Premium Vehicle Segments Vulnerable

The luxury-vehicle market could face tough times in coming months.

So says Charlie Chesbrough, senior economist for Cox Automotive, a company that owns Autotrader, Kelley Blue Book, Dealer.com and various other automotive digital providers.

Virtually all vehicle segments are struggling because of COVID-19’s effect on the economy and auto industry in particular. But Chesbrough says premium segments may suffer more in the weakened economy as affordability becomes a larger consumer issue, even for the affluent.

“High-priced products are going to be vulnerable,” he says during Cox Automotive’s online mid-year market review. “People are looking to save money, not spend it.”

The U.S. entered 2020 with a vibrant economy. Then the pandemic hit. Public-health orders in many states closed non-essential businesses, including car dealerships. U.S. unemployment in May was a disturbing 13.3% compared with 3.6% same-time 2019. The stock market has fallen.  

“We entered the year with this incredible economy but it’s different today,” Chesbrough says. “People will be looking for different things,” including less expensive vehicles.

Michelle Krebs, Cox Automotive’s executive analyst, agrees.

“Surveys indicate luxury buyers are really pulling back,” she says. “This will be a segment to watch.”

People at the other end of the socio-economic spectrum may face hard times financing and buying any vehicle, even inexpensive models, says Jonathan Smoke, Cox Automotive’s chief economist.

For now, “credit is easy to get as long as your FICO score is above 620,” he says, noting that in recent months financial institutions have curtailed subprime lending.

“People with low FICO scores may not be able to buy a vehicle,” Chesbrough says That could hurt subcompact CUV and car sales, he adds.