CoVid-19 Industry Updates

CoVid-19 Industry Updates (122)

Cars.com shared new data revealing more than a third of Americans are currently working from home and commuting less, which puts a greater emphasis on their personal vehicle. Sixty-six percent of workers are saving valuable time by not commuting, leaving subway cars, bus seats and train platforms largely empty as they continue to ditch the office.

"Workers are saving up to an hour or more a day by not commuting and finding significant value in this newfound gift of time. And when they do finally return to the office, it won't be via mass transit. Personal vehicles will dominate the work commute as distrust in public transport and ride-sharing continues,” said Matt Schmitz, assistant managing editor for Cars.com.

According to the new Cars.com study, 62 percent of workers swap public transportation for their car. In terms of COVID-19,  43 percent of Americans lack faith in fellow passengers to abide by health and safety protocols, while 57 percent at least moderately trust other passengers.

Twenty-one percent have purchased a car in the last six months, with 57 percent saying it was due to the pandemic.
Majorities of bus riders and subway/commuter rail riders are riding less frequently.

Protective Asset Protection, a provider of F&I programs, services and dealer owned warranty company programs, announced an update to its retrospective (Retro) programs that will help local dealerships meet the needs of their communities and employees during COVID-19. 

Protective is reducing the production requirements for its Retro programs. Beginning with the second quarter interest payment, the production requirements in all Retro programs will be reduced 25 percent. In addition, the year-end production requirement will also be reduced. This reduction will be applied across the remainder of the year and all levels, impacting each level of potential payout. All other Retro agreement requirements and conditions remain unchanged, and this change does not impact any other dealer participation programs.

Under the structure of a Retro program, payments to dealerships are retrospective commissions paid by Protective directly to a dealership. Underwriting profits are calculated and paid out to dealers on an earned basis, and these can be paid either through investment income or commissions and distributed in advance with a future offset and payback liability. Dealers should note that the dealer’s business corporation entity will most likely result in less income tax on Retros received than previous to the 2017 Tax Cuts and Jobs Act.

 “Dealers are working harder than ever to serve their communities and remain open for new and used vehicle sales as well as the service and repair of these vehicles,” said Rick Kurtz, senior vice president of distribution. “In addition to equipping dealers with the best F&I programs possible, we want to do everything we can to help dealers and their employees during this unprecedented time of operating a business.”

 

Consumer sentiment remains steady and they have positive views of pick-up and delivery services, according to Cox Automotive.

In Cox’s regular update,  “COVID-19: Tracking Consumer Sentiment,” the level of concern among those surveyed was at 68 percent, a slight decrease from 70 percent in mid- to late July.

The survey showed that 78 percent of consumers report they are wearing a face mask consistently in public.

In terms of shoppers, the study showed 15 percent of consumers are in-market to purchase a vehicle within six months. That has dipped from 17 percent in May to mid-June.

However, purchase delays are at their lowest point since late May, Cox reported.

At the start of the shelter-in-place orders in March and April, 34 percent of consumers reported they were delaying their purchase or lease. In the first week of August, that percentage had dropped to 26 percent.

Factors affecting purchase delays include uncertain financial stability; ongoing COVID-19 cases; fewer miles traveled; civil unrest and general uncertainty in the market.

Cost concerns were the top reasons for delay from Boomers, Gen X and Gen Z buyers.

For Millennials, the main concern was social distancing.

Car repairs put off during lockdown are on the rise
Car repairs put off during lockdown are on the rise again

Cox reported that fewer consumers are delaying service/repairs on their vehicles, with the percentage dropping to 21 percent, from a high of 36 percent in March and April during the height of the shelter-in-place orders.

The rise of service pick-up and delivery in the wake of coronavirus have been well-received according to the Cox study.

Satisfaction with delivery and pick-up service is at 85 percent. The study also showed 23 percent of vehicle owners  have used pick-up and delivery since COVID-19 hit.

One of the big hits to consumers during this pandemic has been employment disruptions.

According to the Cox study, 28 percent of those surveyed have had reduced work hours, while 18 percent suffered temporary shutdowns, 17 percent were laid off, 13 percent saw pau cuts and 13 percent reported being furloughed.

However, the number of people experiencing those disruptions have dropped to 53 percent in early August, compared to 62 percent in April.

Cox’s study showed that 58 percent of younger shoppers have decreased their budgets and begun looking to spend less.

But across all generational groups, consumers have adjusted their vehicle price range down. The study showed 64 percent of Generation Z consumers lowered their price range, while 75 percent of Boomers have done the same.

