The auto industry's coronavirus recovery depends on Americans buying cars again
Restarting vehicle manufacturing plants when it is safe to do so would surely be good news for the U.S. economy, but it's only half the equation for automakers.
The big picture: Until consumers are ready to buy cars again, the industry's recovery will be muted.
There are reasons to be optimistic: After plummeting in March, retail auto sales stabilized during the first two weeks of April and are now showing signs of recovery, according to data agency J.D. Power.
- For the week ending April 19, car sales were down only 48% from J.D. Power's pre-virus forecast, after dropping 51% the prior week and 55% the week before that.
- It's better than the 59% plunge at the end of March, or the even steeper drops seen in China and Europe as the coronavirus swept across the globe.
Some markets, especially in the South, are improving faster than others.
- Miami sales were down 34%, and in Phoenix, sales are almost normal, down 14% for the week ending April 19.
- Sales were down 77% and 85%, respectively, in New York and Detroit — two virus hotspots — but that's better than the week before.
- It helps that the Department of Homeland Security last week added vehicle sales to its list of essential services, meaning you can buy a car at a showroom or online in any state.
What to watch: May will be critical. It's ordinarily a big month for carmakers, and the easing of restrictions in some markets could mean continued improvement.
- Carmakers could also get a sales boost if germophobes shun public transit until the coronovirus fades.
Yes, but: There are some flashing yellow lights.
- With factories closed, inventories are dwindling, especially pickup trucks, a segment that's been more resilient than others during the crisis.
- Trucks account for a huge slice of the industry's profits, so resuming production soon is critical.
- Used-car sales remain week, and with wholesale auctions closed, volumes fell about 73% below J.D. Power's pre-crisis forecast.
- The sharp downturn in the used-vehicle market also spells trouble for the credit lending arms of companies like GM and Ford, which could lose billions on upside-down leases and loans.
The bottom line: The outlook for 2020 auto sales is improving. Instead of completely seizing up, new vehicle sales now look to be in the range of 12.6 million to 14.5 million units vs. a pre-virus forecast of 16.8 million, says J.D. Power.
- My thought bubble: Car dealers are optimistic and resilient by nature. They'll take it.