Grim Forecast For US Auto Industry In Q2 Due To Coronavirus Pandemic

For the first time since World War II, the number of cars that will be manufactured in the United States this month will be the lowest as auto production has come to a near standstill because of the coronavirus pandemic.

And even though the auto makers are making attractive offers such as interest-free seven-year loans and six months of no payments, but those are not proving to be attractive enough for customers who are not buying nearly as many new cars.

It is estimated that there will be a 50 per cent drop in the sale of car in the United States for the second quarter.

“First and foremost, the shelter-in-place orders have created an environment where there are going to be very few sales going on in much of April, and into May,” said John Murphy, auto analyst at Bank of America-Merrill Lynch. “Consumer confidence has been so shell shocked, that any discretionary purchases will be delayed.”

If the forecast of a 50 per cent drop in sale turns out to be true that will be an all time record since data has been collected for the last 40 years. The current record of highest quarterly drop in auto sale in the United States was a 38 per cent decline in the first quarter of 2009 at the height of the global financial crisis. Some of the largest auto companies of the country including General Motors (GM) and Chrysler at that time were getting ready to file for bankruptcy and even possible closure.

Over the last five years, the US auto industry has seen an unprecedented run of success with more than 17 million vehicles sold during the period. That has significantly propped up the profits of the auto companies.

This year, the sale of cars is expected to drop to 14.6 million units, according to Murphy’s current forecast. However depending on the length of the stay-at-home orders, the actual sale could be even lower, he admitted.

For the auto industry, the coronavirus pandemic is turning out to be one of the greatest crises ever.

“The automakers said they could break even with US sales as low as 10 million to 12 million. But those estimates depended on continued operations, which they don’t have,” said Kristin Dziczek, vice president of research at the Center for Automotive Research, a Michigan think tank. “It’s the stop and the restart that is going to suck capital. And if we have to do it more than once, that is going to be terrible.”

According to Dziczek, there are a number of major issues plaguing the US auto industry.

It is important for automakers to ensure that their suppliers are able to cope up with the production shutdowns and temporary closures because of the pandemic which started in mid-March and remain prepared for restarting business and supplying of the necessary parts after the lockdown ends. “Right now they’re being paid for work they did 30 to 60 days ago. If we go beyond 60 days those suppliers could be in a real crunch,” she said.

“There’s no question there will have be changes, with the way plants operate, but it’ll be risky. You’ve got a large number of people in one place,” said Jeff Schuster, president of global vehicle forecasts for auto research firm LMC.

“Even as we crawl out of this, the consumer will stay reasonably conservative in their purchases,” said Murphy. “The consumer shock will linger until a few years out.”

(Adapted from CNN.com)



Categories: Economy & Finance, HR & Organization, Regulations & Legal, Strategy, Sustainability, Uncategorized

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