COVID-19’s Impact on the Pre-Owned Vehicle Market: What Dealers Need to Know

April 3, 2020 John Kehm

One of the many visible impacts that COVID-19 is having on dealerships in the U.S. is the flood of pre-owned, or used, rental cars and other former fleet vehicles hitting the marketplace. With travel virtually shut down, many car rental companies have run out of space to store all their vehicles and are expected to send hundreds of thousands of vehicles to auction earlier than expected. This will create challenges – and opportunities – for auto dealers in the months and years to come.

Dealers working on short-term and long-term strategies for their businesses after the immediate public health crisis is contained should consider the implications from this surge of used car inventory, especially in the context of other broader industry and societal trends. It’s not unreasonable to suggest that the auto industry is likely going to be dominated by the used car market for a little while, considering:

  • Whether it’s plant closures for health concerns, auto production shifts to things like ventilators or other disruptions, OEMs are producing very few new vehicles right now. As a result, car dealership inventories are going to be hit-or-miss for a while when it comes to new cars.
  • Used car supply is expanding quickly as de-fleeted vehicles hit the used car market more quickly than expected. This will depress prices across the board as the supply of vehicles available for sale spikes in a marketplace where both new and used car demand was already flat, at best.
  • Income interruptions and concerns about economic insecurity mean used car demand will increase significantly, with consumers opting for modestly priced pre-owned instead of spending more on a new car (even if they could find the one they wanted in car dealership inventory).
  • New vehicle lease costs are going to face upward pressure. For new lease customers, a glut of de-fleeted vehicles on the used car market will likely depress residual values across the industry and push lease costs upward for some time to come.
  • For customers with trade-ins, that same used car inventory glut will lower trade-in values and may change the equation for what they’re able to afford.

How Dealerships Can Adapt to COVID-19 Disruptions

Dealers can take a couple of steps right now to position themselves to function effectively amid these auto market pressures and help their customers find the right car for their current situation.

In the immediate aftermath, it’s going to be critical for dealers to prioritize lease returns and help customers whose lease ends were delayed by lockdowns. There will also potentially be a cohort of consumers who have been financially impacted by the pandemic – or are concerned they might be – deciding to make early lease turn-ins in the name of affordability.

Dealerships need to ensure that their staff is ready for this likely surge. That includes people who are normally focused heavily on new vehicle sales or other roles – ranging from salespeople and F&I to service, collision and other fixed ops teams who play these roles, such as timely turn-in inspections. 

In the immediate aftermath of “social distancing,” the interpersonal interactions that go into creating a positive dealership customer experience are going to be more important than ever. It’s going to be critical for dealership leaders to ensure their cultures have successfully made the transition and that they continue to provide an excellent customer experience that is sensitive to the wants and needs of consumers.

Shifting to a Proactive Used Car Sales Strategy 

In the months to come, dealers can’t afford to be solely reactive. With their own used car inventory growing and demand relatively higher than for new cars, dealers who have a plan for tailoring their marketing sales strategies for the upcoming used car market will have a jump on the competition.

You can start preparing for the changing auto industry by focusing on existing lease customers and pre-owned customers. Leverage your CRM and dealership sales platform to identify the people who were already most likely to be in the market for a used vehicle and structure an offer that takes advantage of OEM CPO programs, financing terms or other special offers, along with the lower across-the-board vehicle prices.

Ensure that your dealership’s BDC is playing its part, especially if its traditional operations had been heavily focused on new car sales. Make sure your BDC team has real-time insight into used car inventory and is effectively communicating and sharing those insights with your sales teams.

At NADA in February this year, Mastermind announced that our Market EyeQ sales platform is adding both CPO and pre-owned vehicle inventory and functionality.

 

If you are interested in learning more about Market EyeQ’s recently introduced CPO and pre-owned functionality to help your dealership navigate the upcoming changes to the used car market, please contact us.

Explore additional resources related to dealership sales during COVID-19. 

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