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COVID-19

This year has been a “roller-coaster ride” for automakers

Jack Stewart Jul 29, 2020
Heard on: Marketplace Morning Report
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Analysts say this could be one of the most difficult quarters for carmakers in modern history. Pictured: Cars for sale at a Ford dealership in the Queens borough of New York City. Spencer Platt/Getty Images
COVID-19

This year has been a “roller-coaster ride” for automakers

Jack Stewart Jul 29, 2020
Analysts say this could be one of the most difficult quarters for carmakers in modern history. Pictured: Cars for sale at a Ford dealership in the Queens borough of New York City. Spencer Platt/Getty Images
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Industry watchers will learn more this week about how the coronavirus has affected the auto industry, as the big players report their second-quarter earnings. GM on Wednesday morning released its results, posting a narrower-than-expected loss.

The pandemic forced Ford, GM and Fiat Chrysler to close factories and halt production. At the same time, people stopped driving and buying cars while they were under stay-at-home orders. 

Analysts say this could be one of the most difficult quarters for carmakers in modern history. 

“I’d describe it as a roller-coaster ride that the auto industry has been on,” said Jessica Caldwell, executive director of insights at Edmunds. “I would say that at the end of March, early April, was definitely the darkest period.” 

Automakers, trying to stay afloat, offered some of the best deals in decades, like 84 months of interest-free financing.

“We saw sales kind of come back because of the incentives,” Caldewell said, “to the point where now we’re facing inventory shortages because the factories were closed down.”

Despite those crests and troughs on the roller coaster of sales, the overarching picture is a steep drop. Sales for the whole year are forecast to be around 14 million vehicles, down from pre-pandemic estimates of 17 million. 

Ford is forecast to report the biggest loss of around $5 billion for the second quarter.

The start of 2020 was supposed to be a great time for Ford, with the launch of a new F-150 pickup, its best seller, and an all new version of a much loved classic, the Bronco SUV. Those launches had to be held virtually, online.

“It’s certainly risky,” said Nick Shields, analyst at Third Bridge, an investment research firm. He said Ford will likely have to spend more than usual on marketing and advertising costs.

SUVs and crossovers have been top sellers for a while, but the pandemic is likely to accelerate the death of the sedan. Rental companies were big customers, but they won’t be replacing their fleets as quickly while travel is still limited.  

Other trends: Online car shopping and home delivery look set to become more mainstream, and there’s increased demand for used cars.

“There’s been so much damage to consumers with all the job losses and furloughs in the U.S. that we think consumers are going to favor used-vehicle purchases for the foreseeable future,” said Garrett Nelson, analyst at CFRA.

He said that’s good news for used-car dealers, and also car parts suppliers, as people look to keep older vehicles running. It’s not so great for the automakers looking to sell new cars and trucks.

COVID-19 Economy FAQs

What does the unemployment picture look like?

It depends on where you live. The national unemployment rate has fallen from nearly 15% in April down to 8.4% percent last month. That number, however, masks some big differences in how states are recovering from the huge job losses resulting from the pandemic. Nevada, Hawaii, California and New York have unemployment rates ranging from 11% to more than 13%. Unemployment rates in Idaho, Nebraska, South Dakota and Vermont have now fallen below 5%.

Will it work to fine people who refuse to wear a mask?

Travelers in the New York City transit system are subject to $50 fines for not wearing masks. It’s one of many jurisdictions imposing financial penalties: It’s $220 in Singapore, $130 in the United Kingdom and a whopping $400 in Glendale, California. And losses loom larger than gains, behavioral scientists say. So that principle suggests that for policymakers trying to nudge people’s public behavior, it may be better to take away than to give.

How are restaurants recovering?

Nearly 100,000 restaurants are closed either permanently or for the long term — nearly 1 in 6, according to a new survey by the National Restaurant Association. Almost 4.5 million jobs still haven’t come back. Some restaurants have been able to get by on innovation, focusing on delivery, selling meal or cocktail kits, dining outside — though that option that will disappear in northern states as temperatures fall. But however you slice it, one analyst said, the United States will end the year with fewer restaurants than it began with. And it’s the larger chains that are more likely to survive.

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