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[upbeat music] Good morning. It is Monday, August 3rd. This is the Automotive State of the Union. I'm Paul Jay Daly. This is Kyle Mounts here today.

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We're talking about an AI version of Akio Toyota, leasing backing off, and Rivian's R2. What's it doing for Rivian? So far, not a lot so far, but- Not, not, not a ton. But we'll get to that.

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A lot for the optimism, though. A lot for the optimism. Man- August... feels like August.

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It's, it's either the first or greatest second, uh, uh, first or second greatest selling month of the year, and not just that, but this is the month of NAMAD, and that's always a rip-roaring concert.

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We'll be there next week- Yeah, we will... uh, in, in, uh, sunny, hopefully sunny Miami. I mean, Mia- it'll be hot. Probably hot, for sure. Paul, don't forget your flip-flops this time, okay? Oh, gosh.

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[laughs] I mean, we had to buy flip-flops when we were on ground in Oceanside a couple weeks ago. We're like, "How did we not bring flip-flops?" I will be bringing those exact flip-flops with me.

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Those will be my new road flip-flops. Um, also, we're gonna be in Ohio, in Columbus, this Saturday- Yes... to, to, uh, help the Ohio Auto Dealers, Columbus Auto Dealer Association,

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like, capture the moment that they've worked so hard to put on this concert for a cause.

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It's their second one, and, uh, it benefits two amazing local charities, one that gets dogs for veterans and people who are, uh, need, need the help ca- train canines. The other one, um, oh, what is it called? Hold on.

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I see it. Uh... Oh, I cannot see it. It's, like, the Charity Newsies or something. Charity Newsies. That's right. Charity Newsies. Yes. Yes. Yes. Yes. All right, getting out of As soon as you said it- of bed...

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I was like, "I've heard that before" Man- Yeah... they take care of people who just need the help.

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The auto dealers putting this, uh, concert with Chris Young and Chase Rice, major name, uh, recording artists, in front of the whole community. They're gonna have this concert.

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They're gonna give, uh, back to these charities, and it's all gonna be put on by the auto dealers. We're gonna be on the ground with the cameras- Yo... and the microphones. Uh- If, if you're sitting here-...

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it's gonna be so much fun... going like, "What does my ADA do?" My, my guess is they're doing a lot more than you actually realize- Yes, probably...

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and so you might just wanna open those emails, call your local person, figure out what they're doing.

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But if they're not, and you are convinced of that, send them an email with this, show them what's up, give them a little insight, and then have them follow our content, 'cause we'll be sharing all about it.

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Ohio Auto Dealers Association, Columbus, uh, Auto Dealers, we'll all be sharing about it. And if you're like, "What should we do as an, a, as an association?" This is a great way to just, like- Yes...

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take what they're doing, replicate it in your city, your state. Yeah. One thing we learned when we were on the ground with the associations a couple weeks ago is that they're all really willing to help one another.

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They really are. So, if you see some good ideas- It's incredible... and it flags you, you can talk to yours and say, "Hey," y- Zach Doran will talk to your person and say, "This is how we put it on.

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This is how we can-" He so will. That's how it works. That's how it works, folks. It's called community. All right, let's talk about some news. Toyota taking a [laughs]...

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This is a funny story, and the picture is even better. Look at this picture. [laughs] Yeah. [laughs] It'd be really hard for me to keep a smile while I'm doing this interview. It's just wild.

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To- Toyota's taking digital twin technology out of the factory and into the executive suite.

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The company has created an AI version of beloved chairman, Akio Toyoda, to teach managers his philosophy, preserve decades of institutional knowledge, and explore how humans and AI might work side by side in the future.

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Developed by, uh, it's called Woven by Toyota. Akio Toyoda AI is a web-based training tool designed to reflect the chairman's voice, his reasoning patterns, priorities, and management philosophy.

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Toyota, the company, says the avatar is not meant to replace Toyoda, the executive- Right... or to make decisions.

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Instead, it helps employees learn how he thinks about stuff, basically, how he approaches difficult conversations, ask him questions about organizational leadership. 100 regular users are already testing this.

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They're getting to, feedback and input from the real Akio Toyoda. Uh, Stephan Thomke, a professor at Harvard Business School, said, quote, "Digital twins have been used in engineering and production systems for years.

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Extending the concept to people isn't surprising, but also raises some interesting issues, like how will people use it? How do they interact with the model?" It still has limitations.

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During the Automotive News interview, it misstated some basic facts about Toyota, the company's US production and sales, requiring human spokespeople to correct the record.

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[laughs] Man, I am now so bullish on creating the right divide between human, document, and AI. Mm-hmm. Right?

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Like, humans speak, they, they put things into documentation so that other humans can read it, and when necessary, you introduce AI to create, to accomplish tasks that neither of those things can do on their own or together.

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And we are, we are blurring that line every single day. So, this is, like, a, th- this is, like, a trick, in my opinion, that I would, I would take very, very lightly.

