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The U.S. automotive industry, along with just about everyone else, faces economic turmoil as the COVID-19 pandemic continues, and if this feels familiar in some ways, it is and it isn’t.

More than a decade ago, we saw it coming as General Motors’ 100th anniversary in September 2008 approached. The world’s largest automaker was burning cash at a prodigious rate. Ford Motor Co. was living off of a $23.5-billion line of credit that included the Blue Oval logo as part of its collateral. Daimler had sold Chrysler to a private equity firm called Cerberus, which made its previous German owner seem benign and free-spending by comparison.

On the heels of the banking industry and the real estate business that certain banks nearly destroyed, the U.S. auto industry became the poster child for The Great Recession, with GM and Chrysler receiving huge government bailouts after being forced into bankruptcies, and Ford getting a much smaller Energy department loan to convert a factory to fuel-efficient vehicles. I don’t see that happening to the U.S. auto industry this time as the U.S. Senate wrangles over an economic stimulus package to jump-start the country when the coronavirus crisis finally ends, a package that could come to nearly $2 trillion.

The Alliance for Automotive Innovation agrees about the nature of the eventual recovery, but disagrees about the level of recovery funds automakers will get.

“The shape of this recovery could look different than the path of the past two recoveries,” John Bozzella, president and CEO of the AAI said Tuesday in a webinar with the Center for Automotive Research’s vice president of industry, labor, and economics, Kristin Dziczek.


The latest version of the Senate stimulus bill, like the first versions, would allocate $500 billion to major industries (a sticking point for Senate Democrats), with approximately $350 billion (in early versions, at least) for small businesses including restaurants and bars, and the remainder potentially in direct payment to individual taxpayers. The bill sets aside $75 billion of the $500 billion for the airline and air cargo industries, Bozzella said, with $425 billion for other industries, which would include hospitality, including big hotel chains.

“There definitely is a focus on automakers,” he said. The AAI already has asked the Trump administration to delay implementation of the United States-Mexico-Canada (USMCA) trade agreement replacing the North American Free Trade Agreement, so there will be no undue delays in production ramp-up because of the supply chain.

“We’re watching the auto industry very much,” President Trump said late last week, as quoted by Bloomberg. “We’re going to be helping them at least a little bit and they’ve sort of requested some help, and it wasn’t their fault what happened. So we’ll be taking care of the auto industry.”

I can’t possibly guess what Trump meant, or how serious he was with his words, “at least a little bit,” though President Obama’s first “car czar,” Steven Rattner, has been quoted as saying the auto industry needs more this time than the $50 billion that went to GM, Chrysler, and suppliers in 2009.

I’m not sure how much is necessary, as automakers are better positioned to take short-term losses, and have said since the ’09 bankruptcies that they could make money in a 12-million-unit year.

Speaking on NPR, Ford CEO Jim Hackett said Ford has $37 billion in cash reserves, and GM announced earlier Tuesday it plans to draw from a $16-billion credit line to supplement its “strong cash position of approximately $15- to $16-billion by the end of March.” That cash will help Ford and GM, in part, to continue funding their expensive electric vehicle programs, in light of their minute EV market share and oil and gasoline prices that are lower than they have been since 1948, according to CAR’s Dziczek.

Hackett told NPR that Ford could be “up and running by mid-May,” particularly if Trump “restarts” the U.S. economy by Easter, April 12, even if most health officials are skeptical of the timeline.

Many in the U.S. auto industry already launched plans to help current customers work out car payments if they’re laid off or otherwise economically affected by shutdowns in response to the coronavirus.

I have no doubt automakers will be able to quickly re-staff their factories and get auto production up and running again, even as they continue to help medical equipment manufacturers accelerate production in their factories, or suppliers’ factories. I have serious doubts about how quickly demand for those cars and trucks will get up to speed. We’ve come off of four 17-million-plus new vehicle sales over the last four years, suggesting the American consumer fleet is newer than it has been in a long time, at least among upper-middle class Americans who still can afford new cars.

Will construction companies not cancel the large fleet contracts that help bolster the pickup truck segment? Will rental fleet companies, still a bigger priority than autos as a damaged industry, replace cars that will have logged zero miles for two months or more? Will our pent-up demand, whenever it’s un-pent, have us rushing to car dealerships even before we rush to restaurants for cocktails and surf-n-turf dinner?

Perhaps the most pertinent question is, what are the over/under odds on a 12-million car and light-truck year?

These are questions that will have to wait weeks before there’s any inkling of an answer. CAR’s latest numbers certainly make a case for significant stimulus funds for the auto industry: One week into the general shutdown/social distancing effort, the U.S. auto industry lost 94,000 jobs, $7.3 billion in personal income, and $2 billion in government tax revenues. By March 24, those numbers were up to 271,000 jobs lost, $20.5 billion in personal income lost, and $5.6 billion in lost tax revenues. But we’re in a unique place right now, where we have virtually no idea what the overall economy will look like when we come out of this crisis.

CAR began 2020 estimating that auto sales for the year would total about 16.8-million, Dziczek said, down from about 17.1 million in 2019. Through the end of February, automakers sold 2.47 million cars and light trucks, according to Automotive News. We’ll get an early indication of how much worse 2020 actually will be when automakers report first-quarter sales, including the grim last couple of weeks, on April 1st and 2nd.

The post Analyzing a Potentially Grim, Uncertain Outlook for the Auto Industry in These Strange Days appeared first on Automobile Magazine.

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