Inside Automotive with Jim Fitzpatrick, powered by CBT News

Navigating Auto Industry Challenges: A Conversation with Doug Eroh of Longo Toyota

• Jim Fitzpatrick • Season 1 • Episode 11

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Doug Eroh, president and GM of Longo Toyota, reveals how the world's largest Toyota dealership is navigating industry challenges while maintaining strong sales growth. He breaks down the impact of EV tax credit changes, shifting consumer preferences toward hybrids, and the effects of tariffs on automotive retail in this detailed conversation about the state of auto sales.

• New car sales up 10% year-over-year with used sales remaining flat
• EV mandate rollback in California and 12 other states viewed as positive for consumer choice
• 58% of Longo Toyota's 700 monthly vehicle sales are now hybrids
• Affordability remains the industry's biggest challenge with average new vehicle prices nearing $49,000
• Tariffs initially created a sales "frenzy" that pulled deals forward before normalizing
• Manufacturers largely absorbing tariff costs so far with minimal price increases to consumers
• Focus on leasing as a solution to affordability concerns
• High repair costs driven by advanced safety systems and technology
• Maintaining success through "controlling the controllables" and exceptional guest experience

Visit us at Longo Toyota, where we've been the world's largest Toyota dealership for 58 consecutive years.


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Jim Fitzpatrick:

Welcome to Inside Automotive with Jim Fitzpatrick. Hey everyone, Jim Fitzpatrick, thanks so much for joining me this morning. Today we are joined by Doug Eroh. You've seen him here before on CBT News. He's the president and GM of Longo Toyota, the world's largest Toyota dealership. He's also the president of the Penske Motor Group. So, Doug, thank you so much for joining us out of your very busy schedule, taking the time with us. We really appreciate that. I think you guys sell in excess of 25,000 vehicles a year, right.

Doug Eroh:

Yeah, good morning, Jim. Great to see you again. That's right, Toyota and Lexus sell about 25,000 new and used here at Longo every year and we're on track to do that again this year, in spite of all the challenges and the things happening in the world around us.

Jim Fitzpatrick:

Yeah, which is what we want to talk to you about. So thank you again for joining us. First and foremost, how are sales, both new and used? How are they going right now?

Doug Eroh:

You know, if you look at the first half of the year it's actually been pretty good. We're up almost 10% year over year in sales volume. New car sales volume, used is flat. We've seen a little bit of a pullback on the used side. A year ago we had a lot lower inventory. So a lot of our business is driven, of course, by availability and the products that we have to sell and fortunately the summer of 25, from an availability perspective, is looking a lot better than the summer of 24. And that's driving certainly some more interest in our cars and more volume.

Jim Fitzpatrick:

So let's talk about the rollback that you guys started there in California. But the rollback of the EV tax credits is still making headlines. What kind of an impact has that had on your business, or do you think it will have on your business?

Doug Eroh:

Yeah, I think, jim, if you go back a couple months, there's really two things that have happened with respect to EVs. The first one was the Senate and the House actually voted to use the Congressional Review Act to actually remove the right of California and 12 other states to set their own emission standards. So what that did is basically eliminated what you and I would call the EV mandate right.

Doug Eroh:

It was a little bit frightening, frankly, that the industry in those 12 states was going to have to sell 35% EVs starting this fall and we're nowhere near that. So I think that was a huge win for consumers, right? Because in those states I mean you're going to we were not going to have the availability of the gas and hybrid models, as manufacturers had to, you know, meet this mandate. So that would have been a real problem for all of us. So that was a big win, I think, from both a consumer standpoint, from a dealer standpoint. Then you saw, and most recently in the bill that was passed, the elimination of the EV tax credits. Obviously that does have an impact on consumers. I look at the EV tax credits really in three buckets. One is the one that's on new cars. Certain models qualify. It depends on the country of origin or country of assembly, some other factors. Not all vehicles qualify for that right, so that's going to affect some and not others. Our vehicles didn't qualify for that incentive incentive so, frankly, won't have an impact. Second thing that I think will impact most uh dealers, most manufacturers, is the tax credit that went to the lessor of these vehicles and essentially was passed along to the consumer. If you look at that, you know I I the latest stat I think I saw was that 70% of EVs are leased, so that I think, from a tax credit perspective, that was being passed on and probably even subsidized further by manufacturers. So I think that's the one that will be the challenge.

