Are we headed for a New and Used Car Price Collapse? NMA Auto Tech Watch for April 19, 2020

By Shelia Dunn, NMA Communications Director

Even before the coronavirus reared its ugly head, the auto industry was in trouble—some say even in a bit of a free fall. Now that few of us can buy a car due to job loss, job reduction, and stay-at-home orders, will there soon be a collapse of the entire car-buying industry?

For over a month, no new cars have rolled off the assembly line, and dealers have shuttered their doors or even gone out of business due to the COVID-19 crisis. The sale of used vehicles is also in free fall. Inventory is beginning to pile up at used-vehicle auctions.

Many lease vehicle contracts are now up, and a big fear by in-house lending units that they will have to write down the value of these contracts because the assumption was the car or truck would retain a higher value. The same issue has been exposed for rental companies that will get less cash selling down their fleets, which have already been idle in some locations for six weeks.

Cox Automotive Executive VP Dale Pollak said recently, “Six months from now, there will be huge, if not unprecedented, levels of wholesale supply in the market.” Cox Automotive, owners of the largest North American auto-auction company, estimates that prices have fallen 10 percent in recent weeks. Manheim, the world’s largest auto auction company, claims that used-car sales fell 64 percent in the last week of March. Doubtful it has gotten any better in the interim.

Several weeks ago, AutoNation, the largest US automotive retail chain, laid off at least 7,000 employees as it closed showrooms across the country. Many other dealerships have done the same. According to industry data, new US vehicle sales fell 37 percent in March. Many analysts claim that figure will be closer to 80 percent for the month of April. JD Power announced earlier this month that a rebound would be unlikely until sometime in 2021.

In a recent webinar, analysts agreed that the industry would need significant incentive programs to move forward. A federal Cash-for-Clunkers will likely happen, for example.  Analyst Stephanie Brinley said that the most effective incentives would need to give buyers “a sense of security.” Buyers would perhaps expect to be covered if they were to lose their jobs in a program similar to the Hyundai Assurance program that offers to cover months of payments if a job loss occurs.

Many automakers have already been advertising no payments for six months for new purchases, and many are also offering payment assistance options for customers.

Another participant of the webinar, industry analyst Jeff Shuster says he expects costly electric vehicle programs to be pushed out and altered by the virus. Spending on driverless car development will also take a hit. Instead, Shuster believes that the focus will be on higher-end pickups and SUVs.

Ridesharing might also be in trouble. The industry ultimately saw big dollars in converting personal car ownership to fleet ownership for ridesharing. The virus has put a damper on this equation because consumers have already started questioning whether getting into a shared vehicle poses a health risk.

Ultimately, this might actually help car sales. Whatever the case, the auto industry is in trouble just like every other industry due to the COVID-19 crisis. No one knows what consumer habits will take shape post-pandemic.

Here are ten other stories from the Auto Tech Watch section of the NMA’s Driving Newsfeed.

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