Major Purchases Surge, Showing Pandemic Recovery in Motion

Around ten weeks ago on March 15th, the Federal Reserve slashed benchmark interest rates to 0.25 percent to kickstart the pandemic recovery effort. It’s forecasted that the Fed rate will be leveled off at an even zero percent as of June 10th, although cases are being made by Goldman Sachs, Fed economist Yi Wen, and several others for a negative interest rate.

Following a Fed meeting on April 29th that held the rate steady at 0.25%, Fed chairman Jerome Powell stated, “We’re going to not be in any hurry to withdraw these measures or to lift off. We’re going to wait until we’re quite confident that the economy is well on the road to recovery.”

So it might be quite the surprise to discover that CNBC is reporting that mortgage demand is much higher than expected right now. While mortgage applications were at an all-time low in mid-April, they’ve now climbed 18 percent higher than this time last year. The housing market has fewer properties for sale than usual right now, and they’re being bought up quickly.

Economy is Stabilizing

The Fed isn’t rushing to increase rates anytime soon and buyers are jumping at great deals in the housing market. On average, normal consumer spending is down by 13.6 percent but major purchases like real estate and vehicles are on the increase. Americans desperate to travel are even snapping up RVs and travel trailers – COVID campers, if you will – at amazing rates, up more than 30 percent from last May.

Vehicle purchases in May 2020 were down from the previous year by a little more than 30 percent, but more than 1.1 million new cars made their way into customers’ driveways instead of going stale on dealership lots. Incentives like zero percent interest over terms as long as 84 months certainly aided carmakers in moving metal, as did aggressive cash rebates. Some popular models, particularly pickup trucks, have unexpectedly low inventory levels due to higher sales volumes. 

All Signs Point to Great Auto Sales Recovery 

All of the spending shows that Americans have maintained some confidence in the economy, despite the devastating effects of months-long shutdowns. Certain car manufacturers fared better than average like Hyundai, whose year-over-year sales were only down 13 percent in May and Volvo was down just 2.5 percent. Mazda was down only 1 percent.

COVID hotspots in the nation continue to suppress car sales regionally, but as a whole, the industry is in relatively healthy shape. The Big Three in Detroit previously reported sufficient liquid assets to weather the storm throughout 2020.

For car dealers, it means that customer traffic is likely resuming nearly normal volumes. If China’s example in May shows us anything, foot traffic will be at around 80 to 90 percent of pre-COVID volume in June.

It’s positive news that the pandemic recovery has begun so soon. With customers ready to spend money on mortgages and cars, combined with historically low interest rates, converting dealership traffic into rolled units should be an easy task.

Now is a great time for dealers to invest heavily in their social presence and market to demographics that have skated through the pandemic unscathed. Bring back sales staff to fulfill the demand for vehicles in your community.

Did you enjoy this article from Jason Unrau? Read other articles from him here.

Car Biz Today, the official resource of the retail automotive industry.