COMMENTARY: 8 reasons for pre-owned optimism

PLANO, Texas – 

I, like you, have been reading numerous articles about fear gripping the automotive industry. Thanks to the coronavirus pandemic, fear is running rampant. Fear has gripped our industry and many other industries right now, and the last time I checked, fear has never led to positive outcomes.

It’s very easy to get caught up in news cycles and focus only on the negative. But at all costs, we must resist this tendency because it stifles our ability to think rationally. It also perpetuates more fear, which in turn paralyzes us. As entrepreneurs, we need to focus on the solutions and opportunities, understanding that “this too will pass.”

Yes, there is a pre-owned vehicle glut right now. We know leases are being extended by lenders which will exacerbate the off-lease supply problem in the coming months. Auction yards are packed and dealers’ inventories are bloated. There’s simply not enough demand to alleviate the problem — today.

Consider this. We have never seen the Federal Reserve more involved or proactive than what we’ve witnessed over the last six weeks. Trillions of dollars are being injected into our economy and markets at record speed. Payrolls are being backed so employees aren’t laid off. Those that are being laid off are receiving unemployment checks with a $600 per week bonus.  Those making under $50,000 per year actually make more money by taking unemployment benefits than they would on the payroll.

I’m sure you’ve all heard the Wall Street quote, “Don’t fight the Fed.” Well, it’s true.

With the Payment Protection Program and other stimulus, my sense is that we could come out of this quickly as the restrictions begin to lift. Look for another “Cash for Clunkers” program too. During the Great Recession, Uncle Sam paid people to trade in old cars for new ones. The program was very successful as $3 billion of stimulus generated $14 billion of sales. Morgan Stanley believes $10 billion will be provided this time and it will generate $50 billion in sales. 

Bruce Thompson

Here are eight reasons for pre-owned optimism:

  1. Interest rates are basically at 0%.

  2. OEMs and lenders are offering fantastic incentives

  3. Factory shutdowns will result in a short new-car supply and demand will quickly shift to nearly new.

  4. Gas prices are at lows we’ve not seen in decades, which will drive truck and SUV sales.

  5. People have not been able to take vacations, go shopping, out to dinner. If they’ve been able to maintain a relatively stable level of income, they will have money to spend.

  6. Demand for ridesharing and rentals will wane as people will feel safer in their own vehicle.

  7. A “Cash for Clunkers” type program could stimulate $50 billion of sales.

8.  President Trump is announcing the government’s guidelines on opening states.

The Manheim Retention Discount is reflecting about an 8-10% discount from MMR, which looks to be accurate. Right now, there aren’t enough online buyers to support the supply, which skews the numbers dramatically. I’d argue prices will stabilize as soon as states begin to lift the restrictions. It’s apparent that some states will open before others, which represents an opportunity for operators where restrictions have lifted.

My assumption is they’ll not only be buying at their local auctions, but looking for bargains online where “shelter in place” is still in effect. 

I encourage our at-large dealer family to look forward and take heart. Don’t get caught up focusing on the negatives of today; instead, strategize your business for reopening. That’s certainly what we’ve been doing at CarOffer. We’ll be introducing new programs that will help dealers recover much faster and support resiliency.  All of us are facing the same challenges but we will overcome. We’ll have a greater appreciation of our freedoms and health, and we’ll have a renewed perspective of the truly important things in life.

Bruce Thompson is the founder and chief executive officer of CarOffer.

Source Article