CoVid-19 Industry Updates

CoVid-19 Industry Updates (104)

 

Manheim announced that “increased sales activity” and “early signs of economic recovery” have in part led it to recall 300 workers just weeks after furloughing 9,000 U.S. employees.

In a May 27 release, Manheim President Grace Huang said a boost in reconditioning requests led to the return of the 300 workers.

Manheim President Grace Huang
Manheim President Grace Huang

“As business conditions continue to improve, we plan to recall even more furloughed employees,” Huang stated.

She reported that with lots at full capacity, two-thirds of locations are participating with expanded viewing days and times. Manheim also has wireless tracking technology at 13 locations, with plans to double that total for year’s end, Huang reported.

Huang said Manheim is accelerating its investments in condition reports and imaging, as it is still limited to an all-digital format. The company promises key enhancements in the coming months, while continuing to comply with CDC guidelines.

Manheim continues to waive simulcast fees for buyers and sellers and waive the Manheim express sell fee for self-listed vehicles. The company also offers daily MMR retention values to help with valuations. It’s also waiving fees for vehicles sold without a title or title absent, as well as other assistance.

 

Several auto industry leaders are balancing current optimism with future uncertainty as the country opens up again.

The COVID-19 pandemic remains a challenge to the industry.

During a recent webinar, Ernie Garcia, chairman and CEO of Carvana, said, “I feel like I’m at a time where I’ve never been less certain about what the next couple of months look like.”

He said, “So many things are going in the right direction,” from wholesale volumes to wholesale prices and retail volumes.

“The ABS (asset-back securities) markets are firming up, which suggest good things for the credit markets.”

Information coming out of other countries looks good – in terms of recovery from the coronavirus and shifts toward more personal transportation – which bodes well for Carvana, he said.

“I think all the information you look at, looks incredibly positive,” Garcia said.

Sandy Schwartz, CEO of Cox Automotive, agreed that things are looking up.

“First of all, there is pent-up demand,” he said. Dealers are ramping up their inventory to 70 or 80 percent of their pre-COVID-19 numbers in the month of May, to “maybe even” matching what they did a year ago.

Schwartz said encouraging signs are coming earlier than he thought in the retail landscape.

Doug Ekizian, managing director, PwC Consumer Finance Group, said the past several weeks have shown a boost in retail car sales, especially on the used side.

But he pointed out the long-term forecast is still murky.

“This recovery is going to be much different than previous economic downturns,” he said.

The recovery will look differently based on geography, and Ekizian is looking at local healthcare data, local hospitalizations and local government policymaking to help forecast the pace of recovery. These areas will have an influence on consumer demand, he said.

Jobless claims and at-risk industries will also have an effect on the direction of the post-COVID-19 recovery.

“I also feel like it’s important to keep an eye on what’s possible on the downside,” Garcia said.

Concerns about a permanent solution to the virus, a potential second-wave of infections and the effect of the stimulus and unemployment benefits, which are more generous than normal, muddy any predictions.

“I think it’s pretty hard to have a firm view of what’s coming,” Garcia said. “But all the signs are pretty optimistic today.”

Sandy Schwartz, CEO of Cox Automotive
Sandy Schwartz, CEO of Cox Automotive

Schwartz acknowledged the challenges ahead.

“The question is going to be, can we sustain (this recovery)?” Schwartz said.

Two areas will be big factors. Will new-car dealers have the right inventory and will used-car dealers have “the right inventory at the right price,” Schwartz said.

On the new-car side, inventory will likely be “stretched a little bit,” he said, with some effect from the factory shutdowns during the coronavirus.

Schwartz said the demand won’t be as much of an issue as affordability on the used-car side.

“It’s really going to depend on how jobs come back and whether people can afford cars,” he said.

Garcia said the 2008-2009 recession taught him that “when the economy has to retool, it takes time.”

He said questions remain about the future of the services sector, how much businesses will have to retool and potential longer-term unemployment, he said.

All agreed that businesses will have to adapt – as they always do – to survive.

Dealers, like other businesses, will have to operate differently. From digitalization to inventory acquisition, the dealers who learn from this crisis are the ones who are going to survive, Schwartz said.

The crisis has revealed an “amazing” adoption of digital tools among retail dealers, Schwartz said.

At the start of the crisis, Cox Automotive had about 1,000 Autotrader dealers who had ‘true digital tools.”

In the wake of the outbreak, the company has helped outfit 10,000 dealers with more digital tools that they are now using.

“This is something we’ve been talking about for a while,” Schwartz said. “People know now that we’re never going back to where we were.”

