People ask me all the time, "what's going on in the car business?" Like everything else, the auto sales industry has been forced into an all new reality created by the pandemic.
Rocked during the first couple of months of shelter in place orders, dealer's sales departments operated with only skeleton staffs. Dealers furloughed employees and entry into showrooms was by appointment only. Car sales plummeted while service departments, deemed an essential service, could remain open.
In June dealers were able to gradually open showrooms, bring back sales employees and return to the same hours as before.
Maufacturers turned up the heat on new car incentives with offers like 0% APR X 84 month financing on a few models.
Combine the pent up demand from those months of limited sales together with higher factory incentives and auto consumers took the bait. New car sales tore through a low day supply of many sought after models. Try to buy a popular selling Jeep Wrangler Unlimited for example, and you'll be hard pressed to find anything left but the costliest $50,000 to $60,000 models on dealer's lots.
Normally, this summer would be the transition period for manufacturers to ship their final build out production of 2020 models then slowly ramp up with shipments of 2021s. However, the pandemic hit auto suppiers early, causing parts shortages and production delays for both 2020s and 2021s to be built. As a result, dealers are frustrated, running out of their most popular selling 2020 models and then facing delays in replenishing inventories with 2021s. The second quarter of 2020 saw new vehicle sales drop by 34%.
The used car market was also hard hit during the first months of Covid-19. Without any demand, dealers weren't buying used vehicles at the auctions, and wholesale prices dropped by more than 10%, especially on vehicles worth over $10,000. Then as dealers were able to open back up, there was a surge of used car sales. Some of this was attributed to people who were buying vehicles as an alternative to risking their health on public transportation for their daily commute. This surge in sales brought things back full circle, with renewed demand causing a bounce in used car values.
The pendulum has swung back and forth in the auto sales industry over these last four months. Where the business of selling cars goes from here will be determined by the virus and how responsibly we deal with it. Stay tuned.
