After brutal spring, Austin auto dealers see reasons for optimism – Business – Austin American-Statesman
September 24, 2020
After a brutal spring, Central Texas auto dealers are feeling optimistic as inventories are starting to bounce back and shoppers are returning to showrooms.
Dealerships were deemed essential businesses during the Texas lockdown amid the coronavirus pandemic and were never forced to close.
But they had many factors working against them, the biggest being that automakers shut down for months. That trickled down to dealerships who found themselves with a shortage of vehicles on their lots.
Not that a lot of people were out car shopping anyway.
“There were definitely some days of uncertainty,” said Nyle Maxwell, owner of the Nyle Maxwell Family of Dealerships. “In June we had not received any shipments in two or three months.”
But with auto assembly plants ramping back up and buyers returning to dealerships — now wearing masks and using hand sanitizing stations — business is recovering, Maxwell said.
His company, which hasn’t had to reduce its 380-person workforce, is learning how to maneuver in a pandemic.
“I’m cautiously optimistic,” Maxwell said. “But we wouldn’t be doing our jobs as business owners if we didn’t watch the possible headwinds. If there’s another flare-up, another lockdown, factories have to shut down again. All those things are worrisome. Right now, though, our business is really good.”
Auto sales worldwide have taken a huge hit since the pandemic struck and consumers steered clear of big-ticket purchases.
Coming off a stellar 2019 performance, Central Texas sales plunged from a year ago in April (-11%), May (-39%), June (-30%) and July (-22%), according to Freeman Auto Report, a Dallas-based company that tracks auto sales in Texas counties.
Now, with the help of incentives and rebates, there are signs that car buyers are being drawn back into the market, dealers and analysts said. Local dealers in the Austin metro area sold 9,694 vehicles in August, down 10% from a year ago. Sales year-to-date through August are down 11%.
“Even during the hard months, the dealers knew the good times were around the corner,” said Michael Marks, executive director of the Austin Automobile Dealers Association. “They knew it was a temporary thing.”
That’s because Austin’s economy has remained relatively stable amid the pandemic, thanks in part to the area’s economic diversity. As the state capital and home to the University of Texas, Austin has thousands of state government jobs, along with being a significant U.S. technology hub.
The region’s unemployment rate fell to 5.5% in August — the fourth straight monthly decline since it hit a 30-year high of 12.2% in April.
According to seasonally adjusted numbers from the Federal Reserve Bank of Dallas, local employers have added 80,000 nonfarm workers to payrolls since April, after shedding a combined 129,500 in March and April.
“Dealers all around the country only wish they had the market that Central Texas dealers have,” Marks said.
In a trend that mirrors the housing industry, fewer cars are being purchased but prices have still been rising.
The average transaction price on a new car is $35,420, according to research by the firm J.D. Power. That’s up about $400 since January and $1,200 since last July.
The spike is even more pronounced on used-car lots, where list prices are up $900 this year alone, to an average $20,445, per Cox Automotive data.
Meanwhile, the average trade-in value rose to $14,066, up 16% from $12,083 in June.
“We’re seeing evidence of more typical new-car shoppers gravitating toward the used car market than usual during the pandemic due to a combination of factors: Consumers are being more financially responsible, interest rates and offers have been extremely favorable, and inventory has been severely limited on the new side,” Ivan Drury, Edmunds senior insights manager, said in a market report.
“Shoppers might be a bit surprised to find that prices are ratcheting up on used vehicles because of significantly increased demand,” Drury said.
The trajectory resembles the housing market, where low interest rates and fewer homes available are driving up prices. Central Texas home sales rose 12.9% in August, according to the Austin Board of Realtors. The region’s median sale price — $355,000 — increased 11.3% to its highest level on record.
To meet demand, dealers are scrambling for used cars, said Marks of the Austin Automobile Dealers Association. “It’s a very competitive market for the dealers to get ahold of used cars,” said “Dealers are competing against each other at used-car auctions.”
That puts buyers wanting to trade in a used car in the driver’s seat, said Jett Legare, internet director at South Point Dodge.
“Since people are getting more for their trade-in, they can upgrade to a more high-end used car or a new car,” he said. “They’re buying more what they want than what they need.”