Mandatory lockdowns, widespread layoffs, and record unemployment are just a few of the economic side effects of the COVID-19 pandemic. While it's impossible to predict what the future holds in the ongoing crisis, auto sales have shown to be a good indicator of the overall economic trends since the start of the pandemic. After an initial drop in the spring when dealerships began to close, car sales have steadily recovered to near-pre-pandemic levels. The trends in the types of vehicles sold show a large discrepancy in the economic recovery for high-income consumers and those with lower incomes. We'll examine these trends and offer some tips for low-income car shoppers who can't put off a vehicle purchase.
COVID-19 Auto Sales Trends
The automotive industry has been on a roller coaster ride since the start of the COVID-19 pandemic. In the spring, automakers were forced to halt production, dealers closed showrooms, and inventory and sales tanked as a result. As the lockdowns were lifted and production resumed, car sales rebounded even faster than analysts expected. In fact, demand was so high, dealers had a difficult time keeping up, which caused used car prices to spike.
As automakers like Honda, Toyota, and Ford reported their sales for October, there were some common variables driving the industry's recovery. Data shows that the uptrend in auto sales is driven almost entirely by high-priced vehicles like SUVs, trucks, and luxury cars. Although it's promising news for manufacturers, it may be a sign of pandemic recession struggles for low-income consumers who typically purchase smaller and more affordable vehicles.
According to Car and Driver, Ford's overall sales were down by 5.8% in October, but the brand saw gains in large SUV sales including the Expedition and the Explorer which were up by 9.4%. Ford's luxury Lincoln brand also saw a growth in sales of 2.8%. Honda's October sales tell a similar story with an overall drop in sales of 3.4% compared to last year but with trucks, SUVs, and the luxury Acura brand all showing positive results. The Pilot, Honda's largest SUV, saw a staggering 22.1% increase in sales. Toyota successfully increased sales over last year by 8.8% with positive gains for its Tacoma truck and RAV4 and Highlander SUVs.
Are Auto Sales Indicative of Economic Recovery?
Although the surge in demand for SUVs and trucks isn't new and has been driving up the average new car price for years, some experts believe the COVID-19 auto sales trends may be a predictor of the overall economic situation in the U.S. The trends point to a K-shaped recovery where high-income earners rebound and even gain wealth after an economic dip, while low-income earners struggle.
According to data from Opportunity Insights which tracks the economic recovery, low wage workers saw a drastic drop in employment rates of over 19% during the pandemic while high wage earners saw a slight lift in employment rates of .3%.
(Source: Opportunity Insights)
Experts from automotive analytics company, Cox Automotive believe that the auto sales trends paint an accurate picture of the current economic landscape in the U.S.
According to Automotive Senior Economist Charlie Chesbrough: "Strong sales of higher-priced products appear to continue in October. Some luxury brands and pickups did especially well, which indicates higher-income buyers remain in market. However, weakness of lower-priced segments like compact car shows these buyers, generally with lower incomes, have been hit hard by the pandemic recession. All of which suggests the vehicle market is an example of the K-shaped economic recovery – higher incomes do well while lower incomes do not.”
Tips for Low-Income Car Shoppers
Low-income car shoppers oftentimes find it more challenging to buy a reliable vehicle or get a car loan with a reasonable interest rate, but there are ways to make that dream a reality. The first step is to find an affordable vehicle that won't cause long-term financial hardship. For most low-income shoppers, this calls for comparison shopping for the best price on a used car.
Car shoppers without a traditional income will need to have good credit, find a cosigner, or make a substantial down payment to obtain an auto loan. Another option is to save up and purchase the vehicle entirely in cash. It's important to be wary of low-interest financing and long-term auto loan offers that promise a lower monthly payment but do not apply to shoppers with poor credit or put borrowers at risk of entering a dangerous cycle of debt.
Low-income car shoppers that need to finance a vehicle purchase should consider getting pre-approved for an auto loan from a credit union, local bank, or online lender. To minimize the risks of auto debt, shoppers should carefully consider the loan terms and go with the lowest interest rate offer.