As the country and the world plan for the post-pandemic period, there has been much ink spilled as to the changes it will bring in various industries. Automotive retailing has been greatly affected during the pandemic on multiple levels. First, many retailers have been unable to open or have only been able to open and transact sales on a limited basis. Secondly, with the substantial job loss throughout the economy, and consumer confidence ebbing downward, it is clear that many consumers will be much more “tight fisted” as they approach significant purchases at least for the next several years. Finally, there is currently a glut of unsold used vehicles as well as more vehicles coming off lease every day. This will have the effect of depressing trade-in values substantially which will affect customer’s choice of vehicle. So, as we look at these factors and many others, what are some of the changes that can be expected in automotive retailing?
New Vehicle Sales
It can be expected that from the recent high sales numbers, there will be a substantial decline in new vehicle sales for the foreseeable future. This will again lead (as it did in 2008-2009) to an increase in the age of vehicles in service. Further depressing sales will be the likely decline in purchases by the rental car companies as tourism and travel are reduced for the foreseeable future. It is estimated that the largest rental car companies in the United States buy collectively nearly two million new vehicles per year. We can expect them to adjust their respective fleets to reflect their lower expectation of rental demand in the coming months by dumping vehicles, reducing purchases and maintain vehicles in service for longer periods.
A reduction in sales will also lead to a reduction in the number of employees at dealerships, as dealers attempt to cut non-fixed expenses like employment costs. The decrease in employment will be further compounded by the increased use of online transactions.
The Internet has been a constant source of change for auto dealers over the last 10 to 15 years. Most buyers are much better informed about vehicles and their choices than they were a short time ago. Online transactions have been occurring for years, however, there has been an accelerated use of these types of transactions as a result of the “stay at home” orders and closures of dealership sales showrooms. The systems needed for online sales have developed to the point where contactless online transactions are possible, and many dealers new to the environment are quickly working out the glitches in that system. Regardless of the number of vehicles that can be sold in this manner, it is clear that online sales could affect vehicle grosses by intensifying competition on the Internet by dealers quoting “rock bottom” prices to secure sales. In addition, dealers will have to adapt how they sell F&I (Finance and Insurance) products. Not being face-to-face, but dealing over the Internet makes it much easier for customers to resist purchasing optional F&I products.
Still, most buyers will want to test drive a vehicle before they decide to purchase it. That being said, once the test drive has occurred, dealers will have to close the deal quickly. Otherwise, a prospective buyer can then shop based on price on the Internet. Also, as a result of price competition through online sales, dealers will be much more willing to deliver vehicles to more distant buyers’, thereby enlarging the geographic area that customers are willing to shop (at least digitally speaking).
Vehicle Sharing Programs
One potential casualty of the pandemic may be programs where multiple users can share common vehicles. Car share programs have exploded in metropolitan areas and many suburbs in the last decade. These programs allow customers a short-term use of a vehicle, that is returned to a fixed location when the customer is done with it. Due to concerns about the coronavirus, many individuals may be more reluctant to consider vehicle sharing programs. The main car-share programs in the United States are currently offering substantial discounts for both new and existing customers; likely to combat decreased demand resulting from these risks, at least in part.
Another potential casualty of the pandemic may be electric vehicles. As consumers become more economical and potentially less willing to purchase more expensive vehicles, the higher cost of electric vehicles (and the lower, current cost of gasoline) may work to make electric vehicles less attractive to the average buyer.
Health and Safety Aspects of Vehicles
Already some manufacturers are moving to address health and safety issues arising from the pandemic. For instance, several manufacturers have introduced N95 certified air purification systems. Similarly, Jaguar Land Rover is exploring adding a special ultraviolet light unit to kill bacteria and viruses. Other car sterilization techniques are being researched industry-wide. These types of features and products may become significant in a buyer’s choice of a vehicle, especially as fears of contagions linger across the globe.
It is hard to know exactly what the post-pandemic retail world will look like, however, it is clear that the experiences of buyers and the automotive industry will dictate some significant changes in the structure of automotive retailing.