Doug Eroh:

I think we're going to continue to sell EVs. You know, frankly, we're going to sell every powertrain right, Hybrids are in highest demand. We sell here about 58% hybrids at 700 cars a month. Wow, when you think about it. So EVs is a relatively small part of our business at our brand, but I think it will continue to be a part. The products are getting better and I think in the future, frankly, everybody's going to compete on product, not on you know who has the higher tax credit or who qualifies or where you build the car. So I think long-term, that's a positive right. We've got to kind of get through this. You know, transition period. I expect a very brisk sales opportunity in the next you know, 60 to 90 days as these things phase out at the end of September. In the next 60 to 90 days, as these things phase out at the end of September.

Jim Fitzpatrick:

We've already seen a lift in our EV sales this month.

Doug Eroh:

Oh, I bet, yeah, in fact, we've already sold more EVs this month, in July, than we did in June, so it's only halfway through the month, so I think that will continue. Then we'll have to deal with frankly what life looks like after that and the auto industry we all figure out a way to adapt and I know we'll adapt to this and ultimately long-term products will win, based on the product attributes and how good of a product they are and how well they meet consumers' needs. Right, as the range gets better and these products get better, they'll be more in demand, but it'll happen more naturally.

Jim Fitzpatrick:

Sure sure.

Doug Eroh:

And with the price of gas. I mean, you guys in California, I think you're probably paying the highest gas prices of anywhere in the country, right? Yeah, unfortunately, you're correct. I mean, gas is probably $4.75 a gallon here, which is a whole other story, but it does, you know, drive demand for more fuel-efficient vehicles and, frankly, I think that's why it's one of the reasons that we do so well with hybrids. Yeah, because people want, you know. Hey, I can get a, I can get. You know, every Camry's a hybrid today. You know, the majority of the RAV4s we sell are hybrids. You know, we have really a hybrid almost every model we sell. So people are opting to that more, right, 40 miles per gallon, 50 miles per gallon, yep, you know, ultimately, people are looking at cost of ownership, right? Which includes gas, which includes insurance. Insurance is, of course, a challenge as well, and overall affordability is a challenge. So it's just part of that and fortunately we have products that can help mitigate it.

Jim Fitzpatrick:

Yeah, affordability is a real issue. That's got everybody concerned consumers, oem executives, as well as car dealers. And where is this headed? I mean, you know, to have the average price of a new vehicle heading almost $49,000, it's just, it's unacceptable, right.

Doug Eroh:

Yeah, I would say our number one concern, right, you look at the affordability for all consumers and this doesn't just affect us, it affects every brand, every consumer, and you know it's definitely an issue. Right, and again to your point, it's not just the car, right, it's going to be the other things that go along with it, the cost of ownership. You know we're really focused on leasing. We're trying to get our lease penetration back up to where it was kind of in the pre-COVID days, which was, you know, in the Toyota world, 25%, 30% and in the Lexus world, 60-plus percent. We're not quite there, we're working on that, but that is kind of be.

Doug Eroh:

I see our ticket, you know, to sort of getting through this affordability crisis, at least having a different means. We've got to get interest rates down. You know that is a structural issue that's affecting our business. I'm hopeful that as we get into the second half of the year we'll start to see some cuts in that area, because that's another huge driver of our business and certainly, you know, the high rate environment we're in doesn't help.

Jim Fitzpatrick:

Sure, sure, and I know that we went almost the whole interview without mentioning the T word, which is tariffs. But I'll ask you now what impact is that having on your business? If any? Are consumers bringing it up? What's your viewpoint on this? Obviously, as we coming into this interview today, the president just announced another 30% tariffs, and it's just. I mean every single time you turn on the TV or you go to your phone, it's a different story. On the tariffs, has it got consumers tied up out there?

Doug Eroh:

It's definitely in the air, as you said. I don't think you can go anywhere without talking about it. I don't think there's a consumer that isn't talking about it. I think there's not a full understanding yet of where it's going to land, where we're going to land with tariffs. You know, quite frankly, I think it's helped our business in the short term. You know, if you look at March and April, even May, we saw big increases in traffic. You know, I would almost call it a frenzy in those first few weeks following those announcements. But of course, you know, when you have a frenzy like that, there's also a give back to that. Right, right, you pull those deals ahead, right yeah, there's only so many, so much business out there. So I think we pulled a little ahead. We're probably feeling that a little bit. We probably felt a little bit in June. And I say we I'll use the collective we as an industry.

