kia optima

Kia Optima

The pandemic has had a major effect on new car sales. The industry, which was almost totally shut down last spring, has rebounded quickly. Now, the problem for those looking to jump into the market is finding a new car to buy.

The auto industry is gaining some momentum after grinding to a halt at the onset of the pandemic. Auto plants across the country were shut down during April and May are back open and most are running at pre-COVID-19 capacity, but two months of lost production has created an issue of too little supply as opposed to too much demand.

Spring Bust

Some dealerships struggled to stay open during the spring but sales weren’t good. With customers quarantining at home and concerned for their safety, few individuals ventured out to go car shopping.

Dealers became creative, and began promoting “contact-free” deals, where buyers never leave the house and dealers delivered the car to them. Dealers, and some buyers, also turned to online sales.

But COVID-19 has been a change accelerator for the industry. With new cars in short supply, used car sales hit record numbers this summer. Online sales took off, dealers picked up and dropped off cars for service, and showroom visits touted Plexiglas and masks over free coffee and doughnuts.

According to Edmunds.com, a car shopping website, year-over-year 2nd quarter new car sales were down more than 34%.

Third Quarter Rebound

As the economy began to open back up in the late spring, individuals who had put off buying cars returned to the showrooms with a vengeance. The problem was, and still remains, a lack of supply.

The demand comeback during the pandemic "was significantly higher ... than we ever anticipated," Ray Laethem of Ray Laethem Buick GMC told a Detroit reporter. Customers replacing their leases definitely contributed to the demand and part of it was likely stimulus money, Laethem predicts.

Demand was up and dealers quickly began to sell out of their available inventory. It was particularly troublesome for dealers who had limited inventory heading into the pandemic and for those who hadn’t placed orders and didn’t have cars in the system when things got up and running again.

In addition, getting the plants up to speed during the pandemic was challenging. Manufacturers just couldn’t open the doors back up and go to work, in response to the pandemic, changes had to be made in their production system. Despite all attempts, Michelle Krebs, an analyst for Cox Automotive, said the pandemic remains an impediment to full production.

Overall, it wasn’t a bad third quarter for auto dealers, Edmunds projects new vehicle sales decline of 11% in the 3rd quarter from the same quarter last year.

Fourth Quarter Guesses

Going into the fourth quarter of the year, a major selling time for automakers, industry experts are watching historically low inventory levels. The available supply of new vehicles has continued to fall since the start of the pandemic when inventory levels were above 3.4 million. Acccording to industry research agency Cox Automotive, levels were below 2.2 million in mid-September.

Adding to the inventory shortage, the new model year — an automotive rite of fall — has yet to hit showrooms in any significant numbers. Many 2021 models may not actually arrive until 2021. At the beginning of this quarter, only 3% of vehicles on lots are from model-year 2021. According to Cox, at this time last year 25% of vehicles were the new model year.

Going into the fourth quarter there are typically a lot of consumers looking to buy new vehicle, but without the supply of 2021 vehicles, are consumers going to hold off purchasing to wait to get the latest and greatest products, or will they go ahead and buy anyway?

Another thing buyers will become aware of is that with inventories low, prices are rising. The projected average transaction price in the 3rd quarter was $39,303, up more than $2,000 per vehicle over last year.

Industry experts are projecting lower inventory will likely depress sales into next year when supply may actually begin to catch up with demand.

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