Why auto dealers are optimistic about a recovery

Yahoo Finance's Rick Newman joins Jen Rogers, Myles Udland, and Akiko Fujita to discuss the state of the auto industry and why auto dealers are optimistic about a recovery.

Video Transcript

JEN ROGERS: April was a terrible month for car and truck sales. They called it carmageddon. Could it be getting better? Rick Newman's been looking into that. So Rick, I mean, the auto industry, it was just a-- we've seen the data. It's bad. People are still sheltering in place. They're not going to work as much, even with the patchwork opening. How can things be getting better for the auto industry?

RICK NEWMAN: Yeah, the pace of sales was terrible in April, but the auto industry and car buyers are discovering that buying a car is something you can actually do reasonably easily under the new normal. So you don't need to huddle together to buy a new car. You really don't even need to go to a showroom unless you need to do a test drive. Obviously, you can do a lot of the research online, and then if you do need to go to the dealer for a test drive, they've figured out ways to do this.

You don't have to come into the showroom, you wait outside, they bring you the vehicle. The salesperson used to drive along with you, but now the salesperson doesn't have to drive along with you. You do it yourself. And you can do all of this from a safe distance. You do have to sign some paperwork at the end, but that's really the only part you have to do in person with somebody, so they're making all these adjustments and getting away from this idea. You know, salespeople, they want to get you into the showroom, because that's where they upselling you, and that's where they can kind of keep you there and talk you into oh, you really need this higher trim line and this new set of options, but they're figuring out they just have to do without that.

So they know they can sell cars, there are two questions left. Will the demand materialize? Will car buyers come back? And I actually just did a story on this. Some dealers, their biggest problem is not lack of customers, it's lack of cars, because the assembly lines have been shut down. So the assembly lines are coming back online. They will be pumping cars back into dealerships, but probably only gradually at first. So there's going to be some imbalance here for a while. But the car industry can go on, it just requires people willing to spend the money on a new car.

MYLES UDLAND: I mean, Rick, I guess, you know, everyone is doing the thing where you say, well, what happened in the last crisis? Will this happen again this time around? I think for most Americans, the car industry was the place where the financial crisis played out. It's the thing that makes the most sense. It was the most public. It was such a big deal when the government took those stakes in the automakers. It seems like while the supply chain is a problem, and while people losing jobs is certainly bad, there is a huge tailwind for one, millennials moving out of cities and needing a car, and two, people preferring to drive in general. I mean, I'll be fascinated to see what the Lincoln Tunnel looks like on a weekday morning in 2022 versus what it looked like in 2019, because I would suspect it'll be quite a bit busy there.

RICK NEWMAN: Well, the trend here before coronavirus was fewer people were expected to own a personal vehicle. I mean, we have car sharing, we have ride hailing, all these-- most of time, you own a car it just sits there doing nothing, and we've now got new models that are offering better ways than putting all that money into your own personal car. So will coronavirus change anything? Will more people leave cities for the suburbs? And if you do live in a suburb, you do need a car. Will more people just like the freedom of having a car?

I mean, in a car after all, you can go anywhere with the windows up, and you're not going to catch a coronavirus. Now, I don't think that's going to dominate our behavior for the next five or 10 years, assuming we do find a vaccine, but you never know how cultural preferences change when you go through something grueling like this. And who knows? Maybe there will be a renaissance in car ownership.

JEN ROGERS: I just want to-- you have to have a job, you know, to get a car. That--

RICK NEWMAN: You have to have money.

JEN ROGERS: I mean, you have to play into this in some way with labor.

RICK NEWMAN: Sure. Remember, you can get-- I mean, there are subprime loans. I mean, you can borrow money for a car with bad credit. It's easier to do that than it is for a house, because that car is easy to repossess. A house is a lot harder to repossess, so even if you have bad credit, you know, they'll find a way to get you a loan. And of course, you can buy used cars, you just have to have some money somewhere. But I will tell you, there are some good deals out there now. They're forgiving a month or two on a lease. They're letting you postpone your first payment for 90 days. There's 0% financing. All these things that don't come around too often.

JEN ROGERS: Yes, I bought-- Rick, as you know, I bought a truck in April.

RICK NEWMAN: What kind of deal did you get, Jen?

JEN ROGERS: I did all this stuff that you are talking about. I went and I signed the paperwork on the tailgate. The person goes to leave it, and then you go and do it. The only thing I would say is you don't know how big it is until you get it home.

RICK NEWMAN: Well, with at that point, because you got an F150, right?

JEN ROGERS: Yes.

RICK NEWMAN: But that's the remake.

JEN ROGERS: When you don't-- you just look at them on the computer, and you think, oh, that looks about right.

RICK NEWMAN: And that's the reason for the test drive.

JEN ROGERS: Yeah, yeah, it's kind of crazy. Interesting story though. Rick Newman, we'll see if indeed people get back there and start buying cars and trucks.