He said there are lot of innovative dealers who will adapt to the times – and they have to do it.

“We are not going back to the way things were,” Schwartz said.

Carvana Vending Machine Tempe Arizona
Carvana Vending Machine Tempe Arizona

Garcia said Carvana – which has rebounded much more quickly than other auto businesses – likely benefited from being able to operate digitally when other dealers couldn’t.

Since then, Carvana is drawing in customers who are exploring different ways of shopping.

Also, where some customers may have been risk-averse to shopping online in the past, now the risk is reversed. Today, online may seem safer than in person, Garcia said.

Schwartz agreed that consumers want to do as much of the retail car deal online as they can.

“People want to go deeper into the process without having to touch, talk, look at or shake hands,” he said.

But Schwartz and the others expect more difficulties.

“This recovery is going to be different from any other economic recovery,” Ekizian said.

After looking at potential recoveries from the faster V-type recovery to a slower U-shaped recovery, this may turn out to be a W-shaped recovery, he said.

“We are nowhere near through the difficult times we’re going to have,” Schwartz added.

Garcia, however, said businesses can succeed coming out of this.

“In a moment like this, everyone opens their mind a little bit to (the idea of) change,” Garcia said. “Something that’s good which has come from this is that everyone is reevaluating everything they’ve done.”

He believes that “many, many years of progress can be jammed into the next 18 months.”

So much of progress come from just stopping and asking the question, “why am I doing this thing that has become a habit I do every single day?” Garcia said.

The moments when we question our habits don’t come every day, he said.

“I think that’s very healthy and a lot of good can come from it.”

 

 

 

The Occupational Safety and Health Administration (OSHA), which last month released an enforcement plan in the wake of COVID-19, is now deploying its plan at auto dealerships.

Adam Crowell, president and general counsel of ComplyNet, said OSHA’s plan – called “Interim Enforcement Response Plan for Coronavirus Disease of 2019” – was ultimately formulated in response to workers’ concerns over several issues.

Those included the lack of personal protective equipment (PPE), lack of training over appropriate standards and COVID-19 illnesses in the workplace.

Crowell, during a webinar this month, said the above complaints seem to be the most common.

“OSHA is classifying businesses based on risk levels,” Crowell said, “whether it is a very high exposure risk job, a medium exposure risk job or a lower exposure risk job.”

The highest risk jobs include things like health workers or emergency response workers, Crowell said.

On the dealership side, it will depend on the job classification or type of work each employee does, Crowell said.

An office worker might be able to operate with proper social distancing protocols with no problem.

“However, your service department, your sales department, your porters or technicians getting into vehicles may fall into the classification of medium exposure risk jobs,” Crowell said.

An OSHA inspector will make a determination based on whether there is an imminent danger based on a complaint or based on the type of business.

“OSHA is saying this may warrant an onsite inspection,” Crowell said.

If a dealership has a cluster of coronavirus infections and it appears they haven’t done anything about it, then it might warrant an onsite inspection.

OSHA will also look at other types of complaints that aren’t an “imminent danger” situation and those may not result in an onsite inspection, Crowell said.

“I will warn you right now, OSHA has been going onsite to dealerships and saying, ‘Hey, we’re just coming to observe social distancing,” Crowell said. “There’s not a complaint, they’re just randomly coming in.”

In situations where OSHA doesn’t come in, the administration may hear of a complaint and reach out to the dealer. The agency may ask the dealer to do an internal investigation, then get back to OSHA with the results, along with documentation that supports the results.

Crowell said this request may be by FAX or email, but it will be classified as what’s called a “rapid response investigation.” This requires a response within five business days.

Dealers may be able to ask for additional time, but if they can respond in five days, they should.

“It’s not automatic that you will get the additional time,” Crowell said. “It’s within the discretion of the (OSHA area) director.”

If an agreement cannot be reached, OSHA has said it will conduct an onsite investigation, he said.

Dealers have to provide documentation of any type of corrective action they have taken, Crowell said.

“They are going to want to see that you’ve done what you said you were doing,” he said.

Crowell said OSHA will also request – at the end of the process – that the business post the letter it received from OSHA and post the response.

Plus, the business owner will be asked to sign a certificate stating they have posted those items and send it back to OSHA.

Crowell said OHSA wants to be assured that it’s been posted or provided to the business’s employees so they are aware of it, too.

If OSHA determines the business did not do what it was expected to do, it could trigger an onsite inspection.

Dealers should also get guidance from an attorney or compliance professional.

