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Originally Posted by lemming
It doesn’t seem intuitive that the first thing people do is buy a new car in this market —
Most people will try to consolidate their debt and re-fi first.
And there are so many unemployed people and so many small business owners barely afloat. It feels like glut new and glut used would be the outcome.
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Quote:
Originally Posted by JST
Clyde’s right that there will be weird short term effects. Medium term, the OEMs are going to face the same fixed costs that they do now, and lower demand overall. There are going to be some monster incentives on the other side, for probably all of 2021.
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There are a lot of things that are going to make this automotive sales slump and recovery different from previous ones.
Excessive dealer inventory will not be the flamethrower at dealer feet like it's been in the past. February sales were strong leaving dealers with an average 68 days of inventory. Ideal inventory levels are 60 days for cars and 70 for trucks. Dealers start feeling pressure at about 90 days worth and start working hard to clear it with around 100 days worth.
Car sales dropped in March, but the drops were uneven across the country. In April, they're down a lot, but not zero. Almost every dealer that can keep selling is trying...and they're still selling some.
Manufacturers have not been manufacturing or shipping cars since mid-March. When they start manufacturing cars again, it will probably take 2-4 weeks after reopening plants before they're shipping cars in any volume. Add another 2-3 weeks before North American made cars start hitting dealer lots and another 2-3 weeks on top of that until foreign made cars join them. So, from the time the economy is "re-opened," it's probably 42-72 days until dealer inventories can begin to start being refilled.
On top of that, supplier issues are going to be a huge deal and could keep some cars from shipping in quantity for a much longer period of time. Even without supplier issues, I'd expect manufacturers to aim to make smaller numbers of cars to avoid having to eat incentives later, suck on government subsidies longer, and see more cooperation from unions on production decreases for a while as the manufacturers will be able to keep union employees employed.
This will all probably help inventory levels to stay in check compared to every previous auto sales slump.
The question it will all turn on are how many buyers are out there. More than 10% of people fully employed a month ago are now unemployed. A bunch more of those still employed are making less money than a month ago. A whole lot more than that aren't seeing any change in income, but are more worried and less inclined to spend money on new cars. Sure.
But how many people aren't feeling or too worried about a personal economic impact to the point they would be putting off a new car purchase? 30%? 40%? 50%?
Maybe add some potential buyers that will only be looking because they think they're going to score a deal?
Assuming the economy is mostly re-opened in June, there is going to be three to four months worth of delayed lease turn-ins that all happen in 30 days. 75-90% of those vehicles are going to have to be replaced with new leases, or new/used purchases. Add, what? a third of the normal non-lease turn-in new vehicle traffic that's not going to be left on the sidelines that's been waiting and wants to get something done in those same first 30 days?
I think there's a very good chance that demand will eat up most of the available supply in the first 30-45 days. If that's at all right, dealer inventories will probably be the lowest levels we've seen in our lifetimes. If everyone is not being rehired and seeing salaries restored, I can see demand starting to wane just as inventories start getting replenished. Even if sales drop at that point to 50% of last year's levels, it's still going to take quite a while before inventories exceed 90 days supply.
Meanwhile, used cars will be doing what in terms of sales and prices compared to today? And those effects on new car sales?
All of the above also assumes a single light switch type reopening with no further full or partial closures...and we all know the chances of that happening are very close to 0. Start gaming out scenarios where some of the automotive manufacturer/supplier areas are at less than 100% and California and other high volume sales areas are open and you stretch out the time until excessive inventory causes problems. OTOH, if the manufacturer heavy areas are open and car buying areas less so, inventories probably go up a lot faster.
Bottom line, I think there will be a compressed period of demand that will mimic a normal 30 day period in terms of overall numbers, but after that's satisfied, demand will probably wane to levels we might normally associate with employment numbers. Meanwhile unlike previous sales slow downs, I don't think manufacturers would be able to load up dealers with inventory they can't sell before early 2021 even if they wanted to...and I don't think they're going to want to if they can avoid it.
It's all guessing, of course. Plus, my own situation (no negative C19 related financial concerns, currently seeking a specific medium priced, low-ish, production, low-ish demand vehicle, and excessive anxieties about that car hunt) may color my outlook. I wouldn't trust it. I'm curious about seeing how close to "right" my guesses turn out to be, especially if no other broader earth shifting variables come into play (and I'd guess there's a 50/50 chance of that).
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I suspect we’ll see another cash for clunkers type incentive, particularly if the Dems win again in Nov—it will be part of a “green” stimulus that might not quite be a Green New Deal but will focus heavily on investment in green tech.
Does that mean it will favor hybrids and electric cars only? Maybe? Or just higher fuel economy vehicles. If the Detroit Three can pull it off, they’ll want to structure it in a way that somehow includes new trucks.
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A couple recent Automotive News pieces referencing the second coming of Cash for Clunkers
https://www.autonews.com/retail/ford...nkers-stimulus
https://www.autonews.com/dealers/cas...ers-automakers