What Auto Shoppers Can Expect This Memorial Day Weekend

If there’s good news in the auto industry right now, it’s this: Online vehicle shopping has been strong recently. Our colleagues at both Autotrader and Kelley Blue Book note that leads – signs of interest in buying – were up more than 30% year over year in the early part of May.

That’s an indication a lot of consumers are considering adding or replacing a personal vehicle in the not too distant future, despite an economy falling into recession. There are real health concerns preventing a full-scale return to the positive sales levels of just a few months ago, but dealers across the country are reporting progress. During the second week of May, new-vehicle sales activity according to a Cox Automotive estimate was off 31% compared to 2019. That is a big improvement from mid-April, when new-vehicle sales activity was down more than 50%.

As the U.S. slowly gets back to work, consumer confidence will likely increase. And that will help car buying at an important time. Memorial Day Weekend is fast approaching and with it the traditional kick-off to summer. Memorial Day Weekend is a major car buying holiday, a long weekend that dealers everywhere count on for strong vehicle sales.

Our billion-dollar question: How is Memorial Day Weekend 2020 looking for car buying? There is no easy answer, of course, but here are a few points to consider:

Holiday Travelers aren’t Flying.

Memorial Day Weekend is traditionally a travel holiday, but that’s definitely out this year, particularly by plane. And with fewer restaurants open and a patchwork of stay-at-home orders, many folks will stay put this year. That’s a big positive for car dealers – local businesses open and ready to serve customers. Many have excellent social-distancing tactics in place and are, for the first time, offering vehicle delivery and heavily focused on digital sales. At last count, more than 11,000 dealers are now offering Dealer Home Services from Autotrader and Kelley Blue Book.

New-Vehicle Inventory is Tight.

Vehicle factories have been mostly closed since late March and are only now beginning to restart. That means new-vehicle inventory is low – less than 3.3 million vehicles by last count, the lowest volume in more than a year. Low inventory means less choice for consumers, particularly with popular vehicles like pickup trucks and SUVs. Available vehicles are likely lower trim levels, as the upper level vehicles were scooped up with 0% deals last month. For dealers and shoppers alike, this is bad news heading into the Memorial Day Weekend sell-a-thon!

Interest Rates for Many Buyers Remain Stubbornly High.

Despite moves by the Federal Reserve Bank to lower rates, auto loan rates have held steady for most buyers. The 0% deals, which accounted for 21% of sales last month, are available only for buyers with the best credit scores. And there are fewer 0% deals now than there were just a few weeks back, as automakers trim back the offers in the face of dwindling inventory. Shoppers with lower credit scores, subprime buyers, are often getting little support in the market.

Used-Vehicle Inventory is Healthy.

While new-vehicle availability may be tight, the story on the used-vehicle side is different. Sales of used vehicles by the second week of May had mostly recovered across the country, and there’s plenty of wholesale inventory available to dealers. In April, according to the team at Manheim, inventory at auction locations was higher than normal by about 40%. If there are good deals to be found out there, they’re likely in the used-vehicle lots.

Incentives Remain in Check.

Incentives are the center of every new-car deal and, according to recent research by Cox Automotive, 9 out of 10 shoppers believe there are great deals out there. Fortunately, there are, although the run-up to Memorial Day Weekend promotions feels like a slower, more deliberate continuation of the April activity which started the recovery. Deals for 0% APR for 84 months are available still, although there are noticeably fewer than just three weeks ago.

Many automakers have increased their conditional incentives for first responders and military families during Memorial Day Weekend, as they commonly do, with offers up to $1,000 extra cash for qualified buyers. And many brands are holding in place their payment deferrals and buyer assurance programs that are proving to be effective.

In the pickup truck wars, the heaviest incentives are focused on 2019 models, with Chevrolet, Nissan and Ram the most aggressive at the time this is being written. There are Nissan Titan Diesels out there with $8,750 in guaranteed cash. Chevrolet is not far behind. And Ram is clearly focused on moving Ram Classic inventory. Admittedly though, similar deals were available last month.

Midsize pickup truck sales have been a strong segment for the industry in the past few months, and there are signs the momentum is not being fueled by high incentive spend. Compared to full-size pickup trucks, customer cash is relatively thin and there are fewer 0% deals.

In the popular midsize SUV segment, Chevrolet and Nissan are also among the most aggressive when it comes to guaranteed consumer cash heading into Memorial Day Weekend. Nissan is more focused on 2020 models, while Chevrolet is directing cash to its aged 2019 stock.

In luxury, Buick and Cadillac are among the leaders in consumer cash. Notably, Cadillac has directed significant cash to sell down 2019 and 2020 Escalade models still in stock, as an all-new 2021 model is on the way later this year. They are not offering factory 0% financing on Escalade, instead shifting their spend to cash incentives worth $9,000 on certain models. Top-shelf luxury sedans from Lexus and Jaguar are also carrying big cash incentives.

Overall, while the automakers have not pulled out the usual stock of blow-out-Memorial Day deals, there are good incentives in place to pull shoppers into dealerships during the second half of May. And with significant pent-up demand, there’s reason to believe Memorial Day Weekend may be a good one for dealers in many parts of the country. Tight inventory is keeping incentives in check, which will likely steer some buyers to the used-vehicle lots. Either way, our team is hoping for a strong weekend of auto sales. It would be a welcome sign of a needed recovery.

Brad Korner is general manager of Cox Automotive Rates & Incentives. The  Cox Automotive Rates & Incentives  (CAR&I) team has developed a methodology for measuring the accuracy of data used to calculate pricing and payment information presented through dealer service provider tools (e.g., dealer websites, inventory management, digital retailing & advertising, desking, equity, etc.). Approximately 17,500 individual dealerships –  rooftops, in automotive parlance –  in the U.S. rely on CAR&I  incentive  data  for powering  5 different software applications through Cox Automotive native software/sites and our many industry partners. In all, an estimated 90,000 applications are relying on CAR&I data in a given month, providing valuable information to 40 million shoppers.