Cars continued to arrive during lockdown but there was no one to buy them. File photo / Jason Oxenham
No one doubts that the 2020 car market will contract because of Covid-19. But does that mean buyers will get a good deal?
What will happen to New Zealand’s auto industry once the country returns to some sort of normalcy (also known as tier 2, tier 1… no tier)? Specifically, will it suddenly be a big buyer’s market for those who are still in a position to buy?
The truth is, no one in the Kiwi industry knows this at this point. This is the start for new and used dealers. Alert Level 3 means dealers can offer contactless services, up to the appropriate test drive. They can even sell a car. But the days of traditional face-to-face interaction and kicking have not yet returned.
The volume will be greatly reduced. The new car industry was already slowing in March because of Covid-19: (remember, the lockdown only started on March 25): The month is down 37% from last year.
Even without April sales figures, the year is down 16 percent overall.
A month of virtually no sales corrected the supply issues for new and used; that and the dire situation that car rental companies find themselves in, with the potential need to unload thousands of unwanted nearly new cars.
So in the very short term, it’s fair to say that this is really a buyer’s market. The dealers have inventory and they are very motivated to get it out as quickly as possible. There will certainly be fewer buyers thanks to the economic impact of Covid-19, but those who stay will be tempted by a lot of choice and nice incentives. The ships didn’t stop arriving just because New Zealand went into lockdown; the cars were still coming.
Longer term, distributors and retailers with strong business acumen have already come to terms with the Covid-19 situation and will look much further. There is a wait-and-see attitude – understandable in this unprecedented situation – but it may be just as much about managing inventory as it is about managing expectations.
There are bound to be supply issues with new cars due to the volatile nature of the Covid-19 crisis overseas. There is no point in simply looking at the country in which a particular car is manufactured; components from any manufacturer come from all over the world.
For the second-hand import trade, there is less activity in auction houses and, in the longer term, a reduction in new and near-new purchases must have an effect down the chain.
It is impossible to say at this point whether reduced demand or reduced supply will be the biggest problem. There might be a level of desperation among sellers right now; but don’t expect it to last. Business models will adapt quickly to declining volume.
Is there something about the Covid-19 crisis that could directly boost car sales? It’s pie in the sky, but the desire to “remotely transport” over the next 12-18 months when the virus is still a threat could prompt some to step away from public transport and enter the city. the sparkling security of private cars. We might see first-time buyers looking for good used vehicles, or existing owners looking to upgrade to more reliable and / or efficient models.
For the new and used car sectors, there will be many with disposable income that will not spend it on international travel. The holidays will be focused on domestic activity for a while, so this is another potential driver for buying cars. Or given the economic shock of Covid-19, many may choose to downgrade instead – but that’s even more stimulus for the market.