There is a very real possibility that car dealers will run out of new cars to sell this year thanks to COVID 19. It was difficult to predict what was going to happen when the new virus began showing up in late 2019, and even though many factories have opened up at this time the number of new cars produced has greatly diminished. Some factories were closed for as long as 8 weeks, and were only able to open at a reduced capacity.
All around the world manufacturers are having to adjust their lines and move forward with better cleaning practices, fewer people on the floor, and slower deliveries from suppliers. Despite slow sales during the pandemic, most dealers are looking towards a future where there may not be enough new vehicles to meet demand. Some dealers are even reporting that they will be out of inventory by as early as July.
Many dealerships tried to prepare back in February when the virus hit US shores. When the first factories reported that they may be closing many dealerships bought as much inventory as they could in anticipation.
Sean Coughlin, COO of New York dealership group The Premier Collection, saw this coming and bough every car the manufacturer’s had been holding at the ports that he could.
Even though it cost a lot, and continues to cost more to keep the cars on the floor, it helped keep their doors open so they could continue to adapt and serve their communities. A lot of people are able to have their new car delivered to their door, minimizing contact and ensuring a clean, easy buying process. Dealers are also sectioning off areas and overhauling the sales process, something that most buyers have really appreciated. These precautions and added conveniences have kept customer satisfaction high and helped to keep demand for new vehicles as high as possible.
Suppliers Can’t Keep Up
The expanded inventory wasn’t enough, however. When the factories closed new car production stalled and it has not been able to rise back to pre-pandemic levels. One of the largest issues is that the suppliers of small parts and materials are not able to meet the demand required by the manufacturing plants. While the big plants have the capital and workforce to adopt clean practices and absorb the lost revenue, many smaller operations simply do not have the resource to open at this time. With the supply line broken, it may be some time before the factories even have the materials to operate at full capacity. Compounding the issue is that there are a lot of suppliers too large to qualify for loans, but still to small to fully recover from the virus. These larger suppliers ship around the world meaning, no manufacturer will be free from the effect of these supply chain issues.
Italy, China, and the US have been the hardest hit. Almost every vehicle manufacturer is global in today’s world and have plants on every continent that rely on suppliers from every shore. The ability to make and ship cars to protect against currency fluctuations and reduce all transportation costs is essential to survival in the modern world. It is also a safeguard against the problems like a virus closing down a single plant. When plants in China closed the US and European manufacturing was able to remain open and continue to ship cars. The virus didn’t stay in China, though, and it wasn’t long before all seven continents were affected.
Recovery Will Be Slow
Plants will be opening to a different world. Brands will be able to choose the most profitable lines and ship them from around the world to the most profitable areas. Small suppliers will find themselves unable to keep up with demand and some larger manufacturing areas remain closed for longer, or forever. Some of these businesses will be absorbed by the factories in order to bolster the workforce and keep up with the need for new cars, while others will find themselves competing for raw resources as the effects of the virus ripple all the way down the supply chain.
Car sales were down 45% in April, but sales have been climbing quickly. May saw a much shallower drop at 26% with pickup sales climbing the fastest, so these factories will need to work hard to solve these issues quickly. Aiding these sales are numerous incentives to buy. Many companies are offering deferred payments on all financing, large discounts on certain models, and cash incentives for essential employees. In addition to dealer incentives, interest rates are very low thanks to a move by the US Federal Reserve. In fact, for people who have secure income now actually represents a great time to buy a new car, assuming they don’t run out.
The Automotive Industry Has To Adapt
It is impossible to predict which changes will be permanent. The convenience of having a car delivered and the new hygiene standards at the dealership will probably become a new normal. Factories especially have had to re-evaluate their entire production and restructure with a new emphasis on cleanliness and employee health.
When the plants shut down it also pushed back the debut of new models and postponed the entry into new markets. In China manufacturers like Tesla and VW have had to rethink how they can release new lines. Auto shows where new models are traditionally introduced are canceled around the world making otherwise simple tasks like getting the word out about new features challenging. Everyone from dealers to designers to the manufacturing plants themselves have moved online and created a much stronger digital presence in response. New cars may climb in price as demand outpaces supply, but with delivery and online buying become standard the overhead cost reduction may actually lower the price of buying a new car.
The only certain thing is that we are going to see changes to the automotive world, hopefully for the better.