After suffering huge sales losses during the worst weeks of the coronavirus pandemic, New Jersey’s auto dealerships are looking for a major rebound now that many restrictions on in-person sales have been lifted.
The big breakthrough came last week as Gov. Phil Murphy announced that showrooms and car lots could reopen for in-person sales as long as customers make appointments with dealers ahead of time and follow social-distancing precautions.
The governor’s announcement followed weeks during which only online sales were allowed, leading to overall losses.
In fact, during the month of April alone, dealerships experienced an up to 80% year-over-year decline in sales, said Jim Appleton, president of the New Jersey Coalition of Automobile Retailers.
No way to kick the tires online
“For many consumers, internet shopping will never replace the need to test drive, or to kick the tires,” Appleton said.
The continuing impact of the pandemic on car dealerships was discussed by Appleton and others during a lengthy hearing convened on Tuesday by a bipartisan group of state senators that is probing ways to advance the state’s economic recovery.
The return of in-person sales is good news for dealers and the thousands of people they employ, and it’s also coinciding with a number of new incentives that automobile manufacturers are now offering to help generate a sales rebound.
But it’s not just dealers and consumers who have a lot riding on what happens next with car sales in New Jersey. These deals typically generate a big slice of revenue for the state budget, which has also been ravaged by the pandemic.
“Go out there and invest in our economy and buy a car here in New Jersey,” said Senate Budget and Appropriations Committee Chair Paul Sarlo (D-Bergen) during Tuesday’s hearing.
Car dealerships, big business in NJ
The automobile-retail industry is worth an estimated $37 billion in New Jersey, with more than 500 auto dealerships employing roughly 36,000 people across the state. Dealerships also account for nearly $2 billion annually in state and local taxes, according to statistics compiled by Appleton’s organization.
But sales plummeted by nearly 50% in March, coinciding with a series of shelter-in-place measures that were ordered by Murphy as part of a broader effort to slow the rate of COVID-19 infections. And while some consumers were comfortable buying cars online, Appleton said many others put their wallets away, even for necessary service appointments, which were open throughout the lockdown.
In all, sales in April were down between 70% and 80%, and even with a May rebound, sales are only expected to pick up to about 50% of last year’s total for the month, he said.
“It’s less than a week, but I can tell you that sales are already beginning to pick up,” Appleton said.
Tony Fernandez, who runs the Buick GMC dealership in Mahwah, said he’s been implementing a number of safety precautions as in-person sales have resumed, including providing employees and customers with masks and hand sanitizer.
Still, he remains concerned about the bottom line for his dealership even as he invests in the enhanced safety measures.
“We’re really getting hurt,” Fernandez told the senators who convened Tuesday’s hearing.
And for the state itself, the success of Fernandez’s dealership and others across the state could make a big difference in the ongoing economic recovery from the pandemic as the New Jersey health crisis continues to ease, according to the state’s latest data.
In addition to other fees, the state’s general sales-tax rate of 6.625% is levied on every new and used car sale in New Jersey, helping to generate revenue for what is typically the second-largest single source of tax collections for the state budget, generating about $10 billion annually.
Rosy outlook, pre-COVID-19
In fact, prior to the onset of the pandemic, Department of Treasury officials were predicting sales-tax revenue would increase through the end of the 2021 fiscal year to $10.7 billion as they also upgraded the overall projection for state revenues for the current fiscal year.
But forecasts that were released by Treasury officials last week now project a major decline in sales-tax revenues, to below $9.3 billion by the end of June 2021. Overall, Treasury is also forecasting total revenues will drop by about $5 billion, due largely to the pandemic. That’s well below the $38.7 billion in spending that Murphy and lawmakers originally planned for the current fiscal year last June.
To make up for the losses, a little over $1 billion in spending has already been cut. Other projected spending items have also either been put on hold or cast aside altogether.
But still an open question for state policymakers — and also for businesses like car dealers — is how well the state economy rebounds as the rates of new infections and hospitalizations continue to fall.
Appleton expressed some hope about the auto industry, saying car dealerships are the “ultimate social-distancing environment” because of how much space the showrooms occupy compared to the number of employees and customers who are on location at any given time. Incentives like zero-interest financing and extended repayment terms could also bring an uptick in sales, including from those who’ve had a lease come up for renewal during the pandemic.
“Keep in mind, there’s a lot of pent-up demand after two months of lockdown,” Appleton said.
But also looming as an unknown is whether there will be a COVID-19 resurgence in the fall, leading to additional restrictions. Appleton suggested dealerships should be given the opportunity to navigate those conditions if they arise without in-person sales being closed down entirely as they were in March.
“Now that we know how this virus works, retail businesses like car dealerships don’t have to be shut down, they simply need to operate safely,” he said. “This shouldn’t be a binary choice.”