The COVID-19 pandemic has put a lot of stress on the automotive industry. Dealing with production shutdowns, working with unions to protect as many jobs as possible during the shutdowns, canceling major product reveals at industry car shows, and retooling plants to make emergency medical equipment are just a few of the things they have had to deal with.
Now, with different parts of the world reaching, or about to reach the top of the Coronavirus infection curve, those same manufacturers are trying to figure out what is going to happen when the economy and their plants all get started again. Bloomberg is forecasting that the manufacturers will face a glut of vehicles on the market, and a significant price adjustment will likely have to be made for those units.
Here is the situation. In January and February, the auto manufacturers were still producing vehicles. Toward the end of February and the beginning of March, the manufacturers started to see the impact of the virus globally and accordingly began to shut down automotive plants.
In the meantime, people around the world were starting to lose their jobs as COVID-19’s quarantine period drags on. Additionally, people without jobs and even some small businesses started to sell what vehicles they had in order to be able to pay bills. And although governments have been moving in ways to support all the newly unemployed, many of those efforts are not enough, or quick enough in delivery to help some families or small businesses.
Also, during the quarantine period, rental car companies are sitting on a lot of inventory that they will need to sell to compensate for a market adjustment.
A glut of used vehicles
According to a Bloomberg report earlier today,
“There aren’t a lot of people in gloves and masks running out to buy cars,” said Maryann Keller, a former Wall Street analyst who’s now an auto-industry consultant in Stamford, Connecticut. “Auctions are mostly shut down and they’re filled with cars that have no buyers.”
The expectation is that all of these factors are going to lead to significant discounting on vehicles. When dealership networks that had to shut down, get back up and running again, they are not going to want old stock or too much stock. So, the anticipation is that discounting is the way that will not only get consumers back to dealerships but also help in reducing the glut of vehicles sitting around store and auction lots.
Price drops already began
The Bloomberg report says that Manheim, an auction house owned by Cox Automotive, has already seen a 10% decline in used car prices. They acknowledge, though, that the decline is due in part to lower volume sales as people are staying home. The fear, however, is that the decline could worsen if the Coronavirus situation worsens.
Nobody has a crystal ball to know exactly when and how to restart the economy. That is all dependant on the Coronavirus isolation and vaccination timelines, which right now nobody knows. What is conceivable, however, is that while many people will be rehired, far too many others may not. This means that until people feel secure, buying a vehicle is not going to be as high on this list of priority expenses for many families.
So, a continuing glut in dealership inventories is probable, and discounting will be likely.