 

 

Fintech and automated loss mitigation provider Constant has announced the launch of AutoCare, an innovative module on its cloud-native SaaS platform designed to fend off auto loan delinquency and prevent involuntary repossessions. With auto loans emerging as one of the hardest-hit categories of credit amid the coronavirus pandemic, the ability to offer loan modifications, typically applied to higher dollar debt such as mortgage loans, is a game-changer for the auto loan industry: it can mean the difference between margin retention and partial or total loss for lenders. AutoCare includes a fully automated voluntary repossession feature for borrowers not able to retain their vehicle.

AutoCare is one of the first to offer automated loan modifications to the consumer. “Historically, it has not been cost-effective to offer mortgage-style hardship relief for small dollar loans,” said Carissa Robb, president and COO at Constant. “The timeline to collect and record a total loss is shorter for auto loans, as compared to real estate secured loans. As relief options tighten, delinquency worsens and charge offs accelerate, few relief options are available to restructure and return borrowers to performing. Until now.”

Robb added, “Offering mortgage-style relief options on auto loans can help reduce delinquency roll rates, charge-offs, and bankruptcy. Where appropriate, offering non-retention options like an automated repossession tool that allows borrowers to voluntarily surrender their vehicle if a workout option is not appropriate, protects asset value.”

J.D. Power reported sales of used vehicles at franchise dealers were 3 percent above the pre-virus forecast for the week ending Aug. 2.

Used retail prices continued to rise, increasing 0.4 ppts week-over-week in the week ending August 2. Prices are now 5.1 percent higher than the index baseline level from March 1.

J.D. Power also reported wholesale auction sales were 98,000 units in the same week, which were 2 percent lower than the pre-virus forecast.

Wholesale auction prices improved for the 15th straight week through Aug. 2. Overall, prices have grown 34 percent over the past 15 weeks.

However, the rate of price growth has slowed over the past three weeks, which indicates a slowing market, according to J.D. Power.

New-car front-end vehicle grosses decreased $41 week-over-week to $973 for the week ending Aug. 2, but $689 higher than the same week last year.

Retail sales unchanged from the prior week, with new-car prices averaging $35,677, the second highest weekly result ever. The number is $22 shy of the record set April 5.

Incentive spending per unit for the week ending Aug. 2 was $4,221, virtually flat from the prior week.

Cox Automotive this week announced the elimination of 1,600 North American positions, as the effect of the COVID-19 pandemic continues to hurt businesses.

Chintan Talati, senior director for public relations, released a statement to Used Car News on Aug. 5.

“As Cox Automotive continues to evolve its business priorities and organizational structure in response to COVID-19, we’ve made the difficult decision to eliminate 1,600 North American positions,” the statement read. “While we regret the impact these moves have on our employees and their families, we’re working to create a Cox Automotive that’s prepared to meet changing client needs and lead the industry well into the future.”

 The 1,600 positions were across the United States and Canada and represent a mix of corporate and field positions, Talati stated.

In the United States, approximately 1,500 positions were impacted, with roughly 1,100 representing Manheim. Of this Manheim total, 45 percent represent part-time workers.

Of the Cox Automotive positions, 87 percent were furloughed in May. 

In Canada, nearly 130 positions were impacted, all of which were previous temporarily layoffs.

The valuation analysts at Kelley Blue Book reported the estimated average transaction price for a light vehicle in the United States was $38,378 in July 2020. New-vehicle prices increased $749 (up 2 percent) from July 2019, while decreasing $473 (down 1.2 percent) from last month.   

“While up from last year, new-car transaction prices are finally starting to dip from last month,” said Steve Lind, vice president of operations for Kelley Blue Book. “This could be a result of supply shortages of highly contented, more desirable vehicles, which may cause some consumers to select second-choice trims. Shoppers’ aversion to luxury vehicles continues with prices down 1 percent from last month.”

Non-luxury transaction prices are up nearly 4 percent year-over-year, likely the result of high SUV and truck sales. While many automakers have benefited, momentum is slowing for several key manufacturers. Nissan North America and Hyundai Kia, which have been particularly strong in recent months and were up 8.9 percent and 7.6 percent year-over-year respectively, have dropped 1.5 percent from last month. Ford Motor Company also is down 1.3 percent from June 2020.

