Jose Munoz in late April on Fox News said that judging by what happened in other countries, U.S. consumers would shun mass transportation in the wake of COVID-19. They would prefer to drive their own vehicles, he said.
The Presidio Group agrees. The private vehicle will remain king. Indeed, ownership may even grow. We have made no secret of the fact that Presidio believes that retail automotive is being disrupted by new forms of transportation including ride-sharing and, ultimately, autonomous transportation. But along with mass transit, consumers will also largely shun these so-called disrupters. Consumers are going to want to be in their own vehicles, and dealerships will benefit.
Not unexpectedly, mass transportation has been hard hit by COVID-19. People are, or were until recently, sheltering at home. As lockdowns are lifted, who will dare take a bus or subway with tens or hundreds of other people? “Passengers will be hesitant to sit shoulder-to-shoulder on a subway car or in a crowded bus for what be a substantial period of time,” said Axios in an early April analysis.
People also have gotten out of the habit of taking mass transportation during the lockdowns and may not want to go back. The New York subway system was damaged during 9/11, and many passengers had to make dangerous escapes from darkened underground stations. According to Axios, it took nearly six years for New York’s subway traffic to return to the same level of ridership.
Ride sharing has been hit hard by COVID-19. Uber and Lyft have seen ridership fall up to 70% in some cities. Lyft recently laid off 17% of its workforce. Though the ride-sharing business will likely recover, it will take time. Sitting in a vehicle which was previously occupied by a stranger will be anxiety-inducing. People will want their own transportation.
People will choose driving over flying as well. They were reluctant to fly after 9/11 and we expect they will be at least as reluctant to take to the air now because of COVID-19. A five-hour drive will look much more attractive than a one-hour flight.
Economic considerations also come into play. Many families have taken a financial hit. The expense and time of flying to a vacation destination, which would include getting to the airport and a likely increase in check-in time as more precautions are added, will make driving a thriftier and more convenient alternative. Add to that the anxiety of COVID-19 exposure on a flight and more consumers “may decide a car ride is better,” says Ivan Drury, senior manager, insights at Edmunds.
Dealerships will benefit on several levels. The extra miles driven will mean more business for service departments. More people will also want to buy a car, and there is plenty of fuel for those purchases. OEMs are luring buyers with great deals. Hyundai, for example, is offering zero percent financing for 84 months and no payment for 120 days. Other automakers have similarly attractive deals. OEMS also are giving their dealers breaks such as scaled-back facility upgrade requirements, and vendors are cutting costs to dealerships. This will allow dealers to layer their own perks on top of those of manufacturers.
Offers such as zero percent financing are already aiding recovery. According to Cox Automotive, visits to its AutoTrader and Kelley Blue Book sites were both up year-on-year the week of April 19. Nearly one-quarter of U.S. markets saw sales improvements that week, according to Cox Automotive chief economist Jonathan Smoke, with 20.2 percent of consumers saying they took advantage of some special offer. “The market remains down,” said Smoke, “but we are definitely seeing improvement in both new and used vehicle sales.”
It seems that the end of private vehicle ownership is not imminent. While these are trying times, there are positives for dealerships and, ultimately, dealership valuation.
The Presidio Group provides M&A advisory services through its wholly-owned investment bank, Presidio Merchant Partners LLC, Member FINRA and SIPC.