the charger side of the business is the costs of putting them in and-

Jim Fitzpatrick: That’s right, infrastructure.

Jonathan Smoke: … seeing enough of a return on that. But you’re absolutely right. We think the vision longterm is one that most likely 2030 range is where we have crossed that chasm and it has more inertia to it.

Jim Fitzpatrick: Yeah, for sure. Let’s talk a little bit about the whole Trump tariff anxiety in 2019. Did that play a role in sales? Were people apprehensive to-

Jonathan Smoke: I don’t think it really played a big role in consumer demand or concern because we didn’t have any real things happening. I think it actually ironically impacted more of 2018 than it did 2019. But it’s been lingering out there like a dark cloud over the industry. And so of course it’s impacting manufacturers because they don’t want to invest in new factories or even the supply chain until a lot of those questions were answered. And we’re slowly ticking off the issues, USMCA is supposed to be signed this week.

Jim Fitzpatrick: That’s right.

Jonathan Smoke: But, simultaneous with that, now suddenly front headlines coming out of Davos is we’re threatening Europe again and Japan is soon to follow, I’m fairly certain. So the risk is going to be there. I don’t think we’re going to see tariffs implemented. I think this is all about negotiating to get better trade deals with Europe and with Japan. As soon as that settled, all of this uncertainty will be gone. But I think that lingers as a wild card among many that we have to contend with in 2020.

Jim Fitzpatrick: Sure. Interest rates in 2019 they seem to stabilize and everybody’s enjoying a low-interest rate again.

Jonathan Smoke: Well, the fed quickly went from we’re aggressively increasing rates and planning to raise two more this time last year to cutting three times over the course of the year.

Jim Fitzpatrick: Who saw that coming, right? Well, maybe you did.

Jonathan Smoke: No, no one got the interest rate forecast correctly. But we actually saw that play out in the industry very differently depending on what type of consumer you are. And what I mean by that is credit quality. And so the fed cut three times, 75 basis points. The 10 year treasury was roughly down that amount. So it’s a good benchmark. But when you look at what real rates did, the average rate on a new vehicle loan came down about half that amount over the course of the year, so not the full way. Why was that the case? It’s because if you’re a super prime with a credit score of 760 or higher, you got the full cut. You saw the full 75 basis point decline, actually maybe even a little more, because there was appetite for that.

Jonathan Smoke: If you were subprime, 620 or under in your FICO score, the average interest rate we observed was up over two full percentage points.

Jim Fitzpatrick: No kidding.

Jonathan Smoke: 240 basis points, to in December 18.8%. And so it really is a story of two different types of consumers.

Jim Fitzpatrick: That’s for sure.

Jonathan Smoke: Do the math. Historically high average transaction price, 18.8% interest rate. Subprime consumers were not buying new vehicles anymore.

Jim Fitzpatrick: Wow. That’s something.

Jonathan Smoke: They were buying used vehicles.

Jim Fitzpatrick: So, keep that FICO score up or it’s going to cost you.

Jonathan Smoke: Absolutely.

Jim Fitzpatrick: Yeah. That’s for sure.

Jonathan Smoke: And the good news is the average consumer, the average FICO score has improved over the course of this economic expansion as you might expect.

Jim Fitzpatrick: Makes sense. Yeah.

Jonathan Smoke: So it is a smaller audience, but it’s still 20% of the population, and it has been at times close to 20% of the new vehicle market, but not anymore because of these pricing dynamics.

Jim Fitzpatrick: And what about delinquency on loans? We talked about that in 2019 and we saw those inch up a little bit. Is that still a concern, the delinquency on installment car loans?

Jonathan Smoke: It is a concern. And again though, it’s a story of what type of consumer are you, because the real concern is in subprime. And I actually just did the math yesterday with Equifax data, December hit a new record for subprime severe delinquency rate on auto loans. Over 5.5%.

Jim Fitzpatrick: That is up.

Jonathan Smoke: Which is higher than any rate during the Great Recession-

Jim Fitzpatrick: Really? No kidding.

Jonathan Smoke: … in their data. So this is historic rate percentage. We also have historic volumes. So it means we have historic delinquencies and likely historic defaults happening this year.

