Like you, I have been reading numerous articles about fear gripping the automotive industry and many other industries, thanks to the coronavirus pandemic. The last time I checked, fear has never led to positive outcomes.
It's very easy to get caught up in the news cycle and focus only on the negative. But we must resist this tendency because it stifles our ability to think rationally. As entrepreneurs, we need to focus on solutions and opportunities, understanding that this, too, will pass.
Yes, there is a pre-owned vehicle glut right now. We know leases are being extended by lenders, which will exacerbate the off-lease supply problem in the coming months. Auction yards are packed, and dealers' inventories are bloated. There's simply not enough demand to alleviate the problem today.
Consider this: The Fed has been proactive during this crisis. Trillions of dollars are being injected into our economy and markets at record speed. Payrolls are being backed so employees aren't laid off. Those laid off are receiving unemployment checks with a $600-per-week bonus. Those making less than $50,000 per year actually make more money by taking unemployment benefits than they would on the payroll. I'm sure you've all heard the Wall Street quote "Don't fight the Fed." Well, it's true. With the Paycheck Protection Program and other stimulus, my sense is that we could come out of this quickly as the restrictions begin to lift.
Look for another Cash for Clunkers program, too. During the recession, Uncle Sam paid people to trade in old cars for new ones. The program was very successful, as $3 billion of stimulus generated $14 billion of sales. Morgan Stanley believes $10 billion will be provided this time, and it will generate $50 billion in sales.
Here are 8 reasons for pre-owned optimism:
Interest rates are basically at 0 percent.
Automakers and lenders are offering fantastic incentives.
Factory shutdowns result in a short new-car supply, shifting demand to nearly new.
Gasoline prices are at lows we've not seen in decades, which will drive light-truck sales.
People have not been able to take vacations, go shopping or go out to dinner. If they've been able to maintain a relatively stable level of income, they will have money to spend.
Demand for shared mobility and rentals will wane as people will feel safer in their own vehicles.
A Cash for Clunkers-type program could stimulate $50 billion of sales.
States are beginning to reopen for business.
The Manheim Retention Discount is reflecting about an 8 to 10 percent discount from Manheim Market Report values, which looks to be accurate. Right now, there aren't enough online buyers to support the supply, which skews the numbers dramatically. I'd argue prices will stabilize as soon as states lift restrictions.
Some states are opening before others, which represents an opportunity for operators where restrictions have lifted. My assumption is dealers will not only be buying at their local auctions, but looking for bargains online where shelter-in-place is still in effect.
I encourage our at-large dealer family to look forward and take heart. Don't get caught up focusing on the negatives of today; instead, strategize your business for reopening. That's certainly what we've been doing at CarOffer. We'll be introducing programs that will help dealers recover much faster and support resiliency. All of us are facing the same challenges, but we will overcome. We'll have a greater appreciation of our freedoms and health, and we'll have a renewed perspective of the truly important things in life.
Founder + CEO