When economic storms abate and the good times return, Americans are known to do one thing: They run out and buy a new car.
That was certainly true after the Great Recession, when auto sales rebounded faster than the economy at large, en route to a historic run of industry highs.
But the coronavirus may require tearing up the playbooks of previous crises. Pent-up car demand may still be a given. But pent-up consumers, socially distanced from work, play and commerce, make this uncharted territory for an auto business that wants desperately to connect with them and close a deal. New-car sales cratered in March and April, despite record incentives that averaged $7,200 for the Detroit Three.
To reverse the perilous slide, automakers are taking tentative steps toward restarting production and shipping cars to showrooms. Whether customers will be there to greet them is another matter. With unemployment spiking toward Great Depression levels, many experts say the worst economic carnage is yet to come. Auto sales that nailed a solid 17.1 million in 2019 may fall to 12 or 13 million this year, according to Jessica Caldwell, executive director of insights at Edmunds.
“It’s looking like a once-in-a-lifetime chance to buy a car, for people fortunate enough to be able to buy one.”
“April is likely to be the bottom, a drop somewhere in the neighborhood of 53 percent,” Caldwell said, a historic monthly collapse since Edmunds began tracking sales in 1990. How bad was it? On an annualized basis, April’s tally would result in just 7.7 million yearly sales: In the trough of the Great Recession in 2010, the industry still found 10.3 million buyers. Caldwell said that, if consumers can return to work and brick-and-mortar business reopen, car sales may pick up toward the end of the year.
“But through the second and third quarter, we’ll still see sales depressed.”
There are signs, however, that jaw-dropping consumer incentives — from deferred and excused payments to zero percent interest for up to 84 months — are having an effect and propping up sales in some markets.
“It’s looking like a once-in-a-lifetime chance to buy a car, for people fortunate enough to be able to buy one,” Caldwell said.
Count Michael Silver in that group. The lifelong car buff in Coconut Creek, Fla. trades for new cars like clockwork; from the ‘67 Corvette 427/435 he bought new, to the current Mercedes-Benz S450 that he calls the best automobile he’s ever driven.
“Of all the cars I’ve owned, I’ve never had more enjoyment and love, and I’m going to miss it,” Silver said. “But the deals really tilted it.”
The retired school principal, headmaster and car salesman couldn’t resist Mercedes’ “pull ahead” program that let him walk away from his S-Class lease five months early — or the several thousand dollars in incentives on a 2020 E450 sedan his local dealer tracked down in a port in Brunswick, Ga. Silver bemoaned the dire economic straits, but said that many Americans, lured by sweet deals or approaching the end of a lease, will want or need to replace their current ride.
“I understand how people feel, there’s no paycheck coming in, you’re trying to keep food on the table,” Silver said. “There’s more important things in life right now than a piece of machinery. But for me, if they’re willing to pick up five payments on my lease, it’s time to buy a car.
“I’ve probably owned 70 new cars in my life, and I’ve never gotten a deal this good. Ever.”
Many of those deals are being made online and over-the-phone, with thousands of showrooms closed to walk-in traffic, or parts and service departments operating on a limited basis.
Dealer web sites are replete with online lures. Galpin Ford in North Hills, Calif., one of America’s largest Ford dealers, is touting the brand’s “Payment Relief Program,” with three months of payments covered and three more deferred. At McCluskey Chevrolet in Cincinnati, a home page features a “Covid-19 Guest Protection” plan, featuring home deliveries, disinfecting of cars and facilities — oh, and 84 months with no interest, no payments until July and a free lifetime warranty.
John Guido, general manager of Arlington Heights Ford in suburban Chicago, said that after a few soft years, the curve of online buying is shooting up. Consumers have been primed to shop online in the age of Amazon, and the pandemic’s lockdowns have only accelerated the trend.
“I gauge everything by my parents, who are in their Seventies,” Guido said. “They would never let me Instacart anything, but now they’re on the phone doing Grubhub every night. It’s amazing what happens in a month.”
Guido’s product specialists are doing car demonstrations at customers’ homes, and shooting videos for used-car appraisals.
As consumers research cars from home, negotiate terms and arrange financing, transparency is improved, and the heavy lifting done before they set foot in a showroom.
“One of the biggest complaints people had was how long it took to buy a car,” Guido said. “People are loving that they can walk in, sign some paperwork, go through a product demo and be on their way.”
“There will still be people who want to kick the tires and smell the car, but it’s really worked out well for us, because we were ready for digital retailing.”
“I’m telling friends, buy a new car now, but a used car in coming months, because prices are going to drop substantially.”
Caldwell said even old-school dealers who once resisted online commerce are jumping in to attract consumers leery of, well, handshake deals. (Those hands-on salespeople are definitely going the way of the loud plaid jacket in the post-pandemic era).
While many enlightened car dealers, Caldwell said, had already dropped hardball sales tactics that made showrooms seem hostile territory, “It’s not like the dealership experience was that beloved, regardless.”
And if new cars are priced to sell, experts say used cars may become an even smarter buy. Dealers are offering lease extensions to shut-in customers who don’t care to emerge to make a swap. Still, a glut of used cars is already depressing market prices, a situation that should only worsen — or improve, if you’re a buyer — as those consumers begin to return lease cars en masse. Some shoppers report that dealers are refusing to accept cars when leases are up, unless they take on another lease, saying they have no room for their pre-owned cars. Dealers may end up with a rare showroom pileup, with models from three different years in stock — 2019, 2020 and 2021 — leading them to virtually give the 2019’s away to clear the decks. Guido advises that buyers will need to balance the deals on used cars against the rich incentives offered on new models.
“There’ll be an abundance of late-model-everything out there,” Guido said. “I’m telling friends, buy a new car now, but a used car in coming months, because prices are going to drop substantially.”
One thing the pandemic won’t dampen, experts suggested, is the American love affair with SUVs and pickups, in part because of dirt-cheap gasoline. That would be in contrast with the Great Recession, when painful gasoline prices sparked a mass exodus from light trucks in favor of smaller, fuel-efficient cars. The crisis may, however, spell bad news for some EVs, between potential delays for models like the Mustang Mach E, and stiff price premiums that may discourage shellshocked consumers — with one eye on their withered bank accounts — who seek reassurance, not revolution.
The global pandemic may be uncharted territory, but that hasn’t stopped speculation on when business-as-usual will return, if ever. The prevailing view seems to hold that “nothing will ever be the same.” Fewer are predicting an equally likely alternative: The “global amnesia” suggested by Albert Camus in his classic “The Plague,” in which people do whatever it takes to forget the past and resume their former lives. Caldwell said the car industry surely hopes for the latter scenario, with booming sales as the bellwether for another economic comeback.
“No matter what disaster hits, people’s memory of it has been pretty short-lived, and old habits come back quite quickly,” Caldwell said.
As for the traditional auto showroom, Guido is convinced there’ll be no going back.
“What’s going to change is the customer journey, and we embrace it,” he said. “We’re going to be better car dealers, better for our employees, better for customers.”