Follow the Data

by Adam Rapp

As though we need more evidence of our crazy times, Hertz was actually doing pretty well as recently as March. However, as travel shutdowns were put in place, the company quickly began to struggle and ultimately hemorrhage. Now, their all-too-sudden bankruptcy has auto industry professionals on edge. Within a matter of months, the pandemic has forced one of the most prominent rental car businesses into a Chapter 11 filing, and revealed that the demand for cars, whether rental or purchase, still dances on a knife’s edge. While recent data shows clear areas of concern and hope for auto dealers, the Hertz bankruptcy remains a showcase for the uncertainty.

In fact, Hertz’s outcome will most likely have a positive impact on vehicle sales. During a recent Dealer News Podcast, Dave Cantin and Andy Cherkasky spoke with Zo Rahim, the Economics and Insight Manager at Cox Automotive, to discuss his thoughts on the market’s trajectory and how to utilize data when looking ahead at future economic trends.

According to Rahim, who manages the data for all twenty-five of Cox’s companies, the industry is relying on statistics more than ever before. “It is important to highlight where we’ve been (leading up to the current circumstances)”, said Rahim. By analyzing past figures, this helps to determine how the market may potentially fare through varied economic trends. Looking at the 2008 financial crisis, demand for both new and used vehicles grew in lock step with the recovery, and new car sales peaked in 2016. While (new car) sales have not been as high recently, Rahim says that the market for used cars has been steadily growing for the past three years. During early 2020, Rahim says that there was a “robust strength in sales and demand”, according to the data. However once shutdowns were implemented nationwide, this inevitably caused a bottoming out for the auto industry in April. However, Rahim makes the important point that demand has not disappeared, but is instead restricted by our limited mobility.

In more recent developments, which have been constructed from data, Rahim believes that the summer months will see a more upward trend in sales as states begin to open up. Rahim also raises the point that with plant closures, dealers will not be able to rely on a large quantity of new vehicles coming in. This is also part of the reason he believes that (for the next three to six months) the used vehicle market will provide most of the opportunity for dealers. Still, Rahim is more bearish regarding the recovery of all markets at the same time. “Each market will behave very differently – it’s going to be a scattered recovery and less so a national recovery”, said Rahim. According to Dale Pollack, the Executive Vice President at Cox Automotive, dealers should be doing everything in their power to bring their used inventory down to a twenty three day supply. This will allow dealers time to evaluate the direction of their markets, which includes the lingering effects from plant closures and other factors. Dealers might also begin to see available used inventory swell from Hertz’s rental cars, which will continue to flood auctions as they liquidate after bankruptcy. Dealers should continue to evaluate their operational positions, but move quickly, as this will likely be an opportunity to own lower-priced inventory that attracts new customers and helps fortify cash positions.

As dealers begin to purchase these vehicles from auction, retail will begin to recover, according to Rahim. As certain areas see a shortage in new inventory due to the plant closures, the used car market will likely continue to drive sales operations. If supply outpaces demand, moving traditional new car customers into the used market might help mitigate some of the accompanying erosion to revenues or profits, but maintaining top line value will remain challenging.

Still, with unemployment still redlining, vehicle sales will be down (compared to 2018 and 2019) with plenty of economic uncertainty remaining. This said, a fair amount of recovery has come sooner than anticipated, spurring hopes for an extended resurgence in jobs. “As businesses begin to open, hopefully we can move some of these employees who have been furloughed back to work”, said Rahim.

Rahim has some very solid networking advice for dealerships, as well. Especially in uncertain times, it is vital that dealers put arch competitiveness aside and help each other out. No one has the answer, which is all the more reason to communicate with other dealerships and develop business tactics together. This will in turn help all dealerships to weather these difficult times and to all come out stronger, making for a more even economic recovery. Most importantly, utilize every resource available. Relying on experts such as Zo Rahim and their data will help your dealership to be prepared for the unexpected.