The Tricky Business of Used Car Sales in a Pandemic
The COVID-19 pandemic and the new coronavirus outbreak caused the economy to virtually collapse overnight for everyone. It goes without saying that this was unheard of. Since the beginning of the sweeping stay-at-home orders and business closures in mid-March, over 46 million people have applied for unemployment benefits. The shutdown had an immediate and severe effect on a number of economic sectors, most notably hospitality (restaurants, bars, hotels, etc.), personal services (salons, fitness, wellness), and retail businesses of all kinds (apart from pharmacies and grocery stores).
There was a great deal of confusion following the closure of businesses in California on what constituted an essential business and what could not be kept operating. Dealership service departments were first seen as crucial, but the sales side of the business was not. But it didn’t take long for dealerships of all kinds, including those for used cars, to be permitted to offer both sales and services. However, the question that remained for us and all dealerships was whether it would even matter if we were open for business. During a pandemic, would anyone even want to own a car? And how will the severe economic crisis affect the value of used cars?
Values of Used Cars: Supply and Demand Still Rule
Let’s begin by analyzing the factors that influence product prices in the market, going back to Economics 101. The interaction between supply and demand are the main things to take into account. The price of a product tends to increase when demand increases but supply cannot keep up. Because the product is in short supply, consumers are willing to pay more for what they desire. In contrast, sellers will have to reduce prices if supply exceeds demand in order to maintain inventory turnover. Although this is an oversimplified description, it is generally accurate.
Raising Concerns About the Value of Used Cars
It makes perfect sense to think that presumptions about supply and demand would cause used automobile values to collapse. It would be reasonable to assume that customer demand for used automobiles has collapsed in light of the stay-at-home directives and a sharp drop in consumer confidence brought on by the sudden crisis. Then you hear about the thousands and thousands of cars that car rental firms like Hertz have to get rid of and about their going out of business. In light of the huge supply and low demand, used automobile values should be rapidly declining, according to economic theory. However, the tale is not over yet!
The Used Car Market’s Use of Wholesale Auto Auctions
The bulk of the inventory used by dealerships and used car departments comes from wholesale auto auctions. Customer trade-ins make up a comparatively tiny portion of the total. The recession forced several wholesale auctions to halt operations, severely restricting the flow of automobiles to dealerships. Thus, the number of cars on the road isn’t as large as one may believe.
