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THE DEALERON BLOG

The Market is Changing, But Not How You Think

When the pandemic first landed on us in late March, we all knew it would have an effect on the automotive retailing industry. Prognostications were everywhere, and they were uniformly bleak. As with most things, the truth ended up being far more complex and unexpected.

Social distancing has turned dealerships into ghost towns. The initial thought was that this, combined with the accompanying economic downturn that was already on its way, would immediately crater demand. And that is indeed what happened, at least initially.

https://www.dealeron.com/blog/5-ways-to-recession-proof-your-website/

Then a strange thing happened. Demand shifted to pre-owned vehicles, reaching levels that would be perfectly fine pre-COVID.

The reasons for this are pretty logical once you lay them out. First, look at supply. The pandemic has made factories shut down, or at least function at a reduced capacity. A factory floor is a workplace where COVID can spread quickly and therefore cause a lot of starts and stops. The end result is that there is a shortage of new cars coming off the assembly line, and when a product is scarce, that tends to drive the price up.

Second, the country is suffering under widespread unemployment, and even those with jobs tend to have a certain amount of anxiety over keeping those jobs. This means that customers are less likely to buy big-ticket items, and if they are, they’re going to be looking for a less expensive option. In the world of automotive retailing, that means pre-owned vehicles. Sure enough, dealers are reporting a corresponding dip in demand for new cars and a rise in demand for used cars.

This has led to dealerships literally running out of cars to sell, which is a far cry from where anyone thought the pandemic was going to lead us. According to Automotive News, this combination of a lack of supply for new cars and an increased demand for used cars has led to “the lowest nationwide inventory level since November 2011.” Inventory levels for new models are at .5% of total inventory, compared with 9% for 2020 models at the same time last year.

So if there’s one thing to take home, it’s to lean in hard to your pre-owned inventory! Keep your website updated with pictures of the latest cars to arrive in your lots and help your customers get into the perfect vehicle. Don’t worry about new cars until the pandemic is in the rearview mirror.

Author Justin Robinson-Prickett

More posts by Justin Robinson-Prickett

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