COVID-19 and its Impact on the Automotive Industry
Posted on: May 5, 2020 | By: Guy Logan | Logan Consulting News
COVID-19 has affected all aspects of everyday life. One industry, however, has been particularly impacted by its effect. Read on to see how COVID-19 has altered the automotive industry and changed the way consumers buy cars.
As of June, the seasonally adjusted annual rate (SAAR) for automotive production has risen to 12.9 million annual units, compared to May’s 12.2 million and April’s shockingly low 8.7 million. Pre-pandemic, the SAAR was predicted to be 16.8 million units.
With recently lifted state lockdowns and mass unemployment, purchasing a new car is not a priority for the average American. This attitude is reflected in the numbers as several companies have reported significant losses. Fiat Chrysler, for example, has reported a first quarter loss of nearly $1.83 billion. Cox Automotive analysts have also predicted a 24% year-over-year decrease in vehicle sales.
Despite this, automotive manufacturers are looking forward. Many companies, including the Detroit Three, began restarting operations in mid-May. However, as of late June, automakers have only just begun returning to pre-lockdown production levels, and as a result, dealerships are facing vast inventory shortages. Mid-June inventory levels are cause for concern, with 600,000 fewer units than last year and only 71 days of supply. This shortage may prove to be detrimental to market recovery as inventory will only continue to shrink if suppliers do not return to previous production levels soon.
A Buyer’s Market?
When the majority of production had come to a halt, many dealerships began offering incentives to those looking to either purchase in cash or finance a vehicle. This is because it would be difficult to calculate the residual value of a leased car given the state of the economy. It was truly a buyer’s market when lockdowns were in full swing. However, these incentives may not last much longer given inventory shortages.
Experts at JD Power believe the best deals to be had will be cash purchases on 2019 models, or cash purchases of less popular 2020 models. Dealerships are offering other incentives besides 0% financing as well, such as six months payment free.
COVID-19 has also impacted the automotive industry because it has changed the way consumers buy cars. Due to social distancing, many dealerships have switched to online platforms. The dealership will deliver the car to the customer’s home, where the customer can test drive the car during a trial period before finalizing the purchase. 53% of Americans are interested in buying a car online. This may become the preferred path to car ownership, as it streamlines the buying process. It is believed that 80-90% of dealerships will have full e-commerce capability by the end of 2020.
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