How Do Car Dealerships Make Money Pt. IV: The Automotive Industry & COVID-19
Readers note: This post is the final installment of a four-part series exploring investments in the automotive industry. Read our first post, “How do car dealerships make money?” by clicking here; the second post exploring in-person vs. online sales as well as trade-in and auctions by clicking here; and the third post on determining the valuation of an auto dealership by clicking here.
Investing in the automotive industry continues to be a very promising venture. Automotive-related stocks continually draw significant interest, creating exciting opportunities for investors, and even amidst the COVID-19 pandemic, car purchases continue to rise. The reasons why more people are buying cars vary from case to case, but there are a few general trends that have been observed over the past several months:
- Car sales are increasing most significantly among young adults, aged 18-35 and,
- Car sales are increasing among higher-income Americans in cities and suburban areas.
Though the reasons attributed to each group’s spike in car sales differ, the pandemic’s effect in urging both of these consumer groups to purchase a vehicle should not be discounted.
For young adults, car purchasing seems to be attributed to the desire to have a personal vehicle amid social-distancing guidelines. Many young adults, especially those living in large cities, have relied heavily on public transportation for commuting, but with a highly communicable virus still overtaking the country, the need for more personal space has become glaringly apparent over the course of the past year.
As for higher-income consumers purchasing cars in urban areas, the reasons appear to be comparable to young adults living in cities. Public transportation feels like a non-option amidst the current health crisis, especially in major metropolitan centers. Another reason for increased car sales among this group may be that since more people are working from home, they’re not as close to the areas where they would usually run errands when working in-office.
Whether people are buying cars to avoid spending extended time in shared spaces with strangers or for the convenience factor, more people who had not seen a personal vehicle as a necessity before the pandemic do now. With the uncertainty of the pandemic, making predictions for the future feels even more difficult, but the longer the virus is actively spreading, the more conditioned people will become to maintaining a distance larger than busses, trains, and subways can provide. The more reliant people become on personal transportation, the more inclined they will be to purchase a car. This is a promising trend for the auto industry among this “new normal.”
This concludes our four-part series on the automotive industry. Be sure to read through our three previous posts as well. To learn more about ZT Corporate’s automotive portfolio, contact our team today.
Azhar Hirani manages the private equity sales team, which involves relationship management, advising and educating retail clients on new private investments, analyzing private equity portfolios, and oversight of clients’ invested capital in internal private projects. Passionate about business, marketing, and sales, Mr. Hirani maintains deep expertise in high ticket sales and has a record of success in sourcing capital and acquiring new customers.