What unexpected turns 2020 had for automotive retailers.
We went from business as usual in the first few months to a truly desperate time during the early days of the pandemic with lockdowns, stay-at-home rules and lack of production.
Then, to boom times in the third and fourth quarters, where the combination of vehicle production gaps that created shortages and higher gross margins for both new and used vehicles, the migration away from public transportation and ride- or car-sharing-stimulated private car ownership, and more cash in a lot of folks’ pockets (due to forced savings by not going out), created a perfect positive storm for most dealers’ bottom lines.
However, given the macro effects of the pandemic, more sobering times are certain.
Just as COVID-19 accelerated the trend toward online sales and transformed fixed-operations pickup and delivery from a “nice-to-have” to a necessity, so too shall the permanence of the “work at home” trend have its effect.
As the Jan. 7 article in The Wall Street Journal, “Car Sales Face Zoom Threat” indicates, as things start to normalize, the “stickier changes” of remote working “might not be great for car sales down the road.”
Pre-pandemic, data collected by KPMG indicated 40% of the miles traveled by passenger vehicles in the U.S. were for commuting and shopping. Take away the commuting part, as more people permanently work at home (lowering business commuting costs), throw in a healthy dose of consumer item delivery growth and, as the WSJ says, “the impact of lower vehicle usage could run deep, even if it takes years to play out.”
In short, the bread-and-butter middle market two- or three-car family might find they can get along with fewer vehicles as they end up driving less for basic necessities – less commuting to work and physical (as opposed to online) shopping.
The high-end premium luxury segment probably doesn’t take much of a hit, as this trend would affect them far less, and the entry-level, first-time or subprime “necessity” used car buyer is probably less affected, again, as the move toward personal transportation and away from public transit and vehicle sharing probably isn’t reversed quickly.
However, that middle market, two- or three-vehicle household might very well conclude it can get by with fewer vehicles when leases come up or replacement cycles are scheduled.
If you look at all the future growth initiatives of the traditional large public consolidators and the largest private groups, the clear and conspicuous focus has been on the used-car side of the business, in many cases with independent standalone stores.
So, too, all the new online/app-based public “disruptors,” with stratospheric market share, are used-car-only stores catering to the subprime and first-time millennial buyer. Entire business plans are focused on older 4-to-8-year-old vehicles – hardly the two- or three-car-family mainstream market.
As the annual National Automobile Dealers Assoc. convention draws near (for the first time, virtual), for those dealers not in the premium luxury end of the market wouldn’t it make sense to investigate the marketing, technologies and new ways of securing business in the subprime, deep subprime and first-time buyer side of the business?
There will be a major push from all manufacturers: domestic, foreign and electric-vehicle newcomers (many who eschew the dealer franchise system following Tesla’s lead and success) to wow us with their new EVs.
But really, although it might not be a politically popular observation, how much of the mainstream market is really interested in paying more for an electric vehicle when fuel is so cheap, charging stations still so rare and EVs require a premium price (even with federal payment subsidies)?
More to the point, if growth is in the used side of the market – subprime and first-time buyers – could a new EV even be a realistic alternative, given basic economics?
Historically, used vehicles sold to “necessity” buyers have been the refuge of many dealers during any cycle slowdown. In these times, all indications are that a focus on this is a sure bet.
John F. Possumato (pictured above, left) is an attorney and the founder of DriveItAway, which creates platforms and applications enabling automotive retailers to offer new app-enabled mobility options, including remote rental and rent-to-purchase.