In late March, as his sales continued to plummet due to COVID-19 pandemic precautions, Jeffrey Merriam laid off about half of the 175 people who work across his four auto dealerships, including in Manchester and Middletown.
Merriam, president and owner of Key Chevrolet and Key Hyundai dealerships, said the cuts to most of his sales staff and about one-quarter of his service team are temporary, at least for now. He’s hoping to bring back workers in the next month or so, assuming his federal emergency stimulus loan is approved, and Gov. Ned Lamont allows non-essential businesses to reopen during that period.
“We laid people off so they could collect unemployment and we agreed to pay their medical insurance,” Merriam said. “There’s not enough activity right now. People aren’t feeling safe to leave the house.”
Key’s troubles are far from unique. Forced to shutter their showrooms to avoid further spread of the coronavirus, many of Connecticut’s 270 auto dealerships have furloughed large numbers of employees and are bracing for a major drop in vehicle sales this year.
One recent estimate from Cox Automotive said U.S. auto sales could fall to about 12 million this year, down from more than 17 million last year, and that’s assuming conditions return to normal in May, which is uncertain.
In Connecticut, car-sales fees transferred to the Department of Motor Vehicles were down more than 62% between the week of New Year’s Day and the week of March 29, according to the Connecticut Automotive Retailers Association (CARA), signaling a steep decline.
Dealers can sell online, scheduling vehicle deliveries or pickups by appointment, but their hands are otherwise tied. Their maintenance operations have been deemed essential, and many are open for business, though demand for those services is down overall as drivers avoid going out.
The situation, said Jeff Aiosa, a New London-based Mercedes dealer who represents his Connecticut peers as a board member of the National Automobile Dealers Association (NADA), is not one for which the industry could prepare.
While dealers could project sales trends in prior recessions and adjust their inventory levels accordingly, the coronavirus pandemic hit almost immediately.
“This was like just going off a cliff,” Aiosa said. “Just a complete shutdown.”
Aiosa’s sales of new and used cars fell somewhere around 70% during the first month of the crisis, which began in early to mid-March. Customers with expiring auto leases are holding off on renewing as well, he said.
Automakers are advertising heavily on television and have rolled out attractive deals, such as 0% financing for 84 months, to help their franchisees move inventory. That reminds Merriam of the incentives manufacturers introduced last recession.
“I think manufacturers right now are pretty concerned,” he said.
While the situation is dire, federal stimulus loans will make a big difference, said CARA President James Fleming, who estimated that virtually every Connecticut dealership has applied for the money. He praised Congress for acting so quickly in passing the stimulus funds, particularly the $350-billion Paycheck Protection Program, which provides small employers potentially forgivable loans if they keep workers employed.
“It’s going to keep dealerships open and what we will not experience is what we saw in ‘08 and ‘09 in Connecticut, when we saw 30% of dealerships go out of business,” Fleming said. “That’s what we want to avoid.”
Still, he predicts it’s inevitable that some dealerships will go under as a result of the ongoing pandemic, but he suspects the businesses will hold some of their value and get acquired, rather than just close.
Reinventing how cars are sold
COVID-19 is undoubtedly a negative for car dealerships, but they are still trying to make the best of a bad situation.
The pandemic has dealers doubling down on online sales channels, and introducing or beefing up offerings like curbside pickup and drop off for maintenance work and sales.
Bradley Hoffman, Co-chair, Hoffman Auto Group
Those aren’t new ideas, but Bradley Hoffman, co-chairman of the 10-dealership Hoffman Auto Group, which furloughed a majority of its staff for now, predicts dealers will increasingly embrace remote sales as consumers get more attuned to the transactions.
“What this new environment has done is to create a sense of urgency to fine-tune and accelerate new virtual and remote ways of streamlining our business and making car buying easier and more convenient for the customer,” said Hoffman, adding he’s grown fond of having groceries delivered to his home during the ongoing coronavirus crisis. “It may set the course of how we do business in the future.”
The fact that a time-tested dealer sales tactic — the test drive — is no longer possible with a salesperson in the passenger seat is symbolic, Aiosa said.
“They come do the paperwork in a clean office and the sales guy stands outside and walks them through the car,” he said. “In a way, it’s teaching us to do business in a different way.”
Like any business owner, dealers are hoping for a return to normal conditions as soon as possible, and they vary in their predictions.
When interviewed for this story, Key’s Merriam told HBJ he was hoping for a May 1 reopening of his showrooms, but those hopes were dashed hours later when Lamont announced he would extend business and other shutdowns until at least May 20.
Merriam said he may delay the closing of his company’s Paycheck Protection Program loan until mid-May, as U.S. Small Business Administration rules say the clock to spend the funds starts ticking the moment money is disbursed.
“It’s a fluid situation,” he said. “My hopes are that as we slide down the curve they relax the online-only portion for us and maybe let us open … prior to May 20.”
CARA’s Fleming is worried about damaged consumer confidence, but believes pent-up demand will benefit dealers after the crisis subsides, as a vehicle is a major purchase for most households and one that’s not discretionary.
“It may come back gangbusters in the summer, I hope it does,” Fleming said.
Aiosa, the national representative for Connecticut dealers, wants to see a quick economic bounce back, but he’s a bit more pessimistic.
“We’re all fingers crossed for a [V-shaped] recovery, however, I don’t see that happening at this point in time,” Aiosa said. “I think it’s going to be further out than what we were all hoping.”