Unless you’re selling toilet paper or hand sanitizer you are looking at a scary future for retail. And that includes big-ticket items like cars and trucks. The larger dealerships will be able to weather the coronavirus storm. But the smaller, independent ones? It really doesn’t look good for them the longer this virus purgatory lasts. If you’re being asked to “shelter in place” like we are now in all of California, that means you don’t think about buying a new car. It is not on your mind much when you’re surrounded by your “shelter.”
If China is a model we know sales will drop 80% from coronavirus
If China is any indication of what will happen to car dealers in the US then we know that soon sales could drop almost 80%. That’s what happened in February in China. Reuters contacted a few dealers around the country to get their perspective on what’s happening to them.
John Luciano is a managing partner at Street Volkswagen in Amarillo, Texas, and chairman of the Volkswagen national dealer council. He said, “Sales are definitely falling. We’re waking up in a different world a little bit more every day.”
Already sales are down 30% at dealerships this month
At a Buick store in Rochester, Michigan, sales are down 30% so far this month, with the service department down 40%. “When schools close mothers get worried, and this stops the economic activity,” says industry consultant Warren Browne.
Many dealerships that saw strong sales last month are seeing a different March. Galpin Ford’s Beau Boeckmann said, “We’re kind of still in this odd wait-and-see moment.” This from the highest volume Ford dealership in the US.
Smaller stores in smaller markets won’t survive
But the smaller stores in smaller markets won’t be able to hang on. And if there is some type of fiscal stimulus like a “Cash for Clunkers” arrangement, this won’t help used car dealers. This was a federal program initiated in 2009 to get consumers to get cash on the hood when they traded in a used gas-guzzler for a more fuel-efficient new car or truck.
It worked, but it has a negative effect on used cars. There are those who can’t afford to plunk down money-even with zero-down, for a new car. With used cars being crushed as in 2009 under the Cash for Clunkers rules it leaves less of a supply of used cars. With supply and demand, you end up with higher prices for used cars because there are fewer around.
The crisis has negative impacts on lower-income families and individuals
So in some ways, it has negative impacts on those with less in the first place. Wouldn’t it have been great if someone who met a minimum cap for income could pick out a better car turned in under Cash for Clunkers than the one they owned if it was more economical and had less mileage? They could just hop in and drive their new used car away with no strings and no money exchanged.
That would have the added benefit of upgrading those that can’t afford a better car to one getting better mileage. Then the car they trade-in is the one that gets crushed. Because that is what happened to the cars turned in under the program. In many cases extremely well-cared for older vehicles without a lot of miles got recycled.
But that still won’t help some car dealers and that’s a worrisome situation.