How Will Covid-19 Impact The Automotive Market? The Industry Weighs In
Anybody who can factually answer this question is a time traveler who has come back to fill us in. As an industry, all we can do is speculate ad build plans to manage the reality that does end up coming our way. We have gathered some speculations from industry insiders in various sectors of the Automotive industry to weigh in on what the near-term future may look like for car dealers.
The Auction industry Speculations
March 13’s report from Blackbook included positive news of an increase in sales volume for the fourth week in a row. Demand was outpacing supply.
Foot traffic at dealer lots will slow down as people adhere to both the CDC and local governments’ guidance on social distancing or complete shelter in place quarantines.
Dealers will need to figure out how to sell cars with minimal physical contact. Internet sales tools may be the answer.
As for this week, auction volume is expected to continue to grow as dealers fill their lots and take advantage of the lowered interest rates and low fuel prices.
Long-Term Impact on Wholesale Values Speculation
Auction houses anticipate a significant reduction in new vehicle sales in 2020. Factors that will determine the new sales volume:
- Low-interest rates will fuel new vehicle sales
- More credit is available to prime consumers
- OEMs are creating consumer relief programs
- Increased incentives to stimulate demand/lease replacement
- Unemployment will increase substantially, at least temporarily.
- Supply chain issues in Europe, Asia, and domestically will limit new vehicle inventory.
- Consumer confidence and buying behavior will falter, resulting in fewer big-ticket item purchases.
- There might be a substantial reduction in fleet and lease purchases as leisure travel, and business travel will be reduced in at least the second quarter of 2020.
What we can learn from other countries
THE COVID-19 PANDEMIC is disrupting economic, political, and social norms not seen in decades, and major industries, from finance to airlines, have already felt the impact. The US auto industry announced a total shutdown of all three Detroit carmaker manufacturing operations that will last at least through the end of the month.
After the virus appeared in China, auto sales there fell 80 percent. Auto Shows across the world, such as the Geneva Auto Show and the New York Auto show, are canceled.
European manufacturers began temporary factory closures last week. They were also feeling the pressures of falling demand, and severe disruptions to manufacturing from Chinese supply chains.
Prior to the outbreak, the IHS was predicting that US car sales this year will decline to 15.4 million vehicles, from 16.5 million a year ago, but there is a strong possibility that it will decline even further.
On the positive side, the automotive industry is better positioned to make it through the downturn than the airline industry. After changes made in 2008, the three domestic manufacturers have more cash on hand and have done a lot of restructuring, including buying out a lot of older white-collar employees as they try to shift toward new skill sets to support electrification, automation, and mobility.
So what does this mean for dealerships? Certainly, the days and weeks ahead will be a bumpy ride. And the best plan is to create contingency plans for all scenarios, be creative, and be ready to deal with whatever scenario plays out at your dealership.