Published in Economic Development
Aaron Zeigler, president of Zeigler Automotive Group, said the company recorded its best-ever month of sales in May, despite the COVID-19 pandemic. Aaron Zeigler, president of Zeigler Automotive Group, said the company recorded its best-ever month of sales in May, despite the COVID-19 pandemic. MIBIZ FILE PHOTO: KATY BATDORFF

Auto dealers say demand remains strong, as worries grow over new car inventories

BY Sunday, June 21, 2020 05:55pm

The projected slide in new vehicle sales globally and nationwide paints a grim picture for the industry, but local auto dealership executives say there’s a disparity between the numbers and what they’re seeing on their lots.

Because of the global COVID-19 pandemic, which has crippled auto production throughout the last three months, the sales forecasts offer anything but encouraging news. 

An IHS Markit forecast released earlier this month projected drastically lower sales expectations for the year. Global auto sales are expected to sink to 70.3 million units in 2020, a 22-percent slide from last year. 

Domestically, IHS Markit is now forecasting a 26.6-percent decrease from last year, with auto dealers expected to move an anemic 12.5 million units for the year. The original forecast from January called for 16.8 million new vehicle sales.

These projections are beginning to rival those of 2010, when the nation was climbing out of the Great Recession and only 11.6 million cars and trucks were sold for the year.

Originally, IHS Markit expected only about a 12-percent dip in global sales, but the uncertainties that the pandemic has introduced into the industry are now raising the threat of a more profound effect.

Mike Wall, director of automotive analysis for IHS Markit in Grand Rapids, touched on a few caveats to the numbers, suggesting the total for U.S. auto sales in 2020 would likely shake out at around 13 million units.

“You might say (13 million) is still far off from 16.8 million, but bear in mind that a good two million units of that will probably be associated with the sheer decline and falloff of daily rentals,” Wall said.

He said that companies are already done with their rental buys for the year as that sector has taken a major hit given the low volumes of travel during the pandemic. To that end, rental giant Hertz declared bankruptcy in May, citing the collapse of travel in the wake of various stay-home orders nationwide. 

“There is a sizable decline on the fleet side, but we’re actually seeing retail holding quite well,” Wall added.

Still, Bank of America’s “Car Wars” forecast suggested that this slump will stick around for the long haul, taking several years before the industry can even approach the level of 17.1 million cars that were sold in 2019.

Still ready to buy?

While the numbers might be depressing for auto retailers, some dealerships are still hanging tough, and in some cases thriving.

For instance, in the face of the bleak outlook, the Kalamazoo-based Zeigler Automotive Group managed to record the best month of auto sales in company history in May, both with cars and in the motorsports division of the business that sells motorcycles, ATVs and personal watercraft. 

In May, Zeigler sold 3,700 vehicles, which eclipsed its previous best mark of 3,500 vehicles sold back in August 2019.

President Aaron Zeigler said that he is seeing people who are ready to buy for a number of reasons.

“There is a lot of pent-up demand out there,” he said. “We kind of looked at it from a couple of different fronts. One is there really hasn’t been much to spend money on in the last couple months. Everyone’s credit card bills seem like they’re at record lows. … People have money right now and they seem to be spending it.”

As well, many consumers also saw an influx of extra cash.

“A lot of people got a raise on unemployment when you think about it like that, and then they got a stimulus check from the government for $1,200 and there was no tax on that,” Zeigler said. “I think many people are flush with cash. We also sell a lot of business vehicles, too, and many businesses made out pretty well with the PPP program, so they have cash.”

The company rode that May momentum into what Zeigler called a strong June, but he certainly is monitoring some inevitable issues the industry is facing.

“The biggest challenge is going to be that the industry is going to run out of cars,” he said. “Sales are substantially higher than what manufacturers thought and they’re trying to gear back up and it will take them a while to catch up. We’ve been out for about 45 days trying to buy cars. Our inventory has about 1,500 less than what we would normally have in stock.”

Pickup trucks will be the first to dry up, as demand in this ultra-profitable segment of vehicle sales has not relented while production of these and other vehicles came to a screeching halt at the height of the COVID-19 pandemic.

Demand continues to be highest for trucks, SUVs and crossovers, proving that uncertain economic times are not making consumers shy away from the pricier buys.

Zeigler and other dealership executives plan to adjust their inventories accordingly.

“We normally do 50-50 new and used, so we might pivot and do 40 percent new and 60 percent used,” Zeigler said. “The used cars are out there. It’s on the new side where things will be tight through probably the end of August.”

Forced to adapt

Evolving — and quickly — was a must for dealerships during the last few months. This didn’t just mean stocking more hand sanitizer in the showrooms or implementing proper social distancing practices. Dealerships also had to hone their technology to bring every aspect of the car-buying experience online. The state shut down all auto sales on March 24 and on April 9, they were able to reopen by conducting much of the sales process online.

That meant developing these digital tools and capabilities, or at the very least refining existing ones.

“We already had it where you can buy a car 100 percent through our website,” Zeigler said, noting the company’s operations in other states have allowed virtual sales for years. “Very few people do that even though the technology is available. But 100 percent of customers do go online and maybe do 80 percent of the experience online.”

Diane Maher, president and COO of Grand Rapids-based Fox Motors, said that her company’s digital capabilities also were fairly advanced before the pandemic and subsequent shutdown. For a number of years, Fox Motors has touted its “Buy Your Way” initiative, which allows customers to tailor their car-buying experience with the option of doing it almost all online.

However, the pandemic served as a catalyst for further developing the technology to make Fox Motors more effective.

Touchless service is one such solution that the dealership introduced during the pandemic, where clients can drop off their vehicle and keys for service without interacting with anyone directly. Dealership representatives communicate with clients via text and email.

“Our technology vendors (Cox Automotive) have stepped it up like 10,000 times and have gotten a lot of things through the development phase because they’ve had to,” Maher said. “I think it’s been really good for the industry as a whole as far as the technology that is around now and it lets us do it this way.”

Still, motorists shouldn’t expect the car-buying experience to become exclusively digital anytime soon. Maher points to the fact that many clients of Fox Motors prefer the person-to-person interactions with the sales and service consultants with whom they have created relationships.

“I still don’t believe that all the customers will want to transact with us (entirely online), but at this stage, my best estimate would be about 50-50,” she said.

While Fox Motors may not have recorded a banner month like Zeigler, Maher also noticed a much more subtle hit to demand than one might expect during such an unprecedented economic event.

In April, Fox Motors achieved about 65 percent of its sales goal, but recovered in May, when the company reached about 80 percent of its sales mark. June was trending to see Fox Motors hit its sales expectations.

“There was a couple month bump and it appears that demand and people’s desire to buy vehicles is strong,” Maher said. “They don’t seem to be scared off by this — it’s encouraging.”

Incentives have also made it one of the best times to buy a car in recent history, with long loan terms and 0 percent interest.

Still, Maher is bracing for supply issues that the industry is likely to face in the months ahead. 

“Used (vehicles are) definitely robust at the moment — our new to used ratios are climbing,” she said. “We currently have a decent supply of new cars. We have a little bit of a fear that around the August timeframe we could get light in certain brands. We’ve been talking to manufacturers and they are feverishly trying to up their production and get more vehicles out there. I don’t think anyone anticipated that demand would be this high right now.”

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