Auto Dealership

Some dealerships are seeing swift sales attributed to pent-up demand resulting from the pandemic. 

The COVID-related shutdown in March and April slammed the brakes on motor vehicle sales. But local dealers are reporting that, since they have reopened, sales have accelerated to the point where some can’t keep up with demand.

New vehicle registrations in Colorado from January through July declined 17.8 percent versus the same period of 2019, according to a report issued Aug. 21 by the Colorado Automobile Dealers Association.

The report stated that registrations of light trucks fell 12.3 percent, while car registrations were down 36.8 percent for the seven-month period, and registrations of used vehicles dropped 20.6 percent.

Vehicle registration figures specific to El Paso County aren’t available because the state’s reporting system doesn’t break them out, said Phill Emmert, executive director of the Colorado Springs Automobile Dealers Association. And registration numbers can lag behind sales by two months or more, because buyers have 60 days from the purchase date to register vehicles.

But a look at tax collections on auto sales in Colorado Springs, along with anecdotal information from dealers, reveals that the local market survived the pandemic closures and is recovering rapidly from the shutdown.

According to the city’s sales tax collections report issued in July for the June filing period, year-to-date vehicle sales declined by 2.56 percent, and the month of June was actually better than June 2019.

The city’s 2 percent sales tax generated more than $1.4 million on vehicle sales in June 2020, compared with $1.15 million in the same month of 2019.

PENT-UP DEMAND

Emmert said he is hearing from the 29 car dealerships in the organization that many are currently having record months.

“It’s a serious car buyer that’s now coming to them through the front door, through their internet portal, on the phone line,” he said. They are “people in need, and so that is a reflection of pent-up demand. And when [dealerships] reopened, they did have significant inventory.”

A recent hailstorm that was particularly devastating in Southwest Colorado Springs also resulted in buyers looking for replacement vehicles.

The demand has been so great that dealers have been scrambling to meet it. That’s because car manufacturers also shut down during the early stages of the pandemic.

In addition, “used car inventory has become tighter because of the loss of that same selling cycle,” Emmert said. “There are a lot of people that trade in a vehicle to purchase a new vehicle. So there aren’t as many choices available to the consumer.”

The Colorado Springs association doesn’t represent RV dealers, but Emmert said he recently talked with an RV dealer who said his dealership also experienced initially high sales.

“But like the auto industry, the RV industry is now in a lag period trying to catch up to production numbers,” he said.

ONLINE SALES

In the early months of 2020, sales at Red Noland Auto Group’s dealerships were showing year-over-year gains, President and Partner Mike Jorgensen said.

“When the pandemic hit, our sales operation on-site had to shut down,” Jorgensen said. “But we were able to do online sales and connect with customers that way. That kept some sales flow going. Our salespeople were working from home, making contacts, making appointments. Ultimately, that led to the beginning of an uptick in sales.”

Now, he said, “our sales have rebounded to the point where [they] are ahead year-to-date through August. … I would say that we just had a record month for August.”

New car sales are brand-related, with some brands surging more than others, and Jorgensen said Red Noland is positioned to take advantage of the strong market.

“The challenge is finding used cars,” he said. “We are really diligent about acquiring the right cars — acquiring trades through sales.”

There’s a big difference in the way sales happen now, he said.

The company is taking extra safety precautions, including mask wearing at the dealership and thorough wipedowns of vehicles before and after customers come in contact with them.

It’s possible, though rare, for customers to complete transactions online from beginning to end. Many customers who formerly would have come into the dealership are now browsing inventory online.

“If one of our vehicles appeals to them, they can contact us via online chat, text, email or phone call,” Jorgensen said. 

If a customer wishes, the company can provide a walkaround video or even deliver vehicles to the buyer’s home or office for a test drive. 

“But we still have folks that want to come into our showrooms and have the experience of kicking the tires, seeing the paint in the sun and smelling the leather,” Jorgensen said. “It’s really what the customer prefers and how they want to do business.”

He expects that many customers will continue to do their initial vehicle searches online. That was happening before COVID-19, but “I think the pandemic accelerated it a lot for consumers and dealers alike, and the whole online experience has gotten even better.”

