Category: Economy

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Economy Uncategorized

A Soft Landing for Dealerships?

No doubt, it’s been a rough few months for dealerships. The pandemic has delivered a gut-punch to the US economy which contracted at a 32.9% annual rate from April through June, its worst drop on record, according to the Bureau of Economic Analysis. Business ground to a halt during the Spring lockdown, idling retail automotive OEM and parts manufacturers. As the U.S. has started to re-open in places, there were some upticks in retail automotive sales in June and July. U.S. retail auto sales rose by 1.2 percent during the last two months, aided by $600 weekly unemployment assistance payments, which expired at the end of July.

While sales rose over the last couple months, many believe that the U.S. has plunged into its first recession in 11 years, putting an end to the longest economic expansion in U.S. history. Whether this is a long-term recession lasting more than two quarters, or merely the bottom trough on the graph, struggles remain for retail automotive dealerships to maximize revenue opportunities in the second half of the year.

At EFG, we predict continued softness in light vehicle sales with greater downside performance risk than upside opportunity. We expect U.S. new light vehicle sales to finish 2020 around 14.0 million, representing a decline of 18 percent from 2019, and we expect a recovery to approximately 15.6 million retail units in 2021. However, we do see evidence that retail automotive dealerships are successfully managing the impact, and strengthening in F&I is boosting revenue.

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Compliance Economy Industry Trends

Skipping Steps Is Never a Good Idea

While the country is still in the grips of the pandemic, sales of new and used vehicles showed signs of life in May and June with big pickup trucks leading the way. For the quarter, analysts predict that car sales were off about one-third from 2019 levels, thanks in large part to plant shutdowns and shelter-in-place restrictions imposed in March and April. The economic stimulus CARES and PPP programs, along with enhanced state-level unemployment benefits, provided a bit of a boost in May, prompting consumers to consider purchasing a vehicle. Low interest rates and OEM incentives sweetened the deal. Savvy dealerships who pivoted to online and digital sales were able to capture the bulk of the upswing in June.

Q3 results hinge on several factors. Pandemic hot spots across the country could prompt local governments to return to some level of shutdown. Whether or not Congress provides a second round of stimulus could also have a dramatic impact on consumer confidence. And the U.S. unemployment rate could put a notable damper on both new and used vehicle sales.

Also, let’s not forget inventory concerns. Factories that shut down in March and April are just beginning to ramp up. There will be a noticeable delay in restarting the parts supply chain as well. Areas of the country that experienced strong sales in May and June could be faced with slim pickings on their lots.

But there is another – somewhat hidden – concern. Identity fraud has reared its ugly head. While fraud has always been an area of focus and concern in the retail automotive world, a couple of unique pandemic situations have exacerbated the situation.

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Dealership Training Economy

A Glimmer of Hope

Contributing Author: Steve Roennau Vice President Compliance EFG Companies
Contributing Author:
Steve Roennau
Vice President
EFG Companies

There were a couple of surprising bright spots in April, as retail automotive dealers continued to deal with the impact of COVID-19.  According to Autodata Corp, sales of the highly lucrative pickup segment dominated cars in the U.S., for the first time, by more than 17,000 — 186,417 pickups vs. 169,234 cars. In addition, with sales for April and early May coming in stronger than expected, automakers are already starting to rehire people and open up operations. While these are only two data points, they do provide a bit of good news in the dismal daily drumbeat.

The fact remains, however, that we are in uncharted waters. The good news is that not all steps forward are countered by a step back. Consider these data points:

Step Forward: Affordability – Interest rates are at an all-time low, making financing a vehicle pretty attractive.

Step Backward: Job Market – In April, the unemployment rate skyrocketed to 14.7% with 23.1 million people unemployed, but some industries are experiencing tremendous demand.

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