During an onside inspection, OSHA reps will ask for “all sorts of information,” Crowell said. “They might be asking for your policies, procedures and training records and your OSHA logs, that sort of thing.”

For serious violations, OSHA can levy fines of up to $13,500 per violation, Crowell said. Businesses have 15 days to contest the order. Repeat violations can result in a fine of $130,000+, even if the previous violation was a decade ago.

He added that the CDC recommends a written pandemic response plan and OSHA may ask for that. It may review your supplies for PPE and/or do a walkaround.

“You have a duty as an employer to provide a workplace that is free from situations you know about that could serious physical harm or death,” Crowell said.

Businesses have to provide a place to wash hands or provide an alcohol-based sanitizer (at least 60-percent alcohol) and use EPA-approved chemicals. The EPA provides a list at its website.

Dealers are also using Plexiglass and stickers/marks on the floor for social distancing, Crowell said.

Nearly 2/3 of dealers surveyed by the National Independent Automobile Dealers Association recently reported they have begun the process of bringing back employees they had previously laid-off or furloughed.

The survey of 846 dealers conducted from May 9-May 14 showed 63 percent of dealers are bringing back employees. The survey also showed that 47 percent of dealers surveyed had remained at full staffing, while 20 percent of those surveyed said they were not bringing back employees at the time of the survey.

According to NIADA, 31 percent of dealers looking to bring back employees had problems since employees were hesitant to come back since they were making more money through unemployment, which has been boosted by an additional $600 through the COVID-19 crisis. Thirty-nine percent of dealers had no problems bringing employees back.

The survey also showed dealerships opening up again, with 44 percent doing business as usual (compared to 27 percent in April), 34 percent open by appointment only and 10 percent selling online only. Just 11 percent remain closed temporarily – down from 27 percent – and one percent reported they have closed permanently.

“I am encouraged that the COVID-19 pandemic hasn’t put more dealers out of business permanently, as was originally feared,” NIADA CEO Steve Jordan said. “Recovery and signs of life are showing, as 88 percent of dealers are open for business, with almost half open for ‘business as usual.’

“Unfortunately, open for business as usual doesn’t always mean sales have returned.”

Indeed, sales remain below pre-COVID levels for most dealers – 53 percent of the respondents said their sales were down 50 percent or more for the previous two weeks. Twelve percent of dealers said their sales were back to normal levels and 6 percent said sales were actually better than before the pandemic.

Rebuilding sales and customer traffic is by far the greatest challenge currently faced by independent dealers, cited by 38 percent of respondents. That’s twice as many as the second choice, access to inventory at 19 percent, which was followed by funding and access to capital at 17 percent.

The National Auto Auction Association has released Playbook: Auction Start-up, Response to COVID-19,” to help auctions in the pandemic situation.

NAAA President Laura Taylor introduced the new program in a letter to the industry on May 15.

“Protecting the wellbeing of our member auctions' employees and their families is always of paramount importance to the National Auto Auction Association,” she said. “but now, more than ever, they depend on us as an industry to do everything we can to safeguard them during the current public health crisis.

“To help you minimize the risk of coronavirus to your workforce and their families, NAAA is providing a playbook and video that can serve as a valuable resource in establishing workplace policies and procedures for the safety of those who will be physically present as your auction re-opens for business.”

The 18-page document, available through NAAA, also comes with a short video for auctions to play at their entry points and throughout their facilities as a reminder to staff, dealers and visitors what is expected.

Taylor thanked ADESA, Akron Auto Auction, Charleston Auto Auction, Manheim and NAAA’s Safety Committee for their work on the project.

NAAA Chairman Chad Bailey, president of Akron Auto Auction, the biggest thing is providing safety and social distancing.

“It’s just making sure you have a plan,” he said. “It’s not too hard. It’s making everyone feel safe and feel good.

“I think everybody gets what ‘distancing’ is since we’ve had to do this for eight weeks. It’s not splitting the atom.”

Bailey said it shouldn’t be a hassle for dealers either.

“It’s just some dealers are creatures of habit.” he said. “But the dealer has to perform that same stuff at his dealership.”

Bailey said a lot of this is common sense at this point, but even so, the playbook will allow auctions to have a place to go for answers.

“There might be things you don’t think about,” he said.

The playbook brings together tips and solutions that other auctions like Bailey’s sale, Taylor’s Charleston Auto Auction, Manheim and ADESA have come up with.

“When you put everybody’s heads together, you probably aren’t going to miss too much,” Bailey said. “If everybody grabs one thing out of it they need, it will serve its purpose.”

