Declining sales aren’t auto manufacturers only worry – a used inventory shortage is on its way

August 3, 2020
4 min read

There wasn’t much speculation given to whether or not vehicle sales would plummet once the pandemic hit a critical mass in March 2020 sending almost the entire country on lockdown. It was pretty much a given that the past four years of continuous vehicle sales growth had come to a screeching halt. What wasn’t obvious was the impact of COVID-19 on the used vehicle market, as automakers and dealerships were primarily concerned with how to push new vehicle inventory and offer incentives that nix any consumer doubt about buying a car during a global pandemic.

Four months later, the nation is no longer on lockdown and dealerships are up and running, but vehicle sales have not recovered and to make matters worse – inventory levels are at staggering lows and it appears that we are on the brink of another used vehicle shortage. The last time the automotive industry was faced with a used vehicle shortage was during the Great Recession of 2008. This was when the Car Allowance Rebate System program, also known as “Cash for Clunkers”, was initiated. The $3 billion US federal program was created to serve as an economic incentive to convince consumers to trade in their used vehicles for a rebate which they would then in turn use to purchase a new vehicle.

Revitalize the trade-in market

According to Mintel research on new cars, three in five consumers planned to trade in their current vehicle, and nearly 20% of consumers who planned to trade in their vehicle said it was because they could not afford a new vehicle without a trade-in. New auto sales were down by 26% in July 2020 and the industry is expected to shrink by 20% by the end of 2020, all of which indicates that if consumers aren’t trading in their vehicles and they aren’t purchasing new, dealerships are facing a used vehicle shortage in the immediate future.

Additional cash rebates or incentives could be created to reward consumers who turn in their used vehicles and purchase an electric or hybrid vehicle.

A rebooted “Cash for Clunkers” program would stand to serve the auto industry in numerous ways. The average consumer holds on to their vehicle for approximately 12 years, so it’s safe to assume that this program would have numerous viable candidates. According to Mintel research on the car purchasing process, more than one-third of financially struggling consumers say they are worried they won’t qualify for financing and would use a loan that defers payments for six months. A “Cash for Clunkers” rebate program could be enough of an incentive to jump-start the car purchasing process for many consumers.

With many original equipment manufacturers (OEMs) doubling down on their efforts to electrify their fleet, additional cash rebates or incentives could be created to reward consumers who turn in their used vehicles and purchase an electric or hybrid vehicle. This would not only be a boon to the stagnate electric vehicle (EV) market but would also help automakers recoup sales losses due to the fact that most electric vehicles are within a higher price range than the average internal combustion engine vehicle. The electric vehicle market has been especially suffering due to low gas prices that have caused many consumers to doubt the need for an EV.

What we think

As automakers brace themselves for what will be one of their roughest sales years in recent history, they’ll want to push for rebooting any program that gets consumers out of their current vehicle and into a new one as this is their best chance to not only grow their EV sales but help mitigate their profit loss as much as they possibly can.

Hannah Keshishian
Hannah Keshishian

Hannah Keshishian is an Automotive Analyst at Mintel. She provides insights into the automotive industry and focuses on emerging consumer trends, industry happenings, and the latest vehicle advancements.

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