Supply and inventory will remain a challenge in high demand segments due to factory shutdowns in the spring and potential shutdowns before year-end. Used-car prices are still at record-breaking levels, and in some segments, there are models coming close to new-car prices, including sports cars. Performance trims of the Challenger and Mustang are reporting strong values, while the all-new mid-engine 2020 Corvette is currently bringing $15,000 over MSRP in the used market.

Subaru of America Inc. recently reported 51,458 vehicle sales for July 2020, a 20 percent decrease compared with record July 2019. These results reflect the impact of the COVID-19 global pandemic and the uncertainty surrounding economic recovery. Following 11 consecutive years of sales records, Subaru reported year-to-date sales of 318,572, a 21 percent decrease compared to the same period in 2019.

July marked the third consecutive month of 50,000+ vehicle sales for the automaker. As the top performing carline by volume, Forester sales increased 4 percent in July 2020 compared with the same month a year ago. WRX/STI posted a 6 percent increase, while BRZ posted a nearly 60 percent increase compared to July 2019.

“Given our low supply of key models such as Forester, Outback, Crosstrek and Ascent, overall, we were extremely pleased with our sales results which were delivered by our retailers, who are also persevering through the COVID-19 pandemic,” said Thomas J. Doll, president and CEO, Subaru of America Inc.

The growing number of COVID-19 cases and overall economic uncertainty continue to stifle a more robust recovery, according to a report released by Cox Automotive.

Cox forecasts that  the seasonally adjusted annual rate (SAAR) of auto sales in July is expected to be 13.3 million, up from last month’s 13.0 million pace, but down from last year’s 16.9 million level. Sales volume in July, forecast at 1.13 million units, will be down 19 percent from July 2019.

According to Charlie Chesbrough, senior economist at Cox Automotive, “The market has been making slow but steady gains since April’s low, but there are many headwinds hampering our recovery.” 

Consumer sentiment for the most part drifted downward throughout the month of July as surges in COVID-19 cases in the South and the West dominated the news headlines. Concerns over high unemployment, a troubled U.S. economy and the resulting severe recession also weighed heavily on potential auto buyers, keeping many out of the market. Shoppers who stayed in the market were likely impacted by a limited supply of product at dealerships.

Buyers are turning more to online shopping for cars
Buyers are turning more to online shopping for cars

Based on Cox Automotive analysis of vAuto Available Inventory data, there was only 67 days of inventory available in mid-July based on the current sales pace—far below the July 2019 level of 86 days. Lean supply can be a positive for dealers and automakers, as it often leads to less aggressive incentive spending and high grosses, according to Cox analysts. However, low inventory will also drive down market volume, as vehicle shoppers may not find the product they want. Toyota and Subaru had the tightest inventory among larger brands in July, both below 40 days of supply. At the other end of the scale, Chrysler, Dodge and Ford all had days of supply above 90 days in July. Mitsubishi had the most inventory on hand in July, with 135 days of supply.

Penske Automotive Group Inc. announced second quarter and six-month 2020 results. For the three months ended June 30, 2020, the company reported income from continuing operations attributable to common shareholders of $45.0 million, or $0.56 per share, compared to $117.7 million, or $1.42 per share in the prior year. Foreign exchange had no impact on earnings per share. Revenue was $3.7 billion compared to $5.8 billion in the same period last year.

Second quarter performance was highlighted by the company’s diversification, with retail commercial trucks and Penske Transportation Solutions offsetting the challenging automotive retail environment early in the second quarter. In April and May, many of its U.S. and Germany dealerships were impacted by shelter-in-place orders while operations in Italy, Spain, and the U.K. were closed. As a result, same-store new and used automotive retail unit sales declined 71 percent in April and 50 percent in May when compared to the same month last year. In June, as operations began to reopen, same-store new and used automotive retail unit sales decreased 1 percent.

“The operating environment in the second quarter was one of the most challenging in memory,” Chairman Roger Penske said. “Since the COVID-19 pandemic began impacting operations, our teams took action to protect the safety of employees and customers, control costs, manage vehicle inventory, maximize gross profit and preserve liquidity. Through these actions, our business experienced sequential improvement from month to month in units retailed, service/parts gross profit and overall profitability.”

Penske continued, “Starting in late March, we furloughed approximately 15,000 employees, or 57 percent of the workforce. At the end of June approximately 14 percent of our employees remained on furlough. Additionally, we have reduced our workforce by approximately 8 percent as of June 30.”

For the six months ended June 30, 2020, the company reported income from continuing operations attributable to common shareholders of $96.6 million, or $1.20 per share, compared to $217.8 million, or $2.60 per share in the prior year.

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