Jim Fitzpatrick:

Yes, yeah, everybody I talked to felt the same way.

Doug Eroh:

Yeah, I think it's common, I think it's not certainly not worrisome, I don't. I mean at least in terms of where the business is currently. You know, we were in a meeting yesterday and really if we look at our traffic and we look at, you know what we're selling. We're sort of back to the level we were at I would call it in the first half of March, right before there were tariffs, sort of almost a normalized like this is sort of the business. Now, of course, there are some, you know, certainly some storm clouds on the horizon. You know, if these things were to continue, I think, if you look at it, the manufacturers and Toyota has done a great job.

Jim Fitzpatrick:

We're fortunate to work with them to hold the price.

Doug Eroh:

They're getting. I mean, you think about it? These manufacturers are paying an exorbitant amount of money, and it's even an unfathomable amount of money, in tariffs right now and that has not been passed along in a meaningful way to the dealers, and we're fortunate to work with Toyota, who's done that. I mean, the average price of a car just went up $270. So I mean we're talking about less than $5 a month on a normal contract.

Doug Eroh:

It's not immaterial, but of course everybody's not going to be able to hold their breath forever. So we're hopeful that there's a deal, that there's some. I think what the industry craves is certainty, and right now there's a lot of uncertainty. I think certainty, whatever that tariff might be of course I think everybody would love a lower one, I think would be, you know would provide the certainty that's needed for the industry to move forward and have plans and let us plan our business appropriately. So we're hopeful to see that. Again, I don't think the whole story has been told yet and we'll see where we're at in a few months.

Jim Fitzpatrick:

Yeah for sure. Other than the tariff situation, is there anything that keeps you up at night, as you look to the end of the year, that you say no? That might be an issue lurking around the corner there. We got to keep our eye on.

Doug Eroh:

Yeah, I think we just got to keep. I think we talked about it. But affordability right, it's just how many people are priced out of the market right now. I think that is something that we've got to really as an industry and really economically find a solution for. I think interest rates, of course, is going to be part of that. Leasing's part of that um, leasing's part of that. You know there's other things. You know getting material costs down, these things that have driven up over the last few years, that have caused the rise. And you know you look at the regulatory environment. You know there's a lot of things that have been added to cars. Yeah, you put a car through a collision center today you know we've got a big collision center here and you look at the cost of repair and severity on that car and it's it just costs. I mean, I can imagine it's a safer car, which is great, but there's a lot of cost in that vehicle. Fixing a bumper isn't $400 anymore.

Doug Eroh:

It's $2,000, depending on what the car has. There's a lot of pieces to it. It's not a simple solution, but you know, I think that you know there's some short-term things that can happen, but that's the biggest thing. That's really. You know that we're keeping an eye on beyond our business, and you know we just had a mid-year planning meeting with all of our managers and we just said, hey, you know what? The best thing we can do is control the controllables, right, we can't control tariffs, we can't control interest rates, we can't control these macroeconomic things. So the best thing we can do is just continue to get better at all the processes and the things that we do in our business and, you know, most importantly, continue to provide an exceptional guest experience and be better than everybody else at that. And you know we'll continue to win, no matter what the size of the market is.

Jim Fitzpatrick:

I love it. Great attitude, Doug Eroh, president and GM of Longo Toyota, the world's largest Toyota dealership. Man, you guys have been number one for how many years? When I sold Toyotas back in the 80s, you were number one. It's been going on now a little too long, Doug. I mean, come on, give somebody else another, give somebody else a chance. 58 consecutive years oh my God, 58.

Doug Eroh:

We have a great team here.

Jim Fitzpatrick:

You really do no question about it. A lot of stuff to continue to win. In addition to a Starbucks, in addition to all of the other retailers that you find right there at Longo. So congratulations on all your success. Thank you so much for taking the time out of your schedule. I really appreciate it. I know a lot of our dealer gurus get a lot out of your visits with us. So thank you.

Doug Eroh:

Thank you, jim, good to see you.

Jim Fitzpatrick:

We do. Thanks for watching Inside Automotive with Jim Fitzpatrick.