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Michigan sees steeper used vehicle sales slump during pandemic

BY Sunday, July 19, 2020 06:18pm

When local auto dealerships braced for a potential cramp in new vehicle inventory, they opted to go heavier on used vehicles. Now, they’re looking for just about anything.

“When you go to some of these higher volume dealers, in particular just around Grand Rapids, it’s eerie,” said Mike Wall, director of automotive analysis at IHS Markit. “You’re talking about lots that are half full or less on both the new and used side. There is definitely a need for more product.”

Mike Wall, director of automotive analysis at IHS Markit COURTESY PHOTO

The narrowing inventory on new vehicles is easily traced back to the auto factory shutdowns and supply chain woes that were tied to the COVID-19 pandemic and the subsequent industry shutdowns. However, the availability of used vehicles hinges on additional factors, and there is the potential for a new flood of used cars to hit the market based on some projections.

Used car sales slump

IHS Markit tracks vehicle registrations, giving them the ability to keep tabs on both private party and dealership sales. Wall said he noticed a drop in used vehicle sales that stayed in lockstep with the drop in new vehicle sales.

“To the extent a dealer could load up on used vehicles, they were trying to,” he said. “Early on, in that April timeframe, even auctions (weren’t) running the same way they usually were because they couldn’t have people there. Those who could go virtual tried to. But it did kind of choke off, early on, the supply on the used front.

“Right now you can go to most dealerships and I don’t care if it’s new or used, they’re running pretty darn lean.”

Boston-based iSeeCars.com is a nationwide vehicle search engine that also conducts automotive research.

The site recently released a report based on nationwide used vehicle sales information from May that chronicled the dip through the COVID-19 pandemic and a 12.5 percent decline in used car sales compared to May 2019. The Grand Rapids area specifically saw a steeper decline — 23 percent — compared to the rest of the country.

The year-over-year change in sales in Michigan swelled alongside the COVID-19 pandemic with a 4.8 percent dip in February, 26.6 percent drop in March and 71.7 percent free fall in April, giving reason for optimism in May’s more modest decline.

“When looking at Michigan and Grand Rapids specifically, the area had more significant drops than other parts of the country,” said Julie Blackley, communications manager at iSeeCars.com. “Part of that is because Michigan was one of the strictest states in terms of dealers being open. Dealers were completely closed for a while and then they opened up to online-only sales and it wasn’t until the end of May that dealerships were finally open.”

The report affirmed some of the prominent inventory issues, including the fact that new pickup trucks have dried up and consumers are looking for them anywhere they can find them.

The report showed that pickup trucks were the only segment of used vehicles to see an increase in year-over-year sales in May, as sales rose 9.4 percent.

Sport utility vehicles and crossovers also remained popular used vehicles.

Blackley cited economic uncertainty and the fact that people are traveling far less — including work-related commutes — as reasons that consumers have perhaps delayed their purchase of a new or used vehicle.

Impending market flood?

While used car prices continue to tread water at pre-pandemic levels, Blackley pointed to a few significant factors that might usher in a new wave of used vehicles to the market to drag down prices and make them a more attractive buy.

“A lot of people delayed turning in their leased cars because of the pandemic, and dealerships have been letting them do that,” Blackley said. “I think there will be an influx of off-lease cars coming into the market. And, you look at Hertz (which is going through bankruptcy) and other car rental companies that are in trouble that will be unloading their fleets. They’re set to flood the market as well.”

The potential for rental car fleets to flood the used vehicle market is something that Wall and his team at IHS Markit have followed closely. Thus far, it hasn’t moved the needle whatsoever.

“It’s actually a little lower than last year,” Wall said of the sale of automobiles that were formerly rentals and now first-time used vehicles. “We’re not seeing a spike — it could still happen. At the same time, as of right now, that does not look to be distorting the market.”

He acknowledged The Hertz Corp. is still working through the bankruptcy process and names like Avis Car Rental and Enterprise Rent-A-Car are also grappling with similar situations.

“You’re going to see more turn in the market for sure,” Wall added. “I still think it’s safe to say there will be a pricing headwind when it comes to daily rentals just because of the distress in that market. The good news is, as of right now, we haven’t seen it providing significant distortion to used vehicle pricing.”

George Sharpe Jr., general manager of Sharpe Cars in Grand Rapids, said used vehicle inventory will naturally replenish as the trade cycle progresses and that it’s important for dealerships to seize those opportunities.

“When a customer comes in to buy a vehicle, if there is a trade involved, we’re making sure we are capturing that trade,” said Sharpe Jr., whose business deals with vehicles from BMW, Jaguar, Range Rover and Mini. 

“Right now is a great time for a customer to trade their vehicle in because of the demand. We have all avenues covered as far as acquisitions are concerned. Trades, auctions, off-lease — every avenue, we’re pursuing.”

Heading into July, Sharpe Jr. said the company had a “healthy” used car inventory and that it recorded one of the strongest used car months last month.

Overall, the local high-volume dealerships are continuing to move vehicles at a solid clip given the economic circumstances. How long they can continue the pace, especially in light of potential inventory problems, remains to be seen.

“Our sales volume was up 25 percent (in June) from the prior June,” Sharpe Jr. said. “We’re conservatively optimistic. There was a lot of pent-up demand because many people weren’t buying in the prior months. … July and August will be a telling picture and a little bit more realistic.”

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