23/06/2024 9:30 PM


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Worst yet to come as coronavirus takes its toll on auto sales

A luxury sports car sits on display in a dealership in Manhattan on November 30, 2017 in New York City.

Spencer Platt | Getty Images

The coronavirus, led by stay-at-home regulations, brought U.S. vehicle sales to a grinding halt in many areas of the country and the worst is still yet to come, according to industry officials.

Any sales gains achieved in January or February by automakers were essentially erased last month as sales fell off a cliff as some states banned dealers from even conducting online sales due to COVID-19. The orders, until lifted, are expected to continue taking their toll on the auto industry going forward.

“Our expectation is that it gets worse from here,” Cox Automotive Chief Economist Charles Chesbrough told CNBC on Wednesday as the majority of automakers reported substantial sales declines for March and the first-quarter. “The news is going to get really bad.”

What was expected to be a down, yet still robust, sales year of about 16.5 million to 17 million vehicles could return to near-recession levels of 12.1 million to 14.8 million, according to J.D. Power.

“Clearly, there is significant economic damage occurring as we speak,” said Thomas King, president of the data and analytics division and chief product officer at J.D. Power.

J.D. Power expects vehicle sales this month to decline by about 80{3c4481f38fc19dde56b7b1f4329b509c88239ba5565146922180ec5012de023f} compared to April 2019 due to stay-at-home orders and COVID-19’s overall impact on the economy and consumer confidence. 

Stay-at-home orders

In states such as Pennsylvania and Michigan, home of General Motors and Ford Motor, stay-at-home orders have halted all new vehicle sales. And even in states that continue to allow some sales, the markets have declined upward of 80{3c4481f38fc19dde56b7b1f4329b509c88239ba5565146922180ec5012de023f} at the end of March, according to J.D. Power.

“The pace of decline on a daily basis has been accelerating throughout the month,” said Tyson Jominy, vice president of data and analytics at J.D. Power. “It was a small drop in the beginning … the exit rate for the month was down 66{3c4481f38fc19dde56b7b1f4329b509c88239ba5565146922180ec5012de023f} on Saturday before falling 82{3c4481f38fc19dde56b7b1f4329b509c88239ba5565146922180ec5012de023f} on Sunday.”

As of Wednesday, 39 states had enacted “stay at home” or “essential business” mandates that affect 265 million people, or 80{3c4481f38fc19dde56b7b1f4329b509c88239ba5565146922180ec5012de023f} of the U.S. population, according to J.D. Power. That includes 25 states with full or partial bans on automotive sales.

The impact of COVID-19 was obvious Wednesday as many automakers reported double-digit sales declines for March. Overall, U.S. vehicle sales are expected to have declined about 35{3c4481f38fc19dde56b7b1f4329b509c88239ba5565146922180ec5012de023f} to 40{3c4481f38fc19dde56b7b1f4329b509c88239ba5565146922180ec5012de023f} in March, which is typically one of the best months of the year for automakers. 

Final U.S. vehicle sales for March and the first quarter were not available Wednesday as automakers continue to report results.

Rapid recovery?

If the stay-at-home orders are lifted, there “is a chance” for a rapid recovery and the auto industry going back to “something resembling business as usual,” according to King.

However, another scenario, is the orders remain in place into the summer and continue to cripple the automotive industry — and the broader economy. 

Last week, a record 3.3 million people filed for jobless benefits. Economists are predicting another record wave this week as well, with predictions averaging between 4 million and 5 million. The longer this situation persists, the worse it will be for the recovery. 

“This is a very, very difficult environment,” said King, adding demand for vehicles will be “depressed” and fall between 10{3c4481f38fc19dde56b7b1f4329b509c88239ba5565146922180ec5012de023f} and 13{3c4481f38fc19dde56b7b1f4329b509c88239ba5565146922180ec5012de023f}. “Fundamentally, demand will not get restored to pre-virus levels until at least next year.

In addition to sales, automakers across the country have shut down assembly operations due to COVID-19 and enacted emergency plans to save cash such as cuts to executive salaries, partially deferring pay for salaried employees and drawing down and establishing billions in new lines of credit.

Cox Automotive’ s Chesbrough said while the “second quarter is going to be a nightmare” for automakers, there are reasons for optimism in 2020.

“Once we get through this, there’s a lot of ingredients to suggest that we could see a very strong V-shaped recovery,” he said, adding cash flow for the automakers is “going to be critical.”

Chesbrough cited the government’s $2 trillion stimulus package, 0{3c4481f38fc19dde56b7b1f4329b509c88239ba5565146922180ec5012de023f} federal interest rates and low gas prices as some reasons in addition to millions of returning lessees and automakers offering special financing options and discounts as reasons to be optimistic.

Cox Automotive has not revised its U.S. vehicle sales for the year. Prior to the coronavirus, the company was forecasting sales of 16.7 million in 2020.

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