SUPPLY ISSUES

Inventory is a challenge for the dealerships that comprise Phil Long Ford, said Kevin Shaughnessy, vice president of operations.

“The plants closed for a couple of months and the suppliers closed as well,” he said. “You can’t build cars without parts. Even with the plants back up and running now, they’re still not producing vehicles at full capacity, so they’re not able to meet a normal demand level.”

That means dealerships have to compete with others to get the cars they need.

“It’s a little bit of a feeding frenzy, and consumers are having to try and find the car they want with sometimes not as big of a selection,” he said.

One result is that the used car market is stronger than the new car market right now, he said.

“There is a little shift in culture — people now see their cars as a means of escape and a safe place,” he said. “I think that the freedom of mobility is something that kind of awakened in people as we felt trapped for a period of time. … And so people might be adding vehicles to their households. Used vehicles are an inexpensive way of doing it, and that might be fueling some of the used car growth.”

Used car prices are up year over year, which means that trade-in values are higher, he said. 

New cars have more of a fixed pricing structure. Instead of raising prices, manufacturers are offering support through bigger rebates and good leasing programs.

“We’ve seen that price gap between new and used compressed a little bit,” he said. “Ordinarily, that would push people to just buy new, but I think the inventory is a pressure that keeps the used car market hot and keeps those prices supported.”

Going into fall and winter, when demand tends to drop, “we start to see prices drop,” he said. “So we’re being cautious about the cars we buy now. We’re pricing them fairly aggressively to sell quickly, because we don’t want to buy a car today and be selling it in October. 

“I think what’s fueling some of the used car demand, too, is that dealers are spending that inventory more quickly, which means we accept a bit smaller profits now, but we also insulate ourselves from losses down the road.”

About half of Phil Long’s business is in parts and repair service. Those were deemed essential services, and those aspects of the business remained open. 

“We started evolving into a delivery culture,” Shaughnessy said. “We found ways to stay safe during that time, including pickup and delivery. We would pick up your vehicle, bring it in, clean it, sanitize it and bring it back to you.”

Shaughnessy said the dealerships are seeing more demand coming from remote sources.

“In the past, about half our customers, the first form of contact they made with us was either online or with a phone call,” he said. “We’ve seen that number increase to 70 percent.” 

During the contracting process, most signatures can be done electronically, he said.

“Some customers are buying the car and they never step foot in the dealership,” he said. “The laws haven’t quite caught up with the current environment yet, so there are still a couple of what are called wet signatures required, like on a bill of sale and some of the title work. The state is working on that.”

RVS IN DEMAND

Sales of recreational vehicles have also surged since the shutdown ended, said Randy Biles, owner of Pikes Peak Traveland.

Like the car dealers, Biles has been contending with high demand versus supply issues. 

Demand for RVs as a safe way to travel has skyrocketed, driven even more by the fact that an RV is considered a second home and qualifies for a mortgage deduction.

But the governor of Indiana, where 80 percent of RV manufacturers are located, shut down the manufacturers for two months.

“On a couple of occasions, we ran out of a particular brand of new travel trailer,” he said. “We would normally expect somewhere between a six- to eight-week replacement cycle time. Now it’s out for months.”

Biles said demand for used RVs is extremely strong and supplies are limited.

Pikes Peak Traveland has a sizable parts department, and Biles is also having difficulty getting replacement parts. 

Post-COVID, Biles keeps the RVs locked up and no longer allows customers to come in and wander through the lot looking at inventory.

Customers can view particular coaches through a walkaround video that Biles shoots on his iPhone.

“If someone wants to come in and look at a coach, they have to make an appointment,” he said. “After they have left, we go through and sanitize everything again.”

While sales of entry-level travel trailers priced in the $18,000-$25,000 range have been the strongest, even the more expensive motor homes are selling well.

In the past four months, Biles said, “we have experienced sales this year like we’ve never seen in the past — much better than last year, and last year was a good year.”

Reporter

Jeanne Davant is a graduate of the University of North Carolina. She worked for daily newspapers in D.C., North Carolina and Colorado, and has taught journalism and creative writing. She joined the Business Journal in 2017.