Before the global outbreak of COVID-19, consumer sentiment (as measured by the University of Michigan) in the US was trending upward. Last Friday, reporting for the final full week of April showed a drop of 17.3 points to 71.8. This is the largest monthly decline ever recorded. Buying Conditions declined across large durables with car buying intentions falling to lows last recorded in 2011 and home-buying intentions at their lowest since 1983.
However, it’s difficult to say if consumer sentiment has hit its low point or not. Due to the uncertainty caused by COVID-19 and the possibility of a second wave of infections, consumer behavior is likely to be ever-changing based on medical progress, emotions, and personal experiences.
Economic recovery won’t happen overnight…
COVID-19 is likely to have a long-term impact on consumers’ mindsets, and fears created by the global pandemic won’t disappear any time soon. Until there’s a vaccine, concerns about exposure will limit people’s willingness to be in large crowds and social distancing measures will continue. Additionally, possible interruptions in the recovery curve would prevent the unemployment rate from returning to pre-COVID-19 levels, resulting in a slower increase in consumer sentiment. These effects will have a ripple effect across sectors from hospitality to automotive and more.
For example, restaurants may have to limit their number of tables and their capacity for patrons to put consumers at ease, resulting in higher-priced meals and fewer members of staff. The restaurant industry wouldn’t be the only one impacted if there’s no vaccine. Airlines, hotels, and many other industries may also need to adjust their operating models, leaving people unemployed longer.
…but when it does, shoppers will return
Despite last week’s consumer sentiment score, there are bright spots on the horizon for the auto industry. Our global COVID-19 Sentiment Study found that 79% of 2020 auto shoppers expect to purchase later than they initially planned. Additionally, CarGurus leads have increased over the past few weeks as car shopper activity starts to ramp up again.
Still, dealers will also likely need to adapt their operating models to meet consumer expectations. In the near term at least, this means offering consumers a range of contactless services, such as virtual appointments, free at-home test drives, and dealership appointments for solo test drives. According to our soon-to-be-released global COVID-19 Sentiment Survey, 61% say it’s safer to purchase from a dealership than a private party, which means dealers have a real opportunity to win in-market shoppers right now.
Consumer sentiment will continue to shape recovery
As the auto industry begins to rebound, consumer sentiment will continue to play a key role in how quickly it happens. With April sentiment declining 17.3 points, shoppers who need a vehicle but aren’t comfortable buying new might move to the used car market for its affordability. This will give dealers the chance to move used inventory as consumers come back to the market.