Bargains to be had as second-hand car prices fall
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Nobody doubts the 2020 car market will shrink as a result of Covid-19. But does that mean buyers will get a bargain?
What will happen to the New Zealand car industry once the country gets back to some kind of normality (also known as level 2, level 1… no level)? More to the point, will it suddenly be a buyers' market big-time for those still in a position to purchase?
The truth is that nobody in the Kiwi industry knows at this stage. It's early days for new and used dealerships. Alert level 3 means dealerships can offer contactless services, right down to proper test drives. They can even sell a car. But the days of traditional face-to-face interaction and tyre-kicking are still not back.
Volume will be drastically down. The new-car sector was already slowing in March because of Covid-19: (remember, lockdown only started on March 25): the month was down 37 per cent compared to last year.
Even without the April sales figures, the year is down 16 per cent overall.
A month of virtually no sales has corrected any supply issues for new and used; that and the dire situation rental car firms are in, with the potential need to offload thousands of unwanted near-new cars.
So in the very short term, it's fair to say this is very much a buyers' market. Dealerships have stock and they're very motivated to move it as quickly as possible. There will certainly be fewer buyers thanks to the economic impact of Covid-19, but those who are left will be tempted with a lot of choice and great incentives. The ships didn't stop coming just because New Zealand went into lockdown; the cars still came.
In the longer term distributors and retailers with solid business sense have already accepted the Covid-19 situation and will be looking much further down the road. There's a "wait and see" attitude – understandable in this unprecedented situation - but it might be just as much about managing stock as it is about managing expectations.
There are bound to be supply issues with new cars becasue of the volatile nature of the Covid-19 crisis overseas. There's no point just looking at the country a particular car is made in; components for any maker are sourced from all over the world.
For the used-import trade, there's less activity at auction houses and, longer term, a reduction in new and near-new buying must have an effect down the chain.
Whether reduced demand or reduced supply will be the biggest problem is impossible to say at this stage. There might be a level of desperation among sellers right now; but don't expect it to last. Business models will adapt to lower volume quickly.
Is there anything in the Covid-19 crisis that could directly stimulate car sales? It's pie in the sky, but the desire to "transport distance" over the next 12-18 months while the virus is still a threat could encourage some away from public transport and into the bubbly safety of private cars. We might see first-time buyers looking for good used vehicles, or existing owners wanting to upgrade to more reliable and/or efficient models.
For the new and used car sectors, there will be many with disposable income who will not be spending it on international travel. Holiday time will be focused on domestic activity for some time, so that's another potential driver for car buying. Or given the economic shock of Covid-19, many may choose to downgrade instead – but that's still more stimulation for the market.