Despite dealing with business interruptions and a lack of customers due to the pandemic, car dealerships actually had a 48% profit in 2020. Here are a few reasons why car dealerships succeeded during the pandemic.
Stimulus checks and tightened inventories
Although car factories reduced supply and statewide orders kept people from physically going into stores, the demand for vehicles remained strong. The combination of stimulus checks, low interest rates and a lack of inventory allured customers to purchase cars throughout the pandemic, and people were ready to pay. Dealers also widened profit margins due to higher-than-normal transaction values caused by low inventory resulting from the global chip shortage. The average transaction price for new vehicles climbed to $40,563 in March 2021, compared to $38,601 a year earlier.
The car market dichotomy
The pandemic, in combination with the lack of new cars available, exposed a divide among car buyers in 2020, showing that the pandemic didn’t hit everyone equally. On one hand, the limited supply of new cars paired with household budget squeezes led to a huge demand for pre-owned vehicles. By January 2021, wholesale used-car prices were up 15.1% year-over-year.
On the other hand, well-off consumers drove a shift in the market toward more expensive vehicles. While overall passenger car sales fell by 10% in 2020 compared to the year before, sales of cars costing more than $80,000 were almost double in Q4 2020 compared to the year before. Cars costing more than $100,000 were up 63%, according to J.D. Power. This instant growth of the luxury car market could be resulting from the booming stock market as well as a general shift in spending from the pandemic — as the wealthy haven’t been able to spend money on trips, many have turned to luxury goods.
Record-selling dealer acquisitions
Despite the dip in sales made during the peak of COVID-19, sales of auto dealerships saw a huge uptick: a total of 289 dealership transitions occurred in 2020, a 24% increase over 2019. According to Kerrigan Advisors, this was due to dealership owners choosing to sell their businesses at high valuations instead of accommodating changes and investments that are required to manage electric vehicles and digital retail sales.
Car manufacturers have also recently been partnering up with consumer technology giants to enhance AI opportunities. For example, Ford recently announced a partnership with Google, allowing Google to head the cloud and software systems while Ford can focus on building and selling vehicles; this gives customers a more personalized experience.
While some companies find it more beneficial to consolidate with other dealerships, others are looking for ways to adapt to the circumstances: Dealerships have been quick to make a digital presence and offering online tools to move consumers through the buying process efficiently.
Ultimately, the dealerships that were flexible were and will likely be the most successful. Whether the dealer can offer low interest rates or a variety of payment plans, is able to provide consumers with an omnichannel car buying experience or offer cars on both ends of the affordability spectrum, the ability to adapt to the market despite disruptions is what will keep dealerships agile.