Jim Fitzpatrick: And with the economy rolling along the way that it is on low unemployment and job growth and what have you. Why would that, it seems to be going against.

Jonathan Smoke: Because in that kind of economy, the consumer has access to credit. Lenders are willing to lend. And by the way, the reason that the interest rate up, it’s the risk premium. And in a low yield world and these investors are willing to take a significant premium, even though the risk might be slightly elevated, they’re being compensated for it.

Jim Fitzpatrick: So these consumers in that range are getting themselves into trouble.

Jonathan Smoke: Yeah. So they’re one challenged, one unexpected bill away from falling behind on their payments and there’s seasonality to that data, it is always the worst in February, well, over the last five years, February has been the peak. There used to be January or February, but now-

Jim Fitzpatrick: You’re dealing with Christmas bills.

Jonathan Smoke: You’re dealing with holiday bills and we’re waiting for that check to come from the tax refunds.

Jim Fitzpatrick: Oh my gosh. Wow. I didn’t even think about that. That’s interesting.

Jonathan Smoke: Then suddenly the delinquency rate falls as soon as tax refunds-

Jim Fitzpatrick: Yeah, people get caught up on their bills.

Jonathan Smoke: Yeah. And then we start marching towards that peak again.

Jim Fitzpatrick: Isn’t that interesting?

Jonathan Smoke: We’re at record levels for subprime. In the broader market, we’re not at record levels. This is not anything that makes me think there’s a global financial collapse around the corner. And I came from real estate. I lived through the big one. And I can tell you that this is nothing like that. But it does say that the consumer is not as healthy as many on Wall Street are claiming the consumer to be. Which is all the more reason to be focusing on helping the consumer get the right vehicle that’s going to make the payment that they can actually afford. And it’s one of the key reasons why the used vehicle market is so strong and will continue to be so strong.

Jim Fitzpatrick: That was my next item on the list. Let’s talk about the used car market. It seems to be cranking along and some think that it’s stealing some thunder or will steal some thunder from the new car market in 2020 with CPOs out there and the technology now that’s in these late-model vehicles and I don’t know how you can make a car better. I mean, when you get in these vehicles they will park themselves and drive themselves, it’s just incredible. And that might be a three or four-year-old model vehicle, right?

Jonathan Smoke: That’s right. A record volume for CPOs in 2019 again, 2.8 million. We actually think retail used vehicle sales, so basically the used vehicles sold by dealers are going to see another year of increase in 2020.

Jim Fitzpatrick: I guess it’s safe to say that that comes out of the new car showroom, right?

Jonathan Smoke: Increasingly, yes.

Jim Fitzpatrick: To some degree, yeah.

Jonathan Smoke: Increasingly, yes. I think we are at that point in the cycle that it is competing directly with the new vehicle alternative. But actually, in many cases, some of the new vehicle alternative has gone away from a production standpoint. Are you looking for an affordable compact car or midsize sedan? Chances are you’re not going to find it in the new vehicle market at a price point-

Jim Fitzpatrick: That’s a good point.

Jonathan Smoke: … that it’s actually going to fit your payment needs. And so, the reduction in the new vehicle market is pushing even more people into used. And too we’re at that point in the cycle where yes, used is competing with new, but because the retail market is softening and we have record incentives that really puts a ceiling on price movement on the new side, which contains the used vehicles, they have to remain affordable. And so, it’s actually a Goldilocks year in terms of we’re not forecasting used vehicle prices to even beat inflation in 2020, which means that dealers can count on those vehicles being more consistently affordable throughout the year and ensure that for the consumer it’s still affordable.

Jim Fitzpatrick: Okay, and you brought up affordable a few times, which was the next thing on my list, affordability. So you’re helping me out here. Affordability, this is something that NADA’s talking more about dealers that we talk to are concerned with it. I think it’s $37,000 is about the average price of a new car.

Jonathan Smoke: Just shy of 39 in December.

Jim Fitzpatrick: 39,000, wow, in December. That’s incredible. So, where are we headed in this situation? When you’ve got vehicles that are budding on $40,000, probably will hit $40,000 in 2020, how is that sustainable?

