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Auto Analysts Discuss Projections, Incentives

By Jeffrey Bellant April 07, 2020

Automotive analysts acknowledged the grim status of the industry while speculating about a potential auto stimulus package and how the industry will get through the crisis caused by COVID-19.

A  recent webinar hosted by the Automotive Press Association and the Society of Automotive Analysts brought together Cox Automotive’s Michelle Krebs, LMC Automotive’s Jeff Schuster and IHS Markit’s Stephanie Brinley for the wide-ranging discussion.

On a global basis, the short-term news was not good.

Around the world in March, auto markets dropped from 70 to 85 percent in countries like France Spain, Italy and China, according to Schuster.

“Our base case forecast is we’re seeing about a 15-percent decline for the year globally,” he said.

That would mean a drop in the worldwide light-vehicle market to 73 million from last year’s 90 million.

Schuster expects automakers to essentially be shut down in April across North America.

“We’ve got about 140,000 vehicles expected to be produced, roughly a 90 percent decrease from what is normally produced in April,” he said. “About 100,000 of those will be in Mexico.”

He said the pull-back in demand is expected in the 14- to 15 percent range and likely to get weaker.

“It remains an extremely fluid situation,” Schuster said.

Brinley, principal analyst at IHS Market, said what makes  this situation different from 2008-2009 is that there is both a “supply-side and demand-side shock” in this environment.

“We’ll still have to wait and see how consumers respond coming out of it,” she said. “This is certainly unprecedented. I can’t remember a time that we’ve actually shut down auto manufacturing like this before.”

While the government’s CARES economic relief package won’t stop the coronavirus, it may help in repelling the “big old bad ‘depression’ word,” Brinley said.

There was a debate about what, if any, auto stimulus should look like.

Krebs said Cox expects that an auto stimulus plan will be part of a future package.

Schuster added he’d be “shocked” if there wasn’t some type of government incentive program to help boost auto sales.

Krebs said Cox is bullish on EVs and hybrids, believing that a package would involve some variation of a ‘Cash for Clunkers,’ the 2009 program that incentivized the scrapping of older cars to sell newer, more environmentally friendly cars. 

Brinley questioned whether a ‘Cash for Clunkers’ stimulus would be the best move. She said this is a unique situation in which consumers are not being allowed to go outside or they’re being encouraged to stay inside..

“So, their reason for not buying now is much different than it was during the recessionary time period,” Brinley said.

She said an incentive may drive someone to make a purchase – if that person were already inclined to buy a vehicle. But she’s not sure that would drive a purchase otherwise.

“And even when you look at ‘Cash for Clunkers,’ all it did was (boost) pull-ahead sales,” Brinley said. “I would question whether or not that’s the very best use of funds.”

She said automaker incentives like 0-percent financing or other relief would be more effective in getting people back to showrooms. Brinley said making customers feel comfortable that they can continue to make payments is more important than a one-time check.

Cox predicts the recovery will be “very uneven” for different brands and segments.

Segments that do worse will likely be compacts and subcompacts, Krebs said, since those already attract budget-constrained buyers.

High-end performance cars and luxury cars are discretionary purchases which track with the stock market, Krebs said.

“We see those slower to come back,” she said.

Vehicle segments likely to do best are trucks, SUVs and crossovers.

Krebs said Cox has spent lot of time looking at shopping habits in the crisis.

“What we have been doing is monitoring on a daily basis shopping on our websites like Kelley Blue Book and Autotrader,” Krebs said. “We watch used vehicle activity at our Manheim auto auctions, although those have gone totally digital.

“As we looked at our credit application data, by the end of March, sales had fallen 64 percent for new cars and 50 percent for used. Of course, this comes at the worst time. March is one of the biggest months for sales, especially for used car sales. Typically, when tax refunds come in, people will use those to buy used cars.”

Tax season came to a “screeching halt” on March 10, Krebs said. She believes people are now holding on to their tax money for other essentials like rent or food.

Krebs said Cox is also having open office hours with clients, be it dealerships, lenders, rental car companies, etc., a couple of days a week.

“That is really eye-opening and, in some cases, heart-breaking,” she said. “I had some who were laid off or just closed their dealerships last week. That was tough.

“We think that April may will be the lowest sales rate in the history of data collection.”

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Last modified on Tuesday, 07 April 2020 16:29

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