It’s no surprise that the COVID-19 pandemic has had profound economic effects across all industries. What may come as a surprise though, is that not all of these effects were negative. In fact, according to a recent article by Road & Track, 2020 was a record-breaking year for car dealership profits. So how, in the midst of a global pandemic and vast economic uncertainty, did car dealerships do so well?
It’s all about supply and demand
As with many economically atypical situations, dealer success in 2020 was due to a very unique set of market conditions related to supply and demand. The first months of the pandemic brought sweeping lockdowns, factory closures, and a standstill across the automotive industry at the manufacturer level. In other words, car manufacturers ground down their operations nearly to a halt. However, demand was affected less drastically, with dealer volume only dropping by about 15%.
So, cars were produced in far fewer numbers, but demand remained high. Because consumers were showed strong demand for a product in limited supply, dealers could charge much higher prices. This up-charging not only mitigated the decrease in sales volume, it turned it into profitability.
Additionally, economists speculate that the inability to travel freed up some of the upper-class’s discretionary income. If you’re not spending money on first-class plane tickets, you have more to spend on things like luxury cars. This also likely contributed to the dealer profit boom that we saw through the pandemic.
What about the used market?
The new car market was not the only side of the car-selling world that was affected by the pandemic. In fact, the used car market was doubly affected by the pandemic. We saw changes in not just the prices of cars, but the ways in which we buy them.
To start, let’s talk about used car prices: used car sales increased throughout the year, for two primary reasons: people couldn’t afford new cars, and people wanted to try to escape the dealer markups. However, much to the dismay of buyers, used car sellers realized that they, too, could capitalize on the COVID car boom. Used car sale prices (albeit this stat is for wholesale, but still reasonably representative of the used car market as a whole) were up 15% in 2020.
Additionally, more buyers focused on used cars, which meant that sellers could list for a higher price without the risk of scaring off buyers—because there were so many buyers out there.
The other significant change that we saw in the used car market was a change to the ways that we buy used cars. Traditionally, you’d go to either a dealer or to meet a private party, go out on a test drive, shake hands and be on your merry way. However, many buyers and sellers, understandably, weren’t comfortable with the high-contact nature of this process, and thus turned to alternative marketplace platforms, like TRED, to make their car sales and purchases.
Companies like TRED increased their business throughout the pandemic because they handle all of the traditionally high-contact aspects of a car deal in a safe, convenient, low-contact way. TRED can handle the title transfer, help to set up contact-free test drives, and do all of the paperwork so you don’t need to go to the DMV. Because of these benefits, platforms like TRED have become invaluable in the car buying world, and many buyers have found these processes work far better than traditional ones. That’s why these selling methods are here to stay—people just like doing it this way better.
As we are now (fingers crossed!) on the way out of the pandemic, what can we expect to see in the car sales world? Well, many of the effects mentioned above will re-center, and we’ll see supply and demand return to equilibrium. The huge spike in car prices will eventually subside. However, the turn to services like TRED for car buying and selling are likely here to stay. It took a global pandemic for us to realize it, but the traditional car buying and selling processes are outdated. Consumers have discovered that there’s a better way to do it. Maybe we’ll remember this as one of the few silver linings to the pandemic!