Top stories of the week: CDK Global to pay ransom, Fisker bankruptcy, stubbornly high car payments

Hey, everyone. I’m hosting a live podcast on Monday to get the inside scoop on the continuing CDK outages. Industry experts and dealers will share their untold stories and a cybersecurity pro will weigh in on the risks at hand.

Details: Live streaming on Twitter / X this Mon. 10 a.m.-11 a.m. EST — RSVP.

Tell me, who should I invite on? Hit the reply button and let me know.

—CDG

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Each week, I curate the top 5 automotive industry headlines based on the topics CDG readers engaged with the most on social media. Let’s get started.

1. The auto industry is waking up to cybercrime

A recent spike in cyberattacks targeting automotive businesses has heightened awareness toward the car industry’s ability (or lack thereof) to defend itself from digital threats.

Driving the news: Rockwell Automation, a manufacturing solutions provider serving the car industry, published a study this week examining survey responses from key leaders across the automotive sector.

Key takeaways:

• Research participants ranked cybersecurity as the number one challenge to their operations.

• This represents a sharp spike in interest around digital threats in a relatively short amount of time.

• Last year, Rockwell Automation’s survey listed cybersecurity as the 9th most important obstacle.

Big picture: It’s clear that cybercriminals are wising up to the vulnerabilities present in the automotive sector, meaning the number of attacks is only going to increase as time goes on.

Bottom line: While businesses and consumers are and have been at risk for some time, the increase in awareness also creates opportunities for new solutions to be brought to the table.

On Thursday, we saw this exact dynamic hard at work when CDK Global announced that a double cyberattack left dealership management systems for almost 15,000 stores completely paralyzed and now…

2. CDK Global preparing to pay massive ransom after dual cyberattacks

CDK Global is reportedly preparing to pay tens of millions of dollars to a criminal group based in eastern Europe, following a cyberattack on June 19 that resulted in the ongoing closure of its widely used Dealership Management System (DMS).

What this means: While this is a developing situation and lacks official confirmation from CDK or other authorities, it does shed light on what the company has been dealing with the past few days as well as a possible resolution. More than half of all car dealers in the U.S. remain without access to their DMS software, a key component to conducting day-to-day operations.

What we know so far:

• Bloomberg reports that a group, likely located in eastern Europe, has demanded a massive extortion fee from CDK Global, based on discussions from an undisclosed source familiar with the situation.

• The source went on to say that CDK plans to make the payment.

What we don’t know:

• The requested amount, the identity of the people responsible and the timeline for depositing the cash were not specified. It also remains unclear what type of attack the hacking group launched on CDK. 

Looking ahead: Despite the DMS outage, dealers have managed to keep their businesses running using a variety of innovative strategies and old-school solutions. As the month draws to a close, it will be interesting to gauge the impact of CDK’s shutdown on automotive sales and how the automotive sector’s resilience mitigates that damage.

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While the CDK outages shocked the dealer community, there was another major announcement that came to the surprise of well…nobody.

3. A sad, but predictable, end: Fisker files for bankruptcy

Electric vehicle startup Fisker has officially filed for bankruptcy, several months after warning investors it lacked the cash to make it through the year.

Why it matters: The Fisker “saga” underlines the challenges of being a newcomer in a highly competitive, capital-intensive industry. While many attempted to replicate Tesla’s seemingly effortless glide to the top, product delays and quality issues have prevented any startup from coming anywhere close.

Fisker now plans to sell its assets, estimated to be worth between $500 million and $1 billion, following the typical Chapter 11 process.

How did we get here?

• Leading up to this point, the EV startup had been forced to delay the launch of its debut model, the Ocean SUV.

• It also lacked a meaningful distribution network due to its inability to ramp up direct-to-consumer sales, although it did succeed in signing several dealers to its partnership agreement.

• In the days since, Fisker’s efforts to arrange a deal with investors proved (mostly) fruitless, although it did succeed in adding a few more dealership partners.

• Earlier this month the company failed to make payment on a $3.5 million loan, seemingly solidifying its path to bankruptcy.

Bottom line: While not surprising, Fisker’s collapse is still disappointing. More competition in the car market, an industry dominated by a handful of powerful corporations, is always a good thing, and while the Ocean SUV had plenty of issues, it wasn’t lacking in potential.

But Fisker isn’t the only automotive company experiencing operational trouble…

4. Subprime car market loses major lender

Rifco National Auto Finance, a major subprime lender in the Canadian car market, announced that it would put all auto lending on hold for an indefinite period of time.

Why this matters: While auto lenders have grown increasingly cautious in the years following the pandemic, few have taken the dramatic step of withdrawing from the car market entirely. The move by Rifco illustrates the plight of subprime buyers in today’s automotive landscape as well as the urgent nature of the affordability crisis.

The decline of subprime share: With the vast majority of car buyers today being classified in the prime-plus categories, the number of options for cash-strapped shoppers is dwindling.

• Less than 6% of auto loan borrowers were classified as subprime or deep subprime during the first quarter, compared to roughly 24% in 2018. And the decline has yet to stop.

• Earlier this month, Cox Automotive revealed the average approval rate for subprime loans fell in May from 13.2% to 12.5%.

Although efforts are being made to improve affordability through incentives and discounts, average monthly payments haven’t seen any substantial movement…

5. How long will car payments remain high?

New car affordability improved in May. But, high prices, interest rates, and negative equity are keeping car payments near all-time highs.

By the numbers: The average monthly payment declined 1% to $752, only $43 less than the peak in December 2022, according to Cox Auto.

The good news: According to Moody’s Analytics, incentives have risen 81% year-over-year.

• These incentives can come in the form of straightforward discounts, sub-vented interest rate terms, trade-in allowances, and more.

• Income growth has also grown 3.7% from a year ago. The average number of weeks of income to purchase a new car dropped to 37.1 weeks, down 6.2% from last year, says Cox Auto.

The bad news: Over 17% of car owners are paying more than $1,000 a month for their vehicle, according to Edmunds – and it’s been that way for a year.

• The sharp decline in used car prices has accelerated depreciation for a lot of vehicles, leading to a rise in negative equity.

• Car owners often have a bit of negative equity. One-third of trade-ins had it before the pandemic. But, the amount nowadays is raising red flags.

Why it matters: While there is some glimmer of hope with affordability thanks to rising incentives, lower average prices, and growing income, the overall market remains tight. Dealers will likely face continued pressure on their profits and will have to offer bigger discounts to attract consumers.

Always so much going on in the automotive industry – make sure you’re following along on X, LinkedIn and IG/FB for real-time updates.

Thanks for reading. Dealers affected by the CDK outages — hit reply and tell me what’s going on at your store(s).

—CDG

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