AUTOMOBILE BLUES

AUTOMOBILE BLUES
At least one million of Europe’s auto industry workers have been laid off or are working reduced hours, and the industry has lost production of about 1.2 million vehicles since the economic crisis began, according to ACEA, a European auto industry trade group.
More than half of affected workers are in Germany, where an estimated 570,000 are on a “short-time work” arrangement, with the government paying two-thirds of their usual wages. Volkswagen has put 80,000 of its workers into the program, and Daimler has applied to enroll 20,000 employees.
In Italy, FiatChrysler is deferring 20 percent of pay for workers still on the job.
About 90,000 industry employees in France and 65,000 in the UK also are affected.
Herbert Diess, Volkswagen’s CEO, said his company could emerge from the crisis “with merely a black eye” if the crisis “is dealt with as quickly as it has been in China.”
Many analysts see that view as too optimistic. The U.S. and European vehicle markets face a contraction of up to 30 percent – worse than that of the Great Recession, according to an analysis by McKinsey & Co.
Auto Makers Scramble for Loans
Volkswagen is bleeding about $2 billion in fixed costs as its global factories have stopped making vehicles, and car sales have dried up. The company is pressuring the European Central Bank to buy commercial paper – in effect, to make short-term loans to corporations.
As of 27 March, VW’s stock price had lost about a third of its value this year.
Renault in France is mulling applying for government loans while its CEO dismisses the idea of nationalizing the company. FiatChrysler has lined up €3.5 billion in credit to help it survive. Daimler is casting about for €10 billion in fast money.
Moody’s has forecast a 14-percent fall in new auto sales this year, having predicted a drop of less than 3 percent before the virus pandemic.
In contrast, new vehicle sales fell 8 percent during the first two years of the Great Recession.
Moody’s also is reviewing the financial position and creditworthiness of 14 major European vehicle parts suppliers.
Some good news: Volkswagen has restarted 31 of its 33 plants in China and is seeing new car sales pick up. The company has forecast March sales of about one million vehicles.
Auto Sales Tank
The world’s personal vehicle makers reported drastic declines in sales during 2020’s first three months.
General Motors reported a decline of 7.1 percent compared to the last quarter of 2019. Ford saw its number of units sold shrink 12.5 percent. FiatChrysler lost 10.4 percent in volume. Honda lost 19 percent in sales; Hyundai’s shrank by 11 percent. Nissan admitted to a wrenching drop of more than 29 percent.
General Motors stock price is down 47 percent this year, FiatChrysler’s 54 percent.
The sharpest declines were in March, when Toyota sold 37 percent fewer vehicles than in the previous March; Hyundai’s sales were down 43 percent.
“U.S. vehicle sales for March are coming in every bit as bad as feared,” said Michelle Krebs, executive analyst at Autotrader.
If March’s U.S. sales volume is annualized, the industry will sell just 10 to 12 million vehicles this year, Krebs noted. Her best estimate: vehicle makers will sell at least 14 million units in the U.S. this year but less than 16 million.
To spur sales, auto makers have brought back promotions that helped them through the Great Recession, including delayed payments, no-interest loans, and late-payment forgiveness if a buyer loses a job.
This month, FiatChrysler has begun offering buyers no-interest, seven-year loans and no payments due for three months after purchase.
Still, analysts expect April in the U.S. to be notably worse than March: it’s the first full month of a near-nationwide lockdown, unemployment is at record levels, many dealer showrooms are locked and dark, and consumers are fearing their economic future.
“April is likely to see further historic declines, driven largely by a lack of consumer confidence and substantial increases in unemployment,” said Charles Chesbrough, a senior economist at Cox Automotive. “And that trend will likely continue into early summer, at best. The second quarter will be the real measure of Covid-19’s impact on… the auto industry.
Some analysts see U.S. auto sales falling to 13.5 million passenger vehicles this year, compared to 2016’s peak sales year of 17.6 million. The last time sales dipped to that level was in 2010 as the industry hit the bottom of the Great Recession.
TREND FORECAST: We maintain our forecast that new, used, and vintage auto prices will sharply decline as the “Greatest Depression” worsens.
 

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