The COVID-19 pandemic could have created sustained economic havoc for dealers, finance companies and consumers. But against the odds, that hasn’t happened. The answer as to why is simple: the auto retail industry stayed focused on the long-term health of our customer relationships while moving quickly to tackle immediate challenges.
The entire auto industry was uniquely impacted as manufacturers shut down vehicle production for a time, greatly reducing dealer inventories. Sales declined, COVID protocols changed frequently, and remote and digital sales processes accelerated. Through it all, dealers demonstrated tremendous leadership and resiliency.
The value of a strong relationship
In the auto financing industry, we know how vital it is to align with our dealer customers who are on the front lines supporting consumers and their local communities. The pandemic made this principle all the more essential.
It was clear early on that critical support to dealers was needed to help them pivot, retool and remain confident in the face of adversity. Among the most significant finance moves that helped to stabilize the situation came in the form of immediate and meaningful forbearance programs. The quick, proactive nature of these programs proved vital. This included actions such as:
- Substantial, broad-based deferrals on floorplan charges and loan payments.
- Payroll Protection Plan (PPP) funding for hundreds of dealers to keep their workforces intact.
- Generous consumer auto payment deferral programs.
Cars remain essential
When much of the American economy ground to a halt, these actions helped make it possible for many dealers and their customers to ride out the storm.
At the onset of the pandemic, one-third of Ally’s consumer auto customers (approximately 1.3 million) opted into our no-questions-asked deferral program. Fortunately, the vast majority resumed their scheduled payments. Not only did this surpass our best-case-scenario expectations, it also exceeded pre-pandemic consumer credit performance.
At a time when many Americans re-examined their lifestyle and financial priorities, the pandemic reinforced the importance of personal vehicle ownership versus ride-sharing or public transportation. We also see this reflected in the strong demand for cars and the fact that car payments remain a top priority for consumers even during economic uncertainty.
Indeed, the overall outlook for auto retail remains healthy. Auto finance companies are keeping a close eye on consumer credit trends, which appear steady and strong as people start spending the extra money they saved during the pandemic.
This long road through the pandemic may likely present some unexpected speed bumps. Yet, we’re optimistic the pent-up demand for new and used cars will continue to be supported by steadily improving economic conditions and healthy employment trends.
The record prices for new vehicles this summer—with average transaction prices over $41,000, according to J.D. Power— result from a combination of factors including pent-up consumer demand and vehicle production limitations caused by component shortages. While those prices can be daunting for many customers, it presents an opportunity for your dealership to establish a long-term relationship with the customer by using a consultative approach to help shoppers navigate the best vehicle (new or used) and financing options for their situation.
Perhaps the best lesson learned over the course of the pandemic is one we’ve known all along: that business challenges—and successes—are better with an ally by your side.