Are Car Sales About to Bounce Back In a Big Way?
People who used to rely on public transit and ride-sharing, the ones who in the past said they don’t want or need their own car, are reaching an automotive epiphany: They now see the value—and safety—of having their own vehicle. It only took a pandemic.
What could this mean for car sales, which many worried would be decimated by the health crisis? Well, take these newly baptized, along with those whose vehicle lease expires during the pandemic and add those who were already in the market for a new vehicle, and the sum total is pent-up demand. This is the backdrop to forecasts that the auto industry may bounce back quicker than initially projected as the United States attempts to return to a sort of normal.
Right now, car sales are not normal. The sales curve for 2020 looks like the Mariana Trench. The coronavirus forced automakers to stop building and, in some cases, even selling cars around the world. North America is the last region to resume production, starting this week, and dealerships are reopening their showrooms again. Consumers are slowly returning to work and spending money.
Global automakers say their China operations, the first hit with the virus and first to restart again, show promising signs of a strong bounceback. Volvo reported China sales were 20 percent higher in April than they were the previous year. Automakers hope Europe and North America will experience the same surge when they emerge from lockdown.
Dealers Doing Surprisingly Well
Car dealers continued to sell vehicles online when their showrooms were physically closed though the health crisis, so they’re in a surprisingly okay position. Sandy Schwartz, CEO of Cox Automotive, says the dealers he works with report going from selling 20 percent of their usual volume a few months ago to 70 or 80 percent now and some are close to matching year-ago sales levels. Those with the right inventory—especially trucks—are doing well.
General Motors, Ford, and Fiat Chrysler Automobiles all said this month that they welcome the start of production and need to rebuild inventories to meet demand, especially for full-size pickups. GM CEO Mary Barra, in releasing first-quarter earnings this month, said despite losing a couple of weeks of production when plants were shut down in March, truck sales increased by double digits and gained share in the first three months of the year. FCA CEO Mike Manley said Ram truck inventory was the lowest he had ever seen heading into May and he expects pickup sales to rebound faster than other sectors and to sell at higher average transaction prices.
Ride-Sharing Makes People Nervous
Ride-sharing is different today than it was 60 or 90 days ago, said Doug Ekizian, managing director of PwC Consumer Finance Group. Data shows people who used it are getting back into dealerships.
“I’m not going to get into an Uber or Lyft for a while,” said Schwartz. It is this current attitude that forced GM to close its Maven ride-sharing service, but Barra says the company remains fully committed to Cruise, the self-driving startup it acquired, and is preparing to build the Cruise Origin six-passenger robo-taxi at the GM plant in Detroit-Hamtramck. Other automakers including Daimler and Ford, have also gotten into the ride-sharing space and all are working on autonomous vehicles.
Ernie Garcia, chairman and CEO of Carvana, the online used car retailer, says the current situation is pushing people to his business and it is growing; he has even increased capital to take advantage of opportunities that arise in this new era. Garcia said he is seeing a shift in many cities to personal transportation, which bodes well for the industry.
If anything, Garcia worries that the optimism of the resurgence of the auto industry is overblown. There is still a lot of uncertainty and unemployment. Some consumers will cautiously pocket their unemployment and stimulus checks for fear of future waves of infection, furloughs, wage cuts or job losses. “We don’t know how far the economy has to retool,” Garcia said. “Do waiters have jobs waiting for them?”
New Versus Used Car Sales
If dealers have large pools of new car inventory waiting to be sold, it will depress the used car sector, Garcia said. But if there is a gap until there are enough new cars to meet pent-up demand, then he expects a temporary spike in used car sales. Data gathered by Cox Automotive found new car inventory is less than 3.3 million vehicles, the lowest volume in more than a year.
Jonathan Smoke, Cox chief economist, said U.S. auto sales in May continued to build upon the improvement that began in April as more businesses are opening up “We estimate that new-vehicle sales through Thursday, May 14, are down 31 percent year over year, while used-vehicle sales are down only 6 percent from a year ago.”
GM, Ford, and FCA have implemented zero-percent financing programs for up to 84 months and offered deferred payments. Other automakers have deals and payment forgiveness, as well.
Cash for Clunkers
There is also an expectation the government will implement economic stimulus programs for many industries, and executives are lobbying for a stimulus program to kickstart sales of less popular models—something similar to the Cash for Clunkers program that was so effective in boosting U.S. auto sales in 2009. Both Barra and Volvo CEO Hakan Samuelsson have recently said they would like to see programs steer buyers towards electric vehicles. Dramatic images of blue skies in normally polluted cities are helping to push this agenda.
So, are we in for a huge sales rebound? All signs point to yes, but as with anything these days, the pandemic could change the course of things in unexpected ways. In the meantime, provided you’re not in the hunt for a sought-after vehicle type (such as full-size pickups), you may even land quite the deal on a new car this summer.