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Pent-up demand and fetching manufacturer incentives like zero percent loans for seven years fueled vehicle sales in May, but current low inventories and a pending recession are clouding business prospects for the rest of this year, Maine car dealers said.
Automobile sales, a key economic indicator, have seen 10 years of strong growth since the Great Recession. Nationwide, nearly twice as many vehicles were sold in January of this year compared to the 9.4 million in April 2009, according to the Federal Reserve Bank of St. Louis. However, sales fell to 8.8 million in April, the first full month of pandemic restrictions.
State data show a rise in sales and use taxes on Maine vehicles and transportation in the first three months of this year, but a 27 percent drop in April. Gov. Janet Mills declared a state of civil emergency in Maine in mid-March that has been renewed and remains in effect. The state as a whole saw less than half of expected revenue in April as the effects of the coronavirus significantly slowed the economy.
Showrooms in Maine reopened May 1 under state-required health precautions and it was a different world for dealers. Gone was the traditional handshake and personal contact to sell a car. Online sales and no-contact delivery of cars took their place.
Bill Macdonald, owner of Macdonald Motors in Bridgton, came back on March 13 from a vacation in Mexico “to a country that was different than one week before.” He furloughed half of his 23 employees, though all of them will return by next week.
“We’ve been in business for 74 years and I’ve never laid anyone off. This was the first time,” Macdonald said.
Even though Macdonald owns a single, rural dealership, May sales were up 8 percent over the usual amount, or more than 60 cars sold.
“I was astounded by a very good month in May,” said Adam Lee, board chairman of Lee Auto Malls, which owns 19 new and used car dealerships throughout the state, though that came after sales dipped in April when the showroom closed. The dealerships’ service businesses were deemed essential by the governor and stayed open.
Lee said at one point he had furloughed 200 of his 450 employees, but they are all back at work. In May, his dealerships were selling about 30 cars per day, close to the 35 per day they sell in a normal year.
Otis Soohey, general manager of Darling’s, with five dealerships in Bangor, Ellsworth and Augusta, said May sales were higher than usual, with 250 new and used vehicles sold.
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Sales were down 35 percent in April in the transition to sales by internet and phone. The dealer would take the car to customers to test drive, drop it off and disinfect frequently touched areas, then drive trade-ins back to the lot. Now, customers can come in for appointments and complete transactions at the sales desk with a plexiglass partition.
Soohey said the manufacturers’ incentives had a “gas on fire effect” on top of pent-up demand and cabin fever.
Business is better now because more people are out and about, said Tom Brown, executive director of the Maine Auto Dealers Association, an industry group in Augusta. He said there are 115 licensed franchised dealerships in Maine.
A flood of used cars and a shrinking inventory of new cars meant up and down price cycles in May that is expected to extend into June.
Rental car companies including Avis and Hertz have had fewer rental customers because of travel restrictions during the pandemic, so they have been selling off their fleets at auction. At the same time, car manufacturers had stopped producing new vehicles for two months and only restarted in mid-May. Dealers said they already are finding it hard to get new cars.
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Lee said he bought 50 Toyota RAV4 hybrid SUVs at a rental car auction, many of them 2019 models with only 6 miles on them. Lee was able to sell the used cars to customers for about $5,000 less than a new car.
Macdonald said there were deals to be had in the first half of May, but used cars now cost about $3,000 more because auctions are selling out. Coupled with factory shutdowns, Macdonald is expecting June and July sales to be bad. He has sold out of new Jeeps and sold more than 85 percent of trucks.
Lee, who flirted with a Democratic run for governor ahead of the 2018 election, fully supported Mills’ business restrictions at first but he said he now wants to see the economy reopen or even worse times will come.
“If we don’t have a tourist season in Maine, then come September or October, we may be looking at some pretty grim times,” Lee said. “We sell cars to all the people who live on the tourist industry.”
Watch: The risks associated with reopening rural parts of the state