The effects of the COVID-19 pandemic spread have been quite clear on the economy and on the closure of most economic sectors, especially the restaurants, hotels, the personal services such as salons and sports centers, and the retail sector except for small shops and pharmacies, as well as the impact of the pandemic on the movement of people and keeping them in their homes and increasing unemployment rates. But has the pandemic affected the used car values and the dealerships?
How May the Pandemic Affect the Value of Used Cars?
Governments have issued several rules related to determining the economic sectors that must continue to operate and others that have to suspend their work. At the beginning of the pandemic, only cars service centers were allowed to carry out their business while cutting out sales departments. After that, used car sales became available to dealerships, but the most important thing is the extent to which people still desire to buy cars during the pandemic, and what will happen to used car values in light of the current economic crisis.
The Supply and Demand Relation with the Used Cars Value
The relationship between supply and demand lies on a clear basis in the economy, where it is known that if demand exceeds supply then the price of the product will logically increase as the product becomes scarce and it is worth paying more to obtain it. The opposite is true with regard to this, as if supply exceeds demand, dealerships are forced to reduce prices in order to avoid the accumulation of products in inventory.
Expectations about the Value of Used Cars
The logical assumption with regard to the values of used cars is that their price will decrease very much, as it is mostly assumed that the demand for used cars will decrease greatly due to the fact that people have to stay at their homes due to the pandemic, as well as the breakdown of some economic sectors, including major car rental companies that are supposed to be the reason for providing a large amount of Used cars in the market, and this means that the supply is expected to exceed the demand for used cars, which will lead to a significant decrease in their prices. But things are not what they seem.
The Wholesale Auto Auctions and Its Effect on the Used Car Market
Wholesale auctions have stopped their business as a result of the current economic issues, and as it is known that these auctions are a basic source in providing used cars to dealerships, this leads to a decrease in the stocks of used cars in the market, which is the opposite of the assumptions that most people assume.
The Fact of the Supply on the Used Cars
In addition to the fact that the wholesale auctions have stopped or even work online only, and not as in the past with certainty, there is another factor that contributes to the decline in the inventory of cars in the market, which is the regression of major car rental companies or suspend some of them, which both contribute by reducing the supply of used cars to the market, which will lead to a decrease in the supply of used cars and hence a significant and clear increase in their prices.
The Fact of the Demand on the Used Cars
In terms of demand, it was low, but not as much as most would assume. It is possible that government aid and unemployment alternatives that some citizens received could be a reason for this. There is also a good percentage of people whose economic condition was not negatively affected and who needed to replace their old car with a better one. In other words, it can be said that the demand for used cars is being not as low as everyone thought.
Also, new cars have decreased in the market as a result of factories closure due to the pandemic. Also, people desire to buy new cars is decreased as it is more likely to buy a good used car rather than buying a brand new car. This also puts pressure on used cars and increases their price and value.