Jonathan Smoke: Affordability is the theme not just for 2020 but for the next 20 years, if not indefinitely. It’s the confluence of all of the technology that’s going into vehicles, which are marching towards even more expensive technologies. Autonomous, we’ll take it to a whole new level when we get there. But electrification is playing a role. [inaudible 00:16:37] and very advanced security features are playing a big role in that. And as that pool of who can really afford the new vehicles shrinks from being less entry-level and less subprime to more of the households who can truly afford it. They’re making the content richer in the vehicles across the board and that’s influencing the average transaction prices. So it’s not going to be resolved.

Jonathan Smoke: And certainly with a big move away on the production side from the most affordable vehicles and sedans, this isn’t something that’s going to magically be resolved on the product side. Where I think the innovation and the kind of challenge is going to come is alternatives to traditional financing and ownership. So subscriptions and experimentation with used leasing or used subscription to really take advantage of where else are you going to find the $20,000 sedan vehicle that’s really going to make this payment work for all parties involved. I think that’s really where the challenge is going to be.

Jim Fitzpatrick: Let’s talk about subscription for a second. Heard a lot about it a year or so ago, maybe two years ago and it was all the rage and people were saying, “Hey, this is a whole new alternative.” Have we seen that model grow in showrooms?

Jonathan Smoke: It’s still a rounding error in terms of volumes of vehicles that are actually being subscribed and the subscriptions nationwide. But it’s virtually every OEM that is either actively with a program, researching a program or in the process of implementing a program somewhere in between. And likewise dealer groups from large to small are doing some incredible experimentation and there are examples of dealers who have found success and have made it profitable and are really pursuing subscriptions as one of the many offerings they want to extend to consumers.

Jim Fitzpatrick: You guys at Cox Automotive are always on the front line of innovative ideas and I know that you acquired a subscription company, right?

Jonathan Smoke: Yes, So I’m privy to hearing what clutch is involved with and what all that they’re doing. So I think it’s kind of like EVs, it’s one that, hey, from an economic standpoint, this makes sense for the parties if it’s done well, we’re just not at the point that it’s scaling and you’re seeing it evident. But if you look at a calendar and you look two or three years down the road, my guess is it will start to eat into the leasing part of the market. People who are already focused on a regular monthly payment and are oriented in that direction. But I also think there’s some innovation that will be coming on the used side that will be very interesting, fundamentally helping to address this issue of affordability.

Jim Fitzpatrick: Yeah, affordability is certainly something that the industry’s got to try to get their hands around. I mean, the OEMs working with dealers obviously, but because that seems to be a threat in my humble opinion, that’s something that could not shut us down per se, but at least, you look at it and it could start to go 17 million, 16.5, 16, 15.5 as the price of these vehicles continue to rise and the extended financing terms, now it’s 72 months is almost standard, right?

Jonathan Smoke: Oh, yes. The vast majority of the loans outstanding today are north of 72 months. So you get to a point where some of those decisions are not necessarily the optimal ones for consumer. And that’s one of the things, with affordability, people are very focused on the average transaction price or the average MSRP. And yes, that’s influencing this. But where the real heart of the matter is, is the payment and how that relates to the total cost of ownership for a consumer. And the reason why I’m excited about the future of subscriptions being one way to contend with this is that the average consumer does not optimize the price of the vehicle, because the key component there is what you pay and how you manage that vehicle in terms of depreciation.

Jonathan Smoke: They are not the best at getting the best financing because we see rates that go from 0% to north of 20% and there’s plenty of proof that a commercial company trying to get better access to credit could do this in a better way. And then the third piece, which is not a small piece for the average consumer, is insurance. And subscriptions also have a way to deliver something to a consumer that in most cases they can’t on their own.

Jim Fitzpatrick: So it might be that subscriptions become a very popular hot item as this affordability approaches 40,000 and then 45,000 and-

Jonathan Smoke: Yes. For many households or for maybe one of the vehicles that happens to be in the households, it fits the needs. So, I think it’s going to be exciting. And all the experimentation, they’re going to be successes. And as soon as dealers see the success is happening, they’ll start copying those successes and we’ll see it more evident.