At  press time, Akron had completed its third live sale with people in the lanes since the pandemic and it’s been received well, Bailey said.

Frank Hackett, NAAA CEO, said the industry came together to develop this playbook to benefit all of its members.

It will really help when a local, state or federal agency comes in with any questions, you can show this and say, ‘This is the industry standard that comes from our association,’” he said.

 

Automotive analysts acknowledged the grim status of the industry while speculating about a potential auto stimulus package and how the industry will get through the crisis caused by COVID-19.

A  recent webinar hosted by the Automotive Press Association and the Society of Automotive Analysts brought together Cox Automotive’s Michelle Krebs, LMC Automotive’s Jeff Schuster and IHS Market’s Stephanie Brinley for the wide-ranging discussion.

On a global basis, the short-term news was not good.

Around the world in March, auto markets dropped from 70 to 85 percent in countries like France Spain, Italy and China, according to Schuster.

“Our base case forecast is we’re seeing about a 15-percent decline for the year globally,” he said.

That would mean a drop in the worldwide light-vehicle market to 73 million from last year’s 90 million.

Schuster expects automakers to essentially be shut down in April across North America.

“We’ve got about 140,000 vehicles expected to be produced, roughly a 90 percent decrease from what is normally produced in April,” he said. “About 100,000 of those will be in Mexico.”

He said the pull-back in demand is expected in the 14- to 15 percent range and likely to get weaker.

“It remains an extremely fluid situation,” Schuster said.

Brinley, principal analyst at IHS Market, said what makes  this situation different from 2008-2009 is that there is both a “supply-side and demand-side shock” in this environment.

“We’ll still have to wait and see how consumers respond coming out of it,” she said. “This is certainly unprecedented. I can’t remember a time that we’ve actually shut down auto manufacturing like this before.”

While the government’s CARES economic relief package won’t stop the coronavirus, it may help in repelling the “big old bad ‘depression’ word,” Brinley said.

There was a debate about what, if any, auto stimulus should look like.

Krebs said Cox expects that an auto stimulus plan will be part of a future package.

Schuster added he’d be “shocked” if there wasn’t some type of government incentive program to help boost auto sales.

Krebs said Cox is bullish on EVs and hybrids, believing that a package would involve some variation of a ‘Cash for Clunkers,’ the 2009 program that incentivized the scrapping of older cars to sell newer, more environmentally friendly cars

Brinley questioned whether a ‘Cash for Clunkers’ stimulus would be the best move. She said this is a unique situation in which consumers are not being allowed to go outside or they’re being encouraged to stay inside.

‘Cash for Clunkers,’ the 2009 program
‘Cash for Clunkers,’ the 2009 program

“So, their reason for not buying now is much different than it was during the recessionary time period,” Brinley said.

She said an incentive may drive someone to make a purchase – if that person were already inclined to buy a vehicle. But she’s not sure that would drive a purchase otherwise.

“And even when you look at ‘Cash for Clunkers,’ all it did was (boost) pull-ahead sales,” Brinley said. “I would question whether or not that’s the very best use of funds.”

She said automaker incentives like 0-percent financing or other relief would be more effective in getting people back to showrooms. Brinley said making customers feel comfortable that they can continue to make payments is more important than a one-time check.

Cox predicts the recovery will be “very uneven” for different brands and segments.

Segments that do worse will likely be compacts and subcompacts, Krebs said, since those already attract budget-constrained buyers.

High-end performance cars and luxury cars are discretionary purchases which track with the stock market, Krebs said.

“We see those slower to come back,” she said.

Vehicle segments likely to do best are trucks, SUVs and crossovers.

Krebs said Cox has spent lot of time looking at shopping habits in the crisis.

“What we have been doing is monitoring on a daily basis shopping on our websites like Kelley Blue Book and Autotrader,” Krebs said. “We watch used vehicle activity at our Manheim auto auctions, although those have gone totally digital.

“As we looked at our credit application data, by the end of March, sales had fallen 64 percent for new cars and 50 percent for used. Of course, this comes at the worst time. March is one of the biggest months for sales, especially for used car sales. Typically, when tax refunds come in, people will use those to buy used cars.”

Tax season came to a “screeching halt” on March 10, Krebs said. She believes people are now holding on to their tax money for other essentials like rent or food.

Krebs said Cox is also having open office hours with clients, be it dealerships, lenders, rental car companies, etc., a couple of days a week.

“That is really eye-opening and, in some cases, heart-breaking,” she said. “I had some who were laid off or just closed their dealerships last week. That was tough.

