Coronavirus is changing expectations about auto sales
Inevitably, change happens when it has to happen – not when we want it to. We can all relate to the reality that oftentimes change is demanded of us as a consequence of forces far beyond our control – something on the order of, say, a pandemic.
And there is no doubt that COVID-19 has changed the game of transportation. The very way we buy, sell and use vehicles has been altered in just a few months. From municipalities to car dealerships, all have been forced to adjust and adapt to new realities based on consumer demand and changes in behavior. According to a recent CarGurus survey, 39% of those who use ride sharing services will now either use them less or not at all. Bus and rail riders are even more cautious: 45% plan to decrease or eliminate their use of public transportation.
Think about it. Just like that, the pandemic has upset a major trend toward ride sharing and subscription finance models. It’s not that the so-called “usage economy” won’t eventually become a major consideration for dealerships and credit unions. But in the wake of the outbreak’s first wave, consumers are thinking twice about sharing a vehicle with 50 other people.
Social distancing meets digital sales
It also changed our willingness to sit inside a dealership cubicle for three hours in order to complete a sales transaction. Indeed, COVID-19 may well be the tipping point for dealerships to fully embrace digital retailing and move away from their decades-old, in-person sales process. The pandemic pushed car sales into the online age and many dealers have pivoted to digital retailing as a viable solution for survival.
This is not likely to be a temporary adjustment. Rather, with social-distancing rules, phased re-openings and the persistent threat of new outbreaks, the automotive sales process has changed for the long term to align with new sanitation and contact-less appointment requirements. For example, in May – one of the worst months in the history of car sales – Hyundai was down just 13%. That’s a result the automaker credits to their digital retail program. And according to Group 1, one of the largest auto retailers in the nation, online-generated sales tripled in May compared to pre-COVID-19 usage.
Credit unions can take lessons from the auto sector’s digital shift. What was once a tedious, high-contact transaction at dealerships is now becoming a far more efficient process that creates long-lasting benefits in terms of profitability and customer satisfaction. This digital shift can do the same for credit unions if they approach it with a strategy that takes into account employee training, legacy systems and more. Ultimately, credit unions may have little choice: A recent survey by Kasasa and BAI found that 79% of consumers felt a complete digital experience was important when selecting a financial institution. In addition, the survey reported that younger consumers expect credit unions to replace in-person access with digital services.
Digital tools have kept consumers engaged with car buying, and it won’t be long before auto sales have regained momentum. According to the National Automobile Dealers Association, “New light-vehicle sales showed signs of recovery in May, with a [seasonally adjusted annual rate] of 12.21 million units. While this represents a decline of 29.8% compared to May 2019, it is a marked improvement over the 47.9% decrease last month.”
Strong signs of recovery are showing up in the leasing market, as well. In April, two of our strongest markets were hit hard – about 80% of dealers were shut down. But in May, Credit Union Leasing of America’s lease volumes doubled over April, and by early June were nearly back to pre-pandemic levels. Such a resilient recovery is a sign of strength in the market, and in leasing specifically. To add to that, today we’re seeing a resurgent used car market and a nice rebound in vehicle values. They are now increasing, which is a good sign that things are getting back to normal.
In fact, things may end up being better than normal. The reality is that many of COVID-19’s forced changes improve the experience of buying a car – and the process of selling them. As auto sales regain momentum, the application of digital technologies will make transactions more efficient, which helps with profitability. That in turn will open new opportunities. Consumers want the cocoon of their personal vehicle more than ever – and many of those previously set on ride sharing or public transport are now feeling compelled to acquire their own vehicle. And, as the economy picks up, consumers will look for lower car payments and increased flexibility.
Impact to auto financing
During April, automakers were providing massive amounts of support to dealers. Deals that had not been seen since 9/11 – such as 0% interest for 84 months or thousands of dollars in cash rebates – became common and were intended to give the market a jolt.
Today, those deals are mostly gone. As consumers reevaluate their finances in the COVID-19 recession, many are inclined to favor leasing as they evaluate payment options and look for flexible alternatives to long-term loans. The reality is that uncertain times make consumers crave control over things in their power. They need a variety of options to meet their needs, which includes the protection of lower payments, less worry about maintenance, and flexibility in timing. For credit unions, this poses an opportunity: With interest rates staying low, they need a diversified loan portfolio to protect their income stream from market volatility and leasing could very well offer that sort of protection.
Change is, ultimately, a good thing. It leads to innovation and a reevaluation of “how things have always been done.” But it’s never easy. Today as we move to reopen our economy, the changes made permanent by the pandemic are shifts toward stability and efficiency. Just as digital retailing is the right change at the right time for dealers and car shoppers, so too is it for credit unions – especially with vehicle leasing becoming a flexible and powerful option: protection for your portfolio and the peace of mind of a lower payment and less commitment for your members.