Fever Pitch: Coronavirus Hammering Auto Buyers and Owners, as Well as Automakers

can be reached at pavel@aol.com
can be reached at pavel@aol.com
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The auto industry is quickly feeling the impact of the coronavirus pandemic as sales plunge, plants close, and existing owners struggle to pay their bills.

  • Parts shortages could impact not only assembly plants but local parts stores and repair shops.
  • Ford, GM, FCA, Honda and other automakers will temporarily close plants in North America while most European auto plants are being idled.
  • Hoping to prop up demand, automakers are promoting deals like 0 percent loans and offering to cover payments if new buyers lose their jobs.

When the coronavirus outbreak began in China, it quickly led to a collapse of car sales and broad factory closures in that country. As the pandemic spreads, automakers around the world are quickly feeling the impact. But so are car buyers and existing car owners.

Car sales have begun to plunge in the U.S. and Europe, echoing the crash in China last month. (Photo: Getty Images)

Automakers, auto buyers, existing owners in the pandemic crosshairs

The Chinese auto industry was first to be hit by the pandemic, sales collapsing and auto plants across the country shutting down. Government authorities claim most plants are starting back up, but Michael Dunne, founder of the Asian automotive consulting firm ZoZoGo, warns the numbers are exaggerated, with only a fraction of workers actually back on the job.

Shortages of Chinese-made automotive parts and components already forced production cuts at Hyundai’s Korean plants, and J.D. Power warns the same could happen in the U.S. by month end, forcing automakers to suspend production of some models.

This could be “a very difficult year” for the industry, says Volkswagen CEO Herbert Diess, warning sales and earnings may crash. Adam Jonas, automotive analyst for Morgan Stanley, predicts U.S. demand will plunge to 15.5 million vehicles, from last year’s 17.1 million.

Shortages won’t be limited to auto plants, however. Existing vehicle owners soon could struggle to find Chinese-made goods like windshield wipers at local parts stores, as well as replacement body panels and bumpers at repair shops.

Unemployment threatens to create further challenges for automakers, auto buyers, and those with existing loans and leases. (Photo: BMW)

Auto job cuts could exacerbate economic decline

With several employees now testing positive for COVID-19, the Detroit Three automakers have most salaried employees and contractors working from home, while Ford, FCA and GM will shut down North American manufacturing operations through “at least” March 30, according to the companies. Honda will close its plants in the region for six days, the automaker has stated.

In Europe, automotive production is grinding to a complete halt as manufacturers including BMW, Daimler, Ford, PSA and Volkswagen respond to the pandemic. The cuts also allow manufacturers to thin inventories bloated by the rapid sales slowdown. China demand dropped 79 percent last month and analysts fear the same will happen in Europe as well as the U.S., especially in places like California, where millions of residents are now sheltering in place.

That threatens to create a dangerous loop, according to Kristen Dziczek, vice president at the Center for Automotive Research, warning just a one-week halt to car sales would cost the U.S. economy 94,400 jobs and $7.3 billion in overall earnings.

Automakers are ramping up incentives to prop up slowing sales, while also taking steps to help existing owners as loan delinquencies rise fast. (Photo: Getty Images)

Automakers borrow from their great recession playbook

Even by cutting production, automakers have begun taking steps to try to prop up demand. They’re also moving to reduce the threat of a wave of repossessions as the newly employed struggle to pay off loans and leases. Many are reviving programs used to revive the car market a decade ago.

General Motors has launched a new 0-percent finance program for those with good credit scores. Analysts expect other automakers to follow with a wave of incentive programs, though possibly not until the epidemic is brought under control.

Hyundai, meanwhile, has revived its Assurance Job Loss Protection Program meant to give owners “peace of mind in uncertain times” by deferring payments and covering up to six months of payments for new buyers who involuntarily lose their jobs.

Separately, Ford, Nissan and Toyota, as well as GM and Hyundai, announced they will work with owners struggling to make ends meet. That could mean waiving late fees or extending payment deadlines. Such moves could be critical considering seven million Americans were already at least 90 days behind on loans and leases even before the coronavirus crisis unfolded.

WHY THIS MATTERS

It’s often said that when the economy catches cold, the auto industry gets pneumonia. That’s doubly apt during this pandemic, though the challenges facing the auto industry right now could put the economy – and all of America – into the ICU.


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can be reached at pavel@aol.com
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