As COVID-19 continues to disrupt virtually every aspect of our daily lives, the used car market certainly isn’t immune to the impact of this unprecedented pandemic. Like many of us, the initial reaction by this segment of the industry was to adjust to the immediate threat. Most auction venues, wholesale buyers, and dealerships quickly suspended operations to ensure the safety and well-being of their personnel. But now, as the used car market begins to course correct, what does this mean for your approach to remarketing?
With the market changing daily, the ARI Remarketing Solutions team is closely monitoring the latest information and emerging trends to ensure our strategy evolves accordingly. Striking the ideal balance between maximizing resale values and maintaining a reasonable time to sell – in this radically disrupted market – is critical for remarketing vehicles during this time.
So while the coronavirus outbreak is unlike anything we’ve experienced in our lifetime, we can take stock of the past to help anticipate the future. Let’s take a look at what’s happened since March, reflect on how the used vehicle market responded to previous economic downturns, and develop a road map for what lies ahead.
What’s Happened So Far
It goes without saying that the COVID-19 pandemic has tempered demand for used vehicles in both the U.S. and Canada and, in turn, there has been a steady decline in wholesale values from the highs of February. Here’s a brief summary of how the used vehicle market responded as demand waned.
- In the beginning of March, auction activity started to decline slightly as dealerships in COVID-19 hotspots began closing and auctions started shifting to online sales. Prices declined by about 1-2% during the first week of the month.
- During the next two weeks, growing pandemic uncertainty and more dealership closures resulted in excess inventory and reduced demand, further decreasing valuations. Compounding these factors was an influx of fleet vehicles as many companies looked to right-size their fleet as business slowed. Prices declined approximately 7-9% during these two weeks and conversion rates saw a steep decline.
- Toward the end of March and beginning of April, auctions previously shutdown began to reopen for digital sales and a few auctions that were operating exclusively online begin to reopen lanes and increased staffing in certain areas. Price declines began to level off and conversion rates showed signs of modest improvement.
- By Mid-April, auctions continued to slowly recall employees and adjust schedules to begin to work through the backlog of grounded inventory for sale. Prices in certain segments, particularly newer models, are still declining but conversions continue to improve with modest week-over-week gains.
- As of this week, the market remains relatively status quo with no significant changes. Auctions in certain regions are beginning to develop strategies for possibly resuming in-lane sales and this is an area we continue to monitor closely.
- Overall, market values have declined by approximately 15-18% from the highs of February with the sharpest declines on newer models and in regions impacted most by the pandemic.
Looking in the Rearview Mirror for a Glimpse of the Road Ahead
Unfortunately, there’s no remarketing crystal ball. We can anticipate certain economic factors, such as additional unemployment claims. With many variables yet to play out, it is extremely difficult to predict when the market will rebound but we can look at past events for some clues.
In a recent article published by Used Car News, Chief Economist Tom Kontos at KAR Global, an ARI auction partner, reflected on recessionary market responses and how they may apply to the current pandemic. In the 2001 recession, the downturn in average used vehicle values continued for approximately 20 months. During the most recent recession ending in 2009, wholesale used vehicle prices fell by more than 15% year-over-year in just 10 months.
So what does all of this mean for our current situation? Candidly, we’re not sure yet. But we can consider these historical insights when anticipating trends in the coming weeks and months. Here are some things the industry can likely expect as we begin to move forward:
You can view graphs of the historical patterns mentioned here in the special COVID-19 edition of Kontos Kommentary on KAR Global’s website.
Our Roadmap for Success
During this time of economic uncertainty, we continue to monitor the used vehicle market on a daily basis. Our team of veteran remarketing professionals are available to help you assess rapidly evolving market conditions and develop a remarketing strategy customized to the needs of your business. Whether it’s diverting vehicles to open auction, executing transactions that balance price and speed of sale, liquidating assets in bulk to generate immediate cash flow, or potentially holding vehicles until market conditions stabilize, we’re working hand-in-hand with our customers to navigate this uncharted territory together.
Overall, our remarketing strategy remains the same. We continue to leverage all sales channels including our network of auctions, virtual venues, our proprietary equipment platform, and our recently enhanced employee sale portal. Additionally, our Canadian remarketing centres remain operational and we continue to purchase vehicles through our unique ARIBuyDirect program.
As the COVID-19 pandemic continues to strain economic conditions, you may find yourself challenged to strike a delicate balance of helping your organization weather the current storm while still positioning your business for a brighter future. The best advice I can offer you: don’t overreact, and remain agile. Adjust accordingly for near-term challenges; be mindful of your mid-term plan; and always have an eye on your long-term strategy.
And be sure to stay tuned to our blog page and ARI’s COVID-19 North American resource center for the latest information and updates on the used vehicle market.