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Um, the fact that it's, like, just messing up facts, you know, these, these, the, like, if you're creating these digital twins and allowing them to speak autonomously, right? That's the problem.

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It's, the digital twin part is definitely- It's, it's dicey... I hear what you're saying, because, like, basically, what AI does best is scale, help you scale documentation- Right...

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and help you scale human, like, processing of that documentation. Once you start getting into the middle, things start to get a little weird. Um, I think we're gonna continue to go down this lane.

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I think business will probably figure out a way to put some parameters on it, 'cause there's some very, uh, basic consequences of profit loss efficiency that can be measured. Um, I just saw an article.

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A company raised $200 million to, uh, an AI company, to basically simulate all eight billion people on this planet. [laughs] It's called The Matrix. They made a movie about it.

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Once they start powering it- They called it- Oh, yeah... they called it The Matrix, and Elon already believes we're living in a si- simulation- Sometimes... so maybe this is just the next layer of simulation...

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sometimes I feel it's... Guarantee the show is not a simu- [laughs] simulation. It is not. I mean, I'm, I don't... I wanted a segue so bad. There's, there's nothing. To be, like, speaking about- I'm just, like-...

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leasing simulators. Stop! No, we're not gonna do it. All right, next story. Americans still like leasing, but the deta- the deals aren't what they used to be.

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Higher rates, fewer incentives, and tighter inventories have pushed payments up, steering shoppers toward longer loans and reducing both dealer loyalty and used car supply.

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Leasing used to make up about 30% of new vehicle deals before the pandemic. Now it's down to 17%. After pandemic and has recovered back up to 23% first half of 2026.

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Automakers have reduced their subsidized lease offers, higher interest rates also helping remaining deal, uh, stay expensive.

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Average lease payments up are, are about $650 versus $800 to finance, but many returning customers are seeing increases of 100 to $200 a month to lease- I can attest... basically the same vehicle.

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Fewer affordable leases- Yeah... are pushing shoppers into longer terms. 23% of second quarter purchases, 84-month loan terms. Dealers are losing- Yeah... their repeat customers.

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Off-lease inventory GM dealer David Perez said, quote, "The customer still has a desire to lease. The big challenge is, is the customer willing to accept the much higher payment?"

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Y'all, please, please, if you start sniffing an 84-month loan, do all the education you can to, to, to think about that lease opportunity because that's the, that's the chance for that customer to get out of equity, uh, in a, a disparate equity position.

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Mm-hmm. This is a wild stat. I, I... The prediction is always will be that leasing will take more market share, and the fact that it's continued to, to see a decline. Now, I love the recovery.

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Obviously, rates are coming down, and so you get the ability to incentivize, um, you know, the, the lease rate as well as an, as an OEM. Um, I'm, I'm also bullish on used leasing.

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I've been, uh, watching the company Rideero. If you're not familiar with them, this is not a paid promotion, just go check 'em out because I think that, that people are...

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Because we've got so many subscription models, so many two-year technology, uh, you know, changeovers, customers are used to this, like, getting something new every two, three years.

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And so if your team isn't educated on all the benefits of leasing, start educating them today, uh, because this is how you retain customers long-term, um, getting them back into that lease cycle and, and 84 months is not the way to do that.

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I mean, I, I would, I would put a little caveat in there. 84-month lease, I mean, 84-month financing can make sense if you're buying specific vehicles. Very specific.

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If you're buying a Toyota 4Runner, you can lease that sucker for, or loan that sucker for 84 months because they just hold their residual value so much. Yeah. Or 110,000 truck If it's a vehicle you're gonna keep forever.

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Exactly. You know? If you're gonna keep- That's a work truck, yeah... like, "Yo, this is the next truck.

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I'm gonna have this truck for 15 years," it's like, yeah, sure, spread the cost out, especially if you get a favorable rate. Everything else, like 84 months is- Get out of here.

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Yeah, it really is, and it also is really tough for that, for that, you know, customer life cycle. And Brian Bensack's talked about this a lot. Like- Yeah... what's the consequence of all these 84 months loans?

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He goes, "The reality is nobody knows, but it's probably not a good one," you know- [laughs]... for loyalty. I mean, it's obviously- There's no way. Ah, speaking of nobody knows. Stop. There you go. Segway. Time.

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[upbeat music] Get on that. Rivian's second quarter was all about the R2 launch, stronger revenue, and narrowing losses, though the company is still burning serious cash.

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The more affordable SUV is now reaching customers as Rivian bets on higher volume, software revenue, autonomy, and new funding to drive its next phase.

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They produced, uh, tw- just over 12,000 vehicles and delivered, uh, only 500 less than what they produced, while revenue rose 27% year over year to 1.66 billion.

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Consolidated gross profit reached 179 million, improving by a little, uh, just under 400 million. Automotive losses narrowed sharply through- Mm... though the R2 ramp added about $100 million in costs.

