In my last blog, I discussed the many consequences that the COVID-19 virus will bring to the auto industry. That list was not all inclusive and there is a factor that I did not include that will affect sales and inventory: consumers.
What do I mean by that? We all know that consumers in the United States have received Stimulus checks. In addition, with the tax return filing deadline extended and the U.S. government operating at a slower pace, there may still be plenty of people that will receive tax refunds. Typically, many dealers see a surge in car sales as this money from tax refunds hit consumer bank accounts but now, dealers will be seeing consumers who not only have those tax refunds but also stimulus checks and, in some cases, those could be pretty large. A family with 2 adults and 4 children that are under the income qualifications would receive $4,400. There will also be plenty of unemployed consumers who are receiving unemployment whether that was because they were furloughed or because their employment was terminated.
What does that mean for used car inventory? It means three things:
First, cars will be in demand. Typically, in these cases, the majority of these consumers looking to buy may be mid to low credit and searching for a “better” pre-owned vehicle. However, to complete the transaction, they may need to trade in a vehicle.
Second, as dealers and the market slowly level out, used vehicle valuations will be all over the place. Dealers will have a glut of inventory that they are trying to unload while, at the same time, being forced to take in a trade from a consumer to do so. Yet, because used vehicle values are all over the place, dealers will probably want to err on the side of caution while the consumers will want as much as possible for their vehicle.
And finally, because banks and lending institutions factor in many things in determining whether they want to finance a vehicle like COVID related items - credit, income and collateral – they will be tightening their lending criteria which could make it harder for these individuals to buy cars while, at the same time, creating a dilemma for the dealer. The more they give for a used vehicle value on trade, the better the LTV is which can influence lending decisions.
It's important for dealers to be prepared for these potential situations by having more accurate assessments of vehicle value through condition. Is this something that will need a lot of service work in recon prior to being retailable? Is this vehicle one that I would need to wholesale?
With consumers increasingly depending on online information, dealers need to ensure that they are providing the most accurate trade-in values that they are able to in order to win the sale, move a unit and take a trade-in right not only to create a better customer experience but also one that creates a situation that is more amenable to lending institutions in order to get those sales financed.