With used car valuations dropping significantly due to the coronavirus pandemic, buying and selling used units is going to be a tough balancing act.
The Current Situation
It’s no surprise that there’s a lower demand for used cars right now. Millions of consumers have been put out of work and left to collect unemployment, with many simply waiting for things to reopen while hoping, in the meantime, that they can stay financially afloat.
Only worsening the situation, dealers in many states are only allowed to sell online or, in some cases, their parking lots, with some states only allowing parts and service departments to remain open. The struggle to sell vehicles depends on your state, but everyone is feeling the effects of the COVID-19 pandemic – especially on used car sales.
The Manheim Used Vehicle Value Index has declined 11% in April compared to March 2020, and is down around 10% overall compared to last year.
What’s Being Forecasted
Automakers have been rolling out fantastic spiffs on new cars, which could also be contributing to the decline of used vehicle values, putting dealers in a tough spot. Adding insult to injury, there’s so little movement and activity in the sector that it’s getting difficult to pin down wholesale values of used units, even those coming off-lease.
Soon-to-be off-lease cars’ real residual values are also getting hard to estimate, since many stores won’t put them in inventory considering sales are slumping while thousands of leases have been extended. A USA Today report found that many lessees went to return their vehicles to their dealership, but have been turned away. It’s been estimated that nearly $6 billion in incremental loss is expected due to leasing issues that include extensions, the inability to return a car, and a precipitous drop in residual values.
There’s also the risk of a customer coming into your store with the intention of trading in a vehicle with equity to only find that they have less equity or, worse, they’re now in a negative equity position. At the same time, shoppers aren’t likely to be completely unaware of what’s happening in today’s market – everyone is home and, therefore, likely online.
But it's not all doom and gloom, and there is some good news. J.D. Power reports that sales have likely bottomed out in April. According to analysts at Edmunds, April 2020 is setting up to be the lowest month for auto sales since at least 1990, with an estimated 633,260 new car sales. This eclipses the second-worst month – January of 2009 – when just 655,000 new vehicles were sold.
The fact is, the market doesn’t look great right now, but dealers are adjusting and looking for solutions to fight the free fall surrounding sales and used car prices.
Combating Plummeting Used Car Valuations
As a way to stimulate the used car market, some dealers are promoting the idea of another “cash-for-clunkers,” modeled on the $3 billion Car Allowance Rebate System (CARS) stimulus program that ran from July 1 to August 24, 2009. The Federal Reserve Bank of New York Staff reports that the cash-for-clunkers program “helped finance the purchase of nearly 700,000 vehicles in 2009.”
Businesses like Carvanna have perfected the online car buying process. Their business model is entirely online with no physical dealerships, only massive car-vending machines and home delivery options. Additionally, their prices are non-negotiable, a facet that’s particularly appealing to online customers.
Given their growth and contactless transaction process, Carvanna is changing the game and likely to thrive as a result of their online model during this pandemic, since they’ve always occupied this space.
You can increase your business by taking your online retail presence to the next level, but simply replicating the in-person transaction process to an online space may feel clunky to online shoppers. If a consumer wants to buy a vehicle completely online, they may not want to engage in a phone conversation to finalize the transaction, discuss terms, or arrange to drive to a dealership for a wet signature. So, make sure that you're clear about whether you can fully complete a sale online. Transparency is key.
Your state may have limitations for online car buying, such as requiring a notary, but attempting to completely transfer your brick-and-mortar location’s processes online may not translate well with customers who are comfortable with online buying and selling.
Get In the Subprime Game to Boost Used Car Sales
Used car sales might be down for now, but there are prospects that are highly motivated to buy right now. If you haven’t taken advantage of subprime leads, you could be missing out on consumers that are looking for a second chance while financing their next vehicle, and will likely want a used car given their lower sticker prices.
If you’re interested in shifting your attention to a highly motivated set of buyers, we want to hear from you. At Auto Credit Express, we’ve been a leader in the subprime automotive space for over 20 years. Using our online auto loan request form, we can send subprime leads to your dealership that are ready to buy, and boost your used car sales during this downturn.
Give us a call at 888-535-2277, or fill out our online form here to get in touch.