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April 8, 2020 | How Lockdowns Hit U.S. New & Used Vehicle Sales: Beyond Ugly

On his site, Wolf Richter slices into economic, business, and financial issues, Wall Street shenanigans, complex entanglements, debacles, and opportunities that catch his eye in the US, Canada, Europe, Japan, and China. He lives in San Francisco.

The lockdowns were gradually rolled out state by state, starting in mid-March, and this was when the historic unemployment crisis exploded onto the scene. So it’s the events from mid-March forward that show the new trend. For the whole month of March, total new vehicle sales plunged 37.9% year-over-year, with fleet sales (rental, commercial, and government) down 27.6% and retail sales down 40.5%. In terms of daily retail sales volume, according to estimates by Cox Automotive, early March sales had been well above the sales on the same day of the week, same week last year.

But by March 13, they were below the year-ago-level and then plunged. By April 1, they were down 71% from a year ago. On April 5, sales were down 65.6% from a year ago (chart via Cox Automotive’s quarterly industry presentation; blue line = daily year-over-year change for 2020; green line = daily year-over-year change in 2019; I added the red line):

Even before the Covid-19 lockdowns, new vehicle sales weren’t exactly booming in the US: They’d peaked in 2016 at 17.6 million vehicles, and were lower every year since then. Now come the lockdowns, and according to the first data points for the second half of March and the first five days of April, they will make the 37% collapse during the Financial Crisis, that was spread over three years, look benign.

Here is a four-decade annual chart of how tough the new-vehicle business is even in good times. In 2019, sales were below where they’d been in 2000! This is the glorious trend of the car business in the pre-Covid-19 era. The only way automakers were able to show dollar-sales increases was by selling pricier vehicles, though fewer of them:

The collapse of used-vehicle sales also started March 12.

Total used vehicles sales for the entire month of March plunged 18.4% year-over-year, according to Cox Automotive estimates. On a daily basis, early March sales of used vehicles also had been strong, running well ahead of prior year. But by March 12, they were below the level a year earlier. Then they plunged, and by the end of March were down 68% from a year ago.

They ticked up a smidgen and on April 5 were down 63.5% year-over-year (chart via Cox Automotive industry presentation; the blue line = daily year-over-year change for 2020; green line = daily year-over-year change in 2019; I added the red line):

Lockdowns are still being rolled out in the US. Many auto assembly plants have been shut down – for a slew of reasons, including initially the difficulty to get components, then the health risks, and now the collapse in demand.

The stocks of automakers already got hammered.

Ford [F], which has been going through costly restructuring programs for years to cut expenses, and which recently eliminated its dividend, is down about 50% from a year ago, and down 72% from 2014, to $4.71 a share.

GM [GM], which will likely eliminate its dividend soon, is down 45% from a year ago to $21.30. Shares of Fiat Chrysler Automobiles [FCA] have plunged 51% from a year ago, and 70% from the peak in January 2018, to $7.62. Tesla [TSLA], at $545, remains in la-la-land, though also down 44% from the WTF peak.

The industry – the thousands of new and used vehicle dealers, the automakers, and the component makers – cannot survive for long on the basis of this type of sales collapse, no matter what the bailouts are. This is a healthcare crisis that keeps people at home, and most people are clearly not interested in exposing themselves to Covid-19 to buy a car.

What’s in store for the industry?

Even incentives or a Cash-for-Clunkers program won’t change much until the threat from the pandemic has been sufficiently brought under control. This may happen over the next month or two, with lockdowns being gradually loosened to where more people can carefully go about at least some of their business, while still following all the rules of social distancing.

And there is now a historic jobs crisis underway, of a depth and suddenness that no one has ever seen before. Over a period of two weeks, 10 million unemployment claims were processed and posted. Many more were filed but weren’t processed because the systems couldn’t deal with that tsunami of claims. California Governor Gavin Newsom said on Tuesday that over 3 million unemployment claims had been filed in California alone since the lockdown began though they haven’t all been processed yet. This is playing out across the US. The labor market has essentially collapsed.

The US might end up with 30 million or more unemployed workers. The widely expanded unemployment insurance program is going to soften that blow, but even if people get unemployment insurance, they’re likely not going to make a big-ticket purchase, like buying a car until they’re more certain about their job prospects.

And unemployed people, even if their unemployment insurance roughly matches their prior income, will have a hard time getting a loan or a lease. Some of them are going to be hired back over the next few months, knock on wood, but many won’t be.

And in terms of auto sales, the historic jobs crisis and the economic uncertainty that will follow will see to it that sales will take a long time to get back to the already not very splendid sales levels of 2019.

The value of “suppressing” bank balance-sheet data in a banking crisis to prevent the biggies from yanking their billions out of a weakened bank. Read… New York Fed, FDIC Tout “Opacity in a Banking Crisis” to Keep Corporations, Hedge Funds, PE Firms & Counterparties in the Dark about Weak Banks

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April 8th, 2020

Posted In: Wolf Street

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