Have You Heard About the Coronavirus Being Bad for the Economy Yet?
As we attempt to wean ourselves off endless discussions the new coronavirus, we’ve noticed there’s not exactly a glut of alternative news out there. Trade shows are being delayed, factories are being idled, and the whole world seems to be in standby mode as we attempt to stall the spread of COVID-19 following its migration out of China.
Regional quarantines in Asia were already doing a number on supply chains, and it wasn’t long before manufacturers around the world began idling production to further slow the virus’s spread. By the beginning of March, it was becoming quite clear that auto sales would suffer significant impacts as people spent the next several weeks isolated in their own homes. Now, the push is on to assess just how much this whole ordeal will impact an OEM’s bottom line.
While the ability to postpone the progress of a particularly nasty little virus seems significantly more important than how much money a company makes, there are reasons to be concerned about the economy. Markets are panicking and people are hoarding food and toilet paper in lieu of more traditional purchases — especially of the big-ticket variety. This spells major implications for the banking industry, which we admit is difficult to find sympathy for. But it also could spell disaster for the automotive sector and those employed by it.
Speaking with Automotive News, Kristin Dziczek, Vice President of Industry, Labor and Economics at the Center for Automotive Research, said that the U.S. economy would lose roughly 94,400 jobs and $7.3 billion in overall earnings for every seven-day period that customers aren’t buying new vehicles. Meanwhile, government tax revenue would shrink by $2 billion.
“It’s concerning,” she elaborated. “There’s been a supply disruption that’s led to a demand disruption that’s led to a public health crisis. If on the other side people don’t want to buy cars, we have a real problem.”
We’d argue that the health crisis came first, since this is all the result of one super-devastating cold. Depending on who you ask, however, the economic impact takes precedence over whatever health issues may have arisen to effectively place the entire world on hiatus. Any claims of this being the next Great Depression or Great Recession (whatever they ultimately decide to call it) are premature, though. Nobody actually knows how long this will last or serious it will be. We’re all just making educated guesses.
From Automotive News:
Morgan Stanley expects the coronavirus outbreak to send U.S. sales down 9 percent this year, it said in an investor note last week. Before the outbreak, analysts had expected a modest decline of 1 percent to 2 percent in 2020.
LMC Automotive cut its U.S. forecast by nearly 300,000 vehicles to 16.5 million, a 3 percent drop from 2019.
“Whether you believe there is a public overreaction or that COVID-19 is actually a public health crisis … there is no denying the expected negative impact it will have on the economy and auto industry,” Jeff Schuster, LMC’s president of global vehicle forecasts, said in a statement.
If the economy recovers rapidly from coronavirus concerns, TrueCar subsidiary ALG projects new-vehicle sales of 16.4 million in 2020, down 2.9 percent from its initial forecast and 3.8 percent from last year’s total. A longer economic slowdown could result in vehicle sales of 14.5 million this year, ALG said, 14 percent below its initial 2020 predictions.
Sounds brutal, yet everything hinges on how quick the recovery process ends up being. Assuming everyone manages to avoid each other for a few weeks and the virus fails to continue spreading unchecked, then factories can expect to resume operations while people continue their pilgrimages to the dealership before this ends up being a legitimate disaster.
The Center for Automotive Research warns that even a swift recovery could take longer to reach the automotive sector, as most customers probably wouldn’t select a new car as their first major purchase after weathering the storm. Still, the group doesn’t believe it will be anywhere near as dire as the financial crisis that bankrupted General Motors and Chrysler just over a decade ago. That may not be cause for celebration, but we’ll gladly take good news wherever we can get it.
[Image: Viacheslav Lopatin/Shutterstock]
SaulTigh on Mar 17, 2020
Lot of arguing on here, but then tough times will do that to people. My view is that this is going to subside faster than most people think, with the efforts already in place. At the end of the day, it's an upper respiratory virus that seems to be about 3 times more transmissible than influenza. That's a problem, especially in areas with high population density, but not an insurmountable one as demonstrated by South Korea. Italy is the country that seems to freak out everyone in the west, but I've read that certain factors contributed to what they're experiencing: older population, high incidence of smoking, widespread ignoring of the first directives from government to limit contact and take precautions, as well as failing to lock down travel from China early on. If you take a look at a list of countries by population density, Italy is 51st (60,000,000 people in an area slightly larger than Arizona). That's 20,000,000 more people than live in California. The United States is 145th on that same list. I've got colleagues in the Seattle area so I was following this story well before most people, and even out there, with the first case in the US, they've had just over 1000 confirmed cases out of a total state population of 7.5 million. They really only started locking things down within the last 10 days but the first death in the Kirkland nursing home was on Feb. 19th. You can spit and sputter and "what about" and then list every vulnerable population out there, but it doesn't change the fact that common viruses, viruses we've learned to live with and accept sicken and kill people every single year, and will continue doing so. My grandmother, in a nursing home, died of a common virus that would have given you or me the runs for a couple day. We were sad, but she was 86 and in very poor shape at the end. I'm not scared of this virus. I am concerned about what it will do to our economy and society, but I hope the main takeaway in the end is wash your damn hands, stay home from work when you're sick, and clean up after yourself. On a happier note for me, it looks like the whales are concerned about the market crash, because I was able to score a stainless steel Rolex Daytona from an authorized dealer last week. That watch was trading for about $7,000-$8,000 over list price on the secondary market before this started and was almost impossible for a normal person to buy new.
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