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So, uh, you know- Yeah... you know, balancing costs- Sure... and things. You know, this is, it's still a startup, y'all. Give it a break. New things are expensive.

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Rivian began external R2 deliveries June 9th and hosted a record 57,000 demo drive. Uh, its Georgia plant could eventually add 300,000 units of annual capacity.

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They still posted an $837 million net loss and used 849 million in free cash flow, but ended the quarter with $5.3 billion in cash and investments.

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CEO R- RJ Scaringe said, "I believe R2 will be a game changer for our customers and a driver of Rivian's long-term growth and profitability," and it looks good. I mean- Just calling it... the, the truck looks nice.

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We saw our friend Alex Lawrence, he posted a picture of one, 'cause he's got one, and he's like, "Here's the first R2 we've had." He loves it. He says, "Who wants it?"

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You know, so I think, again, you get a vehicle that's in that $50,000 range, makes it huge, uh, hugely more- Yeah... accessible than the ones that start in the 70s and 80s. Yeah.

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So I think some people who have been on the sidelines on a Rivian might try one out, might get one. Um, they're still, like you said, burning a ton of cash. $837 million net loss.

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They're sitting on 5.3 billion in cash reserves, but if you divide, you know, 5.3 billion by 837 million, it's not the longest runway I've ever seen. Yeah. Let's just put it that way.

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So it's still under six months, so they're still obviously- What, five quarters? But, but they ha- positive momentum. They understand their brand.

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They're trying to introduce this lower cost vehicle, you know, air quotes, "lower cost," lower cost than their other ones, and we'll see. It, you know, like, we'll see. We'll see. This, this is- I like the product.

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The product's amazing. I, I, I'm still bullish on Rivian. I think RJ is, is a smart, um, uh, uh, it seems like a smart operator.

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They've consistently grown, uh, their, their revenue and profits, and they've taken a measured approach at going into the market, not so bullish, uh, but, you know, not so like, you know, run into a brick wall, but like, hey, now we're gonna introduce the next thing.

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Mm-hmm. They consistently meet deadlines, too, which is a big thing in our market when it comes to EVs. Big time. Um, and, you know, basically, uh, what is that?

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If, if you're producing 12 six and delivering 12 one, uh, you're better than most automakers on- That's-... your day supply in terms on- That's true. Day supply is strong... in terms for the year. Feel more like- Yeah...

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Toyota on that one.

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Um, you know, I think they get tripped up, and the big challenge still is service, is something that dealers focus- uh, franchise dealers are really great at, making sure that customers are taken care of.

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And then with the, you know, um, emergence of mobile service and its growing popularity, they're just getting better.

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So it'll be interesting if Rivian can keep up on the service side with these sales, especially with these new vehicles. Um, to be determined. Wanna say hi to Frank Ziti. He comes in on the- What up, dude?...

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Facebook comments. Beard game is strong this AM. He also says, "Say what up to Nathan." But Nathan is enjoying a drive across the country this week- Ah...

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and Spencer is making sure the show goes so smoothly- There you go... that Frank thought it was Nathan, so. Hey, wait, wait, wait. Uh-oh. I, I got a gift- What's that button?...

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for all the people that have made it this far in the pod today. Okay. All right? [laughs] You gonna do a dance, TikTok dance? No, no, no. Oh.

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So, so on Saturday I had to go get my wife's, uh, uh, van serviced, oil change. And I went to the w- website of this dealer, and it said, "Walk-ins totally fine. Also, same-day appointments are available."

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Well, I look in their appointment schedule, and they're not available for three days, so there's n- actually no appointments available for that day.

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So I head over to the chat thinking, "Oh, maybe I'll be able to get someone to say, 'Yeah, you're good. Come on in.'"

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Well, I go to that chat, and instead of, like, notifying me that there's never gonna be a, a human co- uh, able- Oh... to come to it- No... it just continually- Loops you around... bot loops me and doesn't get... Look,

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I understand that AI chat can handle some of the things that customers might want, maybe helping them research on the website or very simple service requests.

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But if you have chat on your website and you are not going to introduce a human at any point, you better tell the user right up front- Right up front... that they're never getting a human. Uh- That's what Delta does.

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Yes. Uh- "I am the automated whatever"... Delta allows it. Yes. And yeah, "I am automated. We do not have humans man- monitoring this chat. If you need a human, please call."

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Otherwise, and my preference is, get some humans behind your chat. That's what it's there for. People wanna talk to someone. Keep the human where it belongs or communicate clearly. There you go.

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We don't know what dealership it is, but get better, Nashville Toyota dealer. You can do it. Absolutely. It's actually not hard. Lots of tools out there to do it. Pay attention to the people.

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The people will take care of you. It's a beautiful Monday out there. Go love this industry. We'll see you tomorrow.

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[upbeat music]