“We think that April may will be the lowest sales rate in the history of data collection.”

 

APCO Holding LLC, a provider and administrator of automotive F&I products, will continue to provide COVID-19 assistance by joining the F&I Providers Relief Fund for F&I Managers as a founding partner.

With the auto industry facing unprecedented losses, dealers are confronting slow business and serious challenges. For some, that means temporarily closing their doors or making the difficult decision to lay off staff, enact furloughs, or make pay cuts. Founded in April, the F&I Providers Relief Fund has brought more than 40 providers together and raised over $500,000 to provide grants to F&I professionals who are confronting financial setbacks as a result of this crisis. Contributing members include a variety of F&I administrators, underwriters, roadside companies, technology platforms, and others who are involved with dealers and their employees on a day-to-day basis.

“As we continue to see the fallout from this pandemic, it is essential to come together and collaborate on what we can do as an industry,” says Fin O’Neill, Chairman & CEO of APCO Holdings. “If our responses are going to be effective and sustainable, they have to be built from a wide range of experiences. The F&I Providers Relief Fund has brought us together with one goal in mind—to help the people we do business with every day who are now impacted by this crisis. It’s an honor and a privilege to be a part of this effort.”

 

John Lee, president of APCO’s EasyCare and GWC Warranty, holds a seat on the seven-member Relief Fund board of directors tasked with raising awareness about the need within the industry and reviewing applications to award financial assistance grants.

 

Sales of certified pre-owned (CPO) vehicles decreased 46 percent year over year in April, according to Cox Automotive.

CPO sales were on a record-setting pace for the year before COVID-19 and ended down 20 percent month over month compared to March. For April, only 127,068 CPO units were sold, Cox Automotive reported.

The 46 percent drop in CPO volume was larger than both the estimated 34 percent drop in used-vehicle retail volume and the 41 percent drop in new-vehicle sales. Cox analysts said this suggests consumers in market during the COVID-19 pandemic are likely looking for low prices and value and steered away from CPO. While CPO are excellent used vehicles, with full warranties and benefitting from factory-backed inspections, they are often priced higher than a traditional used vehicle. At the same time, new-vehicle retail sales in April benefitted from high retail incentives and 0 percent financing deals, improving the value proposition. CPO units, stuck in the middle, suffered, Cox reported.

This year, CPO sales are down 18.7 percent versus 2019, with 739,838 CPO units sold through April.

Cox stated Toyota, Honda and Chevy continue to be the biggest players in the CPO market, collectively representing a third of all CPO sales. Those three plus Ford and Nissan account for 45 percent of CPO sales so far in 2020.

The Independent Automobile Dealers Association Of California updated its members on new guidelines for brick-and-mortar dealers who would like to perform online sales and home delivery. The announcement came from DMV in VIN memo 2020-04. 

If California dealers are not signed up to view DMV VIN memos, they are encouraged to go to the state DMV website. IADAC first began discussion of this topic with DMV in 2014 and saw little movement until recently when the COVID-19 crisis halted person to person interaction. The online sales and home delivery model became recognized as a health compliance solution for auto sales, but various items required attention as California laws were being violated by dealers practicing online sales and home delivery. 

“IADAC thanks DMV, CalSTA, CNCDA and California NMVB for their diligent efforts in this task,” said IADA Executive director  Larry Laskowski.

IADAC recommends that dealers fully understand these new guidelines to make sure they are compliant should they choose to adopt this model.

Stephan Wöllenstein CEO of VGC
Stephan Wöllenstein CEO of VGC

More than 2,000 Volkswagen dealerships across China have reopened, and the Chinese public is responding with strong interest. Showroom foot traffic is rivaling numbers from March 2019, Volkswagen announced on its website this week. Volkswagen Group China (VGC) is the best-selling brand in China today by sales and sold around 4.23 million cars in the Chinese market in 2019.

Volkswagen's joint venture, SAIC Volkswagen, has operated in China since 1984. SAIC Volkswagen, which includes the production of cars, parts, components and internal systems, is also back in full swing with 32 of 33 of the group's car and component plants operating again. VGC imports and produces in China the brands Volkswagen, Audi, SEAT, Škoda, Bentley, and Lamborghini, mainly for sale in China.

Stephan Wöllenstein, the CEO of VGC, said via the company’s website, “Hope is returning to the Chinese market, as we are experiencing a certain normalization of business. In 2020, highlights like the start of MEB production and the introduction of the Volkswagen ID. model family still lie ahead.”

This bodes well for the reopening of the U.S. car market.

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