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Where have all the affordable new vehicle shoppers gone?

At the end of February and into early March, the new vehicle market was performing as expected: lead submissions were trending upward as the March seasonality spike occurred. However, different price buckets took on different trajectories when COVID-19 brought the economy to a halt.

Lead submissions for higher-priced vehicles ($30,000 and above) rebounded quickly, with the highest two price points ($40,000 – $49,999 and $50,000 or more) rebounding the fastest. In contrast, lower-priced vehicles (less than $29,999) saw a much slower recovery that’s still happening today.


Buyers are transitioning away from new vehicles

Based on lead submissions for new vehicles, indexed from early January, much of the new vehicle market—specifically, vehicles under $30,000—has not returned. That’s because consumers who shop for lower-priced vehicles tend to be more price-sensitive. They’re also the ones who have been hit the hardest by the current recession. As a result, affordable vehicles like the Nissan Sentra, which has a starting MSRP of $19,310 and a low lease payment, are seeing less interest. Ultimately, we’re seeing consumers who would typically shop for new vehicles priced between $10,000-$29,999 leaving the new vehicle market.

Where have new vehicle buyers gone?

Some buyers are simply staying on the sidelines until the economy improves. This group of buyers includes people who have lost their jobs and are more focused on using unemployment and stimulus checks to keep a roof over their heads and food on the table. It also includes those who are uncertain about the economy and don’t want to make big-ticket purchases right now. However, there is still a group of consumers who need to replace their vehicles, and that includes the consumers who are leaving the new vehicle car market for more affordable CPOs.

Those consumers who switched from new to CPO likely did so for the cost savings. They likely still wanted to purchase new, but the liability of taking on a large vehicle payment during a recession was unappealing. Instead, they turned to slightly used vehicles where the vehicle’s initial depreciation has already happened.

Looking at CPO lead submissions from CarGurus since the COVID-19-driven pullback, two of the lower price buckets ($10,000-$19,999 and $20,000-$29,999) both saw larger increases compared to the higher-priced buckets within CPO. Despite the early lift though, leads for the lower price buckets have been declining since early June and the volume remains lower than early-January levels. In contrast, leads for the higher-priced buckets have recovered better and remain above the early-January index.


Factors driving overall decline in leads for lower-priced vehicles

In addition to consumers’ financial and employment situations playing a role in lower-than-normal leads, there’s another major driver: inventory supply. Share of CPO inventory priced from $10,000-$29,999 declined 4.4 points between March and July. The cause of the decline in supply is, in part, driven by the pent-up demand from consumers who were unable or not confident enough to purchase in March and early April. But it’s also driven by current market conditions. In particular, the auction lanes not being fully functional, fewer trade-ins because of fewer new vehicle sales, and some consumers extending their lease or dropping their expired lease off and delaying the purchase of another vehicle until necessary.

Adapting the inventory mix you stock

The good news in the lead and inventory data is that not all price buckets are declining. The market for higher-priced vehicles ($30,000 or more) is still higher than it was in early January. My normal advice wouldn’t be to run out and buy lots of expensive vehicles to stock your lot with, but, in this situation, there might be an opportunity to test it. Dealers should consider buying one expensive vehicle and try using digital retailing technology to market, sell, and deliver the vehicle. This could be a good way for dealers to test a new market and reach beyond their everyday consumer.

This doesn’t necessarily mean that sales will be up year over year though. We’re still in a recession, millions are continuing to file unemployment claims each week, and we’re still dealing with COVID-19. However, with the right mix of the most popular vehicles and knowledge of your local market, there is still demand to meet and many consumers to sell to.