By on April 2, 2020

GM

With all domestic assembly plants shuttered for some length of time and sales barreling towards zero in many markets at the end of March, the coming few months could play out in a number of ways. Sure, no crystal ball can be expected to return bang-on predictions, but that’s not stopping analysts from crafting a number of plausible scenarios.

As projected by J.D. Power, April looks like a wash for new vehicle sales, but the recovery could be more rapid than some fear. Or, just as easily, it might not be.

In a Wednesday webinar, the firm’s data and analytics gurus laid out the range of possibilities. With the month of March already showing a 43-percent year-over-year drop in U.S. retail vehicle purchases (a 37-percent decline over the pre-virus forecast for the month), J.D. Power sees near-blanket stay-at-home orders suppressing April sales severely.

Compared to the pre-virus forecast, April looks to undercut that earlier total by 80 percent. Between March and July, the firm predicts a volume loss of 1.6 to 2.4 million sales — enough to sink 2020’s full-year total by 10 to 30 percent.

We’re entering “a period of extraordinary uncertainty,” said Thomas King, president of J.D. Power’s Data & Analytics division. Key factors include exactly when state-level stay-at-home orders lift, and the economic environment that exists in the U.S. “after people are allowed to go back into showrooms.”

2020 Toyota Camry AWD 2 - Image: Toyota

King says it’s unlikely governments and OEMs will be able to stabilize the sales situation via stimulus measures, meaning the industry won’t be back to pre-virus levels until next year.

But back to the coming few months. J.D. Power mapped out three scenarios: a low-impact scenario, a moderate one, and a severe case. In May, the low end of the range shows sales down 30 percent compared to the pre-virus forecast. The moderate scenario calls for a 42-percent drop over the previous forecast. A worst-case situation spells a 68-percent drop — hardly a rebound from April’s 80-percent drop.

June is another story, with the range running between zero and 18 percent (8 percent in the moderate scenario). Come July, only the worst-case projection shows any drop below the pre-virus retail forecast, and that’s only by 5 percent. Time will tell, though the firm says, at least for full-year sales, that the lower end of the volume range seems the more likely bet. That means the industry is on track to fall closer to the 12.1 million projected full-year sales, rather than somewhere near the 14.8 million mark.

One thing waiting to assist automakers and dealers is the 1.8 million Americans whose leases expire between March and July.

The punchline to all of this, King said, is that there’ll be no inventory constraints when dealers reopen. Strong pickup demand seen in March — despite a huge overall industry drop — will likely make that segment a priority when plants come back online, King added.

[Image: General Motors]

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28 Comments on “Where Does the Industry Go From Here?...”


  • avatar
    Lie2me

    I would say once we get through this that there will be a lot of pent-up demand for all vehicles with utility type vehicles leading sales

  • avatar
    87 Morgan

    I think the truck market has a serious problem coming. While cheap gas helps to sell trucks, it is devastating to the people who work in the extraction industries. The oil drilling states are in for a tough go for the next several months; ND, WY, TX, CO and others. A lot of people make their living in or supporting the oil and gas industry and $20 WTI is not good.

    • 0 avatar

      While it will be tough I’m not sure the industry in the US fully recovered form the last drop. I do some work that ties into the offshore oil industry and I know they never really recovered 2014 oil drop, so my guess is there will be losses but not that huge.

  • avatar
    roloboto

    “but the recovery could be more rapid than some fear. Or, just as easily, it might not be.”

    Oh,ok. Who writes this stuff?

    • 0 avatar
      lstanley

      Apparently there is a subset of dealers who are looking for a slower recovery. Here is their business model:

      1. Slower economic recovery with fewer vehicle sales
      2. ????
      3. Profit!

  • avatar
    DenverMike

    Many are scrambling to get their end-of-year tax write-off right now. Mostly that means trucks. Luxo pickups too.

    There’s also the segment that fear hyperinflation while sitting on a big pile of cash, buying anything they can get their hands on.

    • 0 avatar
      SCE to AUX

      Hopefully some people will run out and buy. But “end-of-year” now means July 15 for tax filing, and tax return checks will follow.

      So it’s possible that any buying surge will be somewhat drawn out.

  • avatar
    JMII

    There is generally 3 schools of thought regarding the economic recovery:

    V shaped – after bottoming out the pent up demand causes a huge rush to buy stuff once this over.

    W shaped – a dead cat type bounce followed by another dip before things return to normal.

    Nike swoosh shaped – a slow but steady return.

  • avatar
    ToolGuy

    This is a good time to discuss the Pareto principle:
    https://en.wikipedia.org/wiki/Pareto_principle

    “80/20” rule, but it doesn’t have to be 80 and it doesn’t have to be 20 and they don’t have to add to 100.

    20% of the pea pods in Pareto’s garden contained 80% of the peas.

    Post-COVID automotive implications:
    • It’s possible that ~80% of an OEM’s profits come from ~20% of models.
    • It’s likely that ~80% of your employees are only giving you 20% of your positive results.
    • 80% of your executives…
    • 80% of your managers…

    It is likely that we will see some selective pruning when this is all over. (But there is a good chance some companies will prune the wrong things.)

    • 0 avatar
      Guy A

      Good points. Isn’t this what, for example, Ford has been trying to do in the US with eliminating cars and focusing on trucks and CUVs. That was in the name of profits.

  • avatar
    IBx1

    All new cars are garbage, the only holdovers worth buying are the GT350 and precious little else.

  • avatar
    JimC2

    Extraordinary uncertainty is right.

    I like to pay attention to this stuff but it’s a hobby and a personal interest. I never studied it formally in school, at least not more than a couple of elective