Jim Fitzpatrick: Sure. Five years ago, I interviewed a number of people in the industry, your counterparts and such, and the talk about a ride-share was, “What’s going on? Millennials don’t need vehicles and they’re going to use ride-share and they’re even going to use scooters. Now scooters are threatening the auto industry.” What have we seen on that now that we’re sitting here in 2020, has it been any kind of a factor out there?

Jonathan Smoke: So ride-sharing has truly grown. You see success and the growth that Uber and Lyft have had specifically in the US, but also globally. It is very much though an urban, major city phenomenon. The majority of ride-sharing in the United States is happening in only 20 markets. And once you get outside of a range where there’s benefits to the drivers and there’s benefits to the consumers, it’s not dependable and regular enough to be a viable option. Then when you look at who’s doing ride-sharing, that’s where the data is most interesting to me. Ride-sharing is driven by people who own their own vehicles.

Jim Fitzpatrick: Okay. So it’s not a replacement situation.

Jonathan Smoke: It’s not. It’s a complement, a supplement. It’s causing our miles traveled to go up. It’s causing younger vehicles in the car park to get higher mileage faster. It’s creating some really interesting dynamics. But net-net, it is fueled demand for vehicles. And ironically fueled demand for young used retail vehicles, because those are the vehicles that economically make the most sense for a driver to actually [crosstalk 00:23:20] for driving. So it’s been a good thing for the industry and for dealers.

Jim Fitzpatrick: Yeah. A friend of mine bought one of these new Lincoln SUVs and I said, “Why did you get a Lincoln?” He goes, “Because this guy picked me up in an Uber and it was about an hour drive.” He said, “I fell in love with the car. So I figured when I go look at a new SUV, I’m going to go look at Lincoln.”

Jonathan Smoke: I think that all the time. It’s like, “Why won’t Uber or Lyft let me choose the kind of vehicle that I want to ride in today?”

Jim Fitzpatrick: That’s right.

Jonathan Smoke: And I think yeah, there are some interesting opportunities.

Jim Fitzpatrick: Yes. He goes, “I would have never taken a drive or demonstrated or went to get a demo drive in a Lincoln.” He said, “Here I am in the back seat and my wife and I are looking at each other like we need an SUV. What about something like this?” It had all the bells and whistles and this is not an ad for Lincoln by the way. I’m just saying that it was interesting the way that that came around as kind of a vehicle now to sell vehicles, so to speak. So gas prices remain low. I mean, we’re passing by gas stations that are 2.07 and 2.12, here in Atlanta anyway.

Jonathan Smoke: We were greeted on January 2nd with the kind of issues evolving in Iran and that temporarily caused oil prices to spike. They’ve since come down to lower than they were going into that.

Jim Fitzpatrick: Which I always think is interesting because with the oil that are there in the barrels now, you know what I mean? And just the mere threat of that, the gas companies are able to go, “Oh let’s raise the prices.” This is front line [crosstalk 00:24:47].

Jonathan Smoke: Yeah, [crosstalk 00:24:47], that pushes all of that. But the reality is the world is a wash in oil thanks to fracking in the United States, but it’s also in other places like Norway is bringing on a big field early this year that’s adding a huge number of barrels to the daily market. So there’s no forecaster that I have read and I don’t consider myself to be an expert. I look at people who are focused on the energy sector and there’s no forecast that envisions a possibility that would push the price of gasoline in the United States into a territory, which we think is about $5 a gallon, that would change consumer behavior. And so, gas is essentially a sort of, “Yes, let’s pay attention to it. Let’s deal with any wildcard events that happen.” But in the near term, it’s not likely to influence behavior very much.

Jim Fitzpatrick: Sure. Fantastic. Let’s switch gears a little bit here and talk about 2020. What’s your forecast for 2020? You think is there anything lurking around the corner that dealers should be concerned with or keep their eyeball on?

Jonathan Smoke: So, our forecast is for new vehicle sales to see another decline. Our number is 16.6, which I think is a little bit more conservative than some other numbers I’m hearing. But I think most everyone is under 17, this is a clear year that we’re not going to hit 17. That decline is principally in retail. 300,000 down in retail. 100,000 down in fleet, as we talked about earlier, as that part of the market is no longer growing. But it’s still, from a historical perspective, a very strong number being offset on the retail side by a similar increase in used retail sales. So, we believe the average dealer is going to sell the same number of vehicles, it’s simply that the mix is going to tilt a little bit more towards used, which what we’re observing in margins would basically be a good thing-

Jim Fitzpatrick: That’s good news.

Jonathan Smoke: … for the dealer community. So yeah, I think that’s a mechanics for a pretty good year. It would be similar to, if not better than this year. There aren’t a lot of negatives that we see immediately that would change demand, like interest rates are likely to be stable because of what the fed is doing. There’s the chance that rates could improve in the subprime space, but I don’t think that’s going to happen with the delinquencies where we are.

Jim Fitzpatrick: Yeah, [crosstalk 00:27:13] increase, record highs, that doesn’t help.

Jonathan Smoke: Yeah. The wildcards are truly out of our control. So it’s Iran, China, the impeachment trial and outcome and of course the full election year and that’s going to be with us for almost 11 months.

Jim Fitzpatrick: Right. What typically in the past have you seen historically in terms of an election year is that-

Jonathan Smoke: Not a big factor.

Jim Fitzpatrick: Not a big factor?

Jonathan Smoke: Not a big factor.

Jim Fitzpatrick: And you’ll hear sometimes people say-

Jonathan Smoke: And it makes practical sense.

Jim Fitzpatrick: … “Well, it’s an election year.” And then they’ll fill in the blank and it’s like, well, what does that mean?

Jonathan Smoke: It makes practical sense. Have you ever bought a car or decided not to buy a car because of who you thought was going to be in the White House [inaudible 00:27:52]?

Jim Fitzpatrick: Right. No, no. Exactly. [crosstalk 00:27:55] what stocks based on.

Jonathan Smoke: Where we think it could have an effect is week to week. So, something horribly negative is in the news, then it might cause somebody not to want to go out on a weekend and shop. But over the course of the year, we don’t see it being a factor at all in terms of the total volume.

Jim Fitzpatrick: Are people looking at sometimes the two different parties and say, “Right now we have incredibly low unemployment.” I think it’s a 17 year, or 50 year low.

Jonathan Smoke: 50.

Jim Fitzpatrick: 50 year low, I’m sorry, 50 year low. The Trump campaign is going to call me and go, “It’s 50.” But a 50 year low on unemployment. Based on the parties, do you suppose that there’s some of the working class out there that says, “Well, if the Democrats get into office, I might not have my job tomorrow or it might affect the number of hours that I work or the economy. Let’s take a wait and see.” There’s none of that anxiety out there?

Jonathan Smoke: So it’s funny. The economics help you predict the politics. So all the economic models say that a president in this situation is going to be reelected.

Jim Fitzpatrick: Yeah, I think we all feel.

Jonathan Smoke: It’s going to take some major thing to happen. But when you dig into like the consumer sentiment data that you can get slices by party, you see a real story of difference. The Republicans are the most positive and bullish and excited about the future. The Democrats are the exact opposite and independence are right in the middle in terms of expectations for the economy. So some of that’s going to be influenced by who you are and how you vote. And so, there will be some people who are worried about it. There are portions of the market, like in the financial markets, that are very concerned about certain nominees making it in the Democratic party that could have a negative implication for the financial markets in particular publicly traded companies.

Jonathan Smoke: But I don’t really seeing it in the near term no matter what the outcome is having a dramatic impact on 2020 sales. Yes, it could reopen tax reform, it could cause the Consumer Financial Protection Bureau to be strengthened more than we’ve seen in the Trump administration. So there’s a lot of things that could change longer-term, in 2020 not so much.

Jim Fitzpatrick: And we are going to leave it at that. So Jonathan Smoke, Chief Economist for Cox Automotive telling you that we had a great year in 2019 and all things look good for 2020. So it’s a good time to be a car dealer and in the retail automotive space. So Jonathan, thanks so much for joining us on CBT News.

Jonathan Smoke: Thanks, Jim.

Jim Fitzpatrick: It is always a pleasure to hear your wrap-up and your forecast. You’re usually dead-on, so we love having you in. So thanks so much.

Jonathan Smoke: Thank you.

Jim Fitzpatrick: Thanks.