Stimulus Checks May Give Auto Sales A Delayed Boost

American households are starting to receive anywhere from $1,200 to $3,400 under the federal Coronavirus Aid, Relief, and Economic Security (CARES) Act. The idea is to put some money in the pockets of the millions who have lost their paychecks, permanently or temporarily, during the Covid-19 pandemic. Unlike the windfall many taxpayers count on this time of year in the form of federal and state tax refunds, often used to buy a new vehicle, the so-called stimulus checks aren’t likely to spark a springtime rush on dealerships. That doesn’t mean, however, they won’t be spent on vehicles, eventually. 

A combination of polls and analyses reveals if, or when, federal stimulus money finds its way to dealerships depends on factors that include consumer confidence, personal economic strength and the pricing and availability of deals.

Cox Automotive Senior Economist Charlie Chesbrough believes it’s a tough sell for a person in economic distress after losing a paycheck to the pandemic to decide to spend the stimulus check on new car or truck. 

“For someone who just got a $1,200 check and lost their job, it’s probably not rational to go out and use that money to go out and buy a car this week, but that doesn’t mean some folks won’t do it,” said Chesbrough in an interview. 

Note the “but” in Chesbrough’s statement. Indeed, that little word opens a door that could lead to simply hanging onto that money if an individual or family is in pretty good shape and simply delaying a purchase.

That sentiment is conveyed in a poll not yet released by car buying and research site CarGurus.com. The CarGurus Covid-19 Sentiment Study gauged responses by 722 consumers who said they had planned to buy a vehicle this year. 

“While sales expect to be delayed, we see very few people choosing to delay their purchases indefinitely,” said Madison Gross, Director of Customer Insights at CarGurus, in an interview. “Most of them still have a fairly near term plan to purchase. In total 79% plan some delay in their purchase. Of those who had initially planned to purchase in 2020 only 8% have delayed indefinitely.” 

Gross pointed out an almost equal number of respondents said they were making either the same or less money than before the pandemic. 

As for whether or not prospective vehicle shoppers planned to use their stimulus money toward a purchase or lease, 202 or 28% of 719 respondents in another CarGurus poll taken in the past week said they would, while 230, or 32% said they would not. An almost equal number of the remaining 287 respondents said they either did not qualify for a stimulus payment or hadn’t made up their minds.

What that all means is even consumers who are in strong enough financial shape, and are in the market for a vehicle, may simply decide to bank their stimulus checks and wait to see how the overall economy rebounds, including the stability of their employment. 

“For people who don’t need the money, it’s gravy money, so when they feel the economy is coming back, then they do have $1,200 to do anything they want with it but we’re probably a couple of months from being at the point in this crisis where people would be willing to do that,” said Cox Automotive’s Charlie Chesbrough. 

Those people may be convinced not to wait to pull the trigger on a vehicle purchase, either new or used, as the combination of fat incentives and bloated inventories are creating attractive deals. 

Vehicle sales were slammed to stagnation in March as the economy all but closed down, leaving dealers with more vehicles than they could sell on their lots. Some automakers are offering zero percent financing for as long as 84 months and the price of used vehicles has begun to soften. Already overstocked, dealers are faced with a huge influx of three-year old vehicles coming off their leases—about 14.1 million this year, or about 340,000 a month, according to Chesbrough. 

“The reality is this is all coming at a time when demand has fallen tremendously so we have a potential supply of inventory building in the used market which could drive down auction prices and ultimately to dealers substantially,” Chesbrough pointed out. “So they either go to auction or the automakers try to extend the leases a little bit so they’re not coming back at the same time, or they may try to get the holders of the current lease to actually buy the vehicle.” 

Adding to the glut of used vehicles is the fact that rental fleets are dumping vehicles as travel business dries up.

That’s good news for those consumers who are either in strong enough financial shape to buy now or in dire need of a vehicle, but it’s also leading to stingy trade-in offers.

There’s evidence, however, the overall auto market is improving. Incentives are helpful, but not the overriding factor according to Chesbrough who explains, “The reason we’re seeing the uptick is the initial shock is over, we’ve moved past the shock phase if you will, and also a lot of dealers who were closed around the country have started to reopen again.”

An analysis by J.D. Power concludes the week ending April 19 marked three straight weeks of improving conditions, leading the company to declare “U.S. retail sales are now in recovery.” What that really means is new vehicle sales aren’t declining as quickly as they were earlier on in the crisis. 

According to J.D. Power, retail sales began turning around in early April after hitting a nadir at the end of March. During the week of March 29, retail vehicle sales were off 59%, or 189,000 units from the company’s pre-virus forecast of a 51% decline, or 301,000 unit falloff. The deficit declined each of the following three weeks at 55%, 51% and 48% respectively. That all means U.S. new vehicle sales are still limping along, far behind the 17 million pace of 2019, but improving nevertheless. 

Unlike the usual springtime sales spike often seen when taxpayers receive their refunds, any use of stimulus money to buy a vehicle will be slow and subtle, but perhaps, inevitable, for those who were able to save it rather than cover more immediate needs, says CarGurus’s Madison Gross, who predicts, “For the most part consumers who are impacted, they don’t quite know when they’re going to be able to purchase, but they’re not putting planned purchases off forever.”