How coronavirus is impacting car dealerships

The coronavirus impact on businesses is global and even more so on industries that are interconnected around the world such as the auto industry. With the United States as the hotspot for new cases, many car dealerships are beginning to ask questions about how the COVID-19 pandemic will impact their businesses.

In California, car dealerships have been labeled as essential businesses, so they have stayed open during the lockdown. Some jurisdictions are telling dealerships that they must restrict their sales departments to e-commerce. And, many dealerships have developed guidelines for dealing with the complexities of social distancing, such as installing acrylic shields to separate cashiers and other employees from customers, providing protective masks for customers, and scheduling appointments for potential buyers.

There is no doubt that car dealerships, nationwide, have seen a huge decline in car sales — a 72% decline in the month of March. The same goes for California dealers.  However, this decline in sales appears to be bottoming out, with more positive sale projections for the end of April. This projection is based on activity on Cars.com, deeper funnel shopping on dealership websites, and a more positive sales projection for the latter part of April.

While it’s certainly good news that the decline in sales seems to be stabilizing, dealerships are going to have to do some planning ahead and developing strategies to get the number of active shoppers as well as sales back to pre-coronavirus levels.

Longer lasting effects

The coronavirus impact on businesses like car dealerships has the potential to be longer lasting, even as state and local authorities begin to try and get their economies back online. Car dealership sales are dependent upon a high level of personal contact and person-to-person proximity. This kind of engagement is going to continue to be negatively impacted due to continued concerns and fears over transmission of the coronavirus.

Prospective buyers will be more likely to do business with a dealership if they feel that the dealership is going to provide a safe experience while limiting time on site. Pricing will more than likely become a secondary factor. Many dealers were slow to make the transition to online selling, but, as a result of the pandemic, many are now much more open to it. And, it could be a lasting effect of COVID-19.

Other concerns that consumers are going to have include:

  • Lease expirations
  • Delays of new 2021 models 
  • Shortages of vehicles, domestic, foreign, and imported
  • Shortages due to a disruptions to the parts supply chains
  • And, will dealers be offering deals as a result of this massive economic downturn?

Planning now can help later

Whether consumers continue to shop online for a vehicle or feel like they can safely shop at a dealership, they’re going to be looking for discounts. Production cuts are going to limit supply in the short term, but dealers are going to likely increase incentives to customers to clear their existing inventory as factories begin ramping up production of new models.

As part of our financial planning for car dealerships, the specialists at GYL can show you how to do inventory calculations at your car dealership. These calculations are important because they are an indication of how efficient you as well as your managers are at managing your inventory.

Schedule a free consultation with our automotive dealership accounting specialists.