The coronavirus pandemic has certainly impacted the auto industry much more than most would have ever imagined. From supply chain issues to fluctuating consumer trends and behaviors, COVID-19 has crippled automakers, dealerships, parts suppliers, consumers, and so much more, and Cox Automotive’s Weekly Summary warns that the auto industry may regress in the coming months despite recent upticks in sales and jobs.
Jonathan Smoke, the Chief Economist for Cox Automotive, noted that COVID-19 cases are rising rapidly throughout the United States, which is “leading to declining activity and consumer sentiment” while increasing unemployment and financial hardships.
Job Recovery Moderating
Smoke noted that “the jobs recovery seems to be slowing as well” and the economic recovery could “stall” as a result of the ongoing crisis. Unemployment claims have skyrocketed since the beginning of the pandemic and millions of people have been unable to find work for several months. Some dealerships are hiring more IT professionals to help with their websites as consumers move more to online sales and virtual showrooms to eliminate the need for in-person visits; however, unemployment numbers have still had a detrimental impact on car sales in the past few months.
According to Smoke, “we need to see bigger declines in order to have unemployment fall before enhanced unemployment compensation expires at the end of July,” and if we don’t, “we’ll see more households experiencing financial distress in August and later months.” Families struggling to make ends meet certainly aren’t likely to be visiting dealerships, so getting unemployment numbers down is critical for business.
CarGurus conducted a survey last month that revealed less consumers were postponing car shopping in June than they were in April and many more were “actively researching” vehicles. Another positive insight for the industry at the time was that “22% of 2020 purchasers and current prospective buyers had not planned to buy this year before the pandemic.” This may be due to the fantastic deals and discounts that are being offered.
However, the resurgence of COVID-19 cases likely isn’t doing dealerships any favors, seeing as consumers’ interest in new or used vehicles may wane back to the level it was at in April now that the pandemic does not seem to be vanishing any time soon. Smoke’s current report also reported a decline in consumer confidence due to “declining views of future expectations as well as current conditions.”
Pricing Up Year-over-Year
If things turn around for dealerships, higher demand for both new and used vehicles would reduce supply and likely raise prices as the economy recovers. Smoke’s update included that inflation spiked more than expected in the month of June and, according to a JD Power report from June 26th, the price of vehicles has also increased. The average new vehicle now costs around $34,981, which is almost $1,400 more than June of 2019, placing more hardship on consumers and possibly giving business to the used car sector. Smoke noted that the housing market also “continues to show its relative strength in this recovery,” therefore taking away auto business.
Optimistic Future for the Industry
Smoke summarized his weekly report by saying the rapidly increasing COVID-19 cases “threaten the economic recovery.” However, the outlook may not be as bleak once the pandemic ends, seeing as more consumers may be looking to buy new and used cars if ride sharing and public transportation scares them. This may stifle the recent exponential growth of the rideshare industry and bring business back to dealers.
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