Burglary rates aren’t a reliable economic indicator, but they’re far from the only sign that car demand could prove more resilient than might appear from recent record sales declines. If unemployment doesn’t surge even higher — a big if — car sales might recover faster than other discretionary purchases, especially if dealerships put in place the right financial incentives and rigorous hygiene measures to reassure customers.
After all, once stay-at-home orders are lifted, we’ll seek to regain personal autonomy while continuing to shield our families from the virus. A car could feel as essential as wearing a face mask.
Right now, of course, the industry is reeling: Carmakers are burning cash because production lines are at a standstill, weaker parts suppliers and dealers risk collapse, and banks as well as automakers’ captive finance operations are bracing for a surge in loan defaults. As showrooms have shut their doors across the globe, sales declines have accelerated. April will probably be worse.
Restarting production lines after such a prolonged hiatus will also be a huge challenge. Protecting factory employees isn’t straightforward, and cross-border supply chains could cause unexpected complications, particularly if the virus is still spreading widely in some countries.
But the outlook for sales isn’t entirely bleak. Car sales have rebounded in China, with dealers surprised at how quickly consumers have returned to showrooms now that travel restrictions have been eased.
It makes sense. Commuters who previously took a crowded bus or train may feel uncomfortable doing so for a while. Abandoning mass transit is terrible from an environmental and traffic perspective, but after a public health crisis, people will probably feel safer traveling in their own cars. This doesn’t bode well for car-sharing either, which until recently was another popular low-cost alternative to vehicle ownership. Now it suddenly feels unhygienic. And taking a plane is even more unappealing; if people holiday closer to home this year and next, they may opt to drive rather than fly.
Of course, millions of Americans have lost their jobs and won’t be able to make big-ticket purchases in the coming months, especially since those hit hardest were already among the most financially vulnerable. But the premium end of the market may hold up better, particularly as higher-income consumers won’t have as many conflicting pressures on their budgets. Bars, restaurants, hotels, concerts, sporting events and beach resorts all face a more protracted path back to normality if social distancing remains the norm. That’s bound to encourage getting behind the wheel of a car, where physical distancing is sort of the point.
Plus, anyone in the market for a vehicle can expect a bargain: Dealers are offering interest-free financing and loan payment holidays to quickly move inventory and bring in some cash. Customers hunting for a second-hand car may find especially good deals because airport-dependent rental firms have been downsizing their fleets. And driving will be cheaper too, as oil prices have collapsed.
Prospective buyers may soon be offered even more financial goodies. On both sides of the Atlantic there are calls for governments to revive car purchase incentives — known colloquially as “cash for clunkers” — which proved effective at stimulating demand in the last recession. While worth considering, any subsidies should be directed primarily toward hybrid and electric vehicles. Even though the climate crisis may have slipped from our attention, it certainly hasn’t gone away.
In Germany, where efforts to curb the virus appear to be bearing fruit, car showrooms will be allowed to reopen soon, even as restaurants remain shut. True, the German car lobby is powerful, but its argument that buying a car can be made as safe, if not safer, than popping over to the supermarket seems reasonable. Dealerships tend to be pretty spacious, and cars parked on the lot can be viewed without entering the premises. There usually aren’t too many customers visiting at the same time.
Where dealers remain open, the industry has already come up with some neat ways to keep clients safe. In the U.S., used car retailer CarMax Inc. permits customers to take a test drive without a salesperson sitting next to them, and vehicles are sanitized when someone has touched or sat in them.
For the foreseeable future, the new car smell that buyers savor most will be alcohol-based disinfectant. Putting buyers at ease like this could help revive the auto industry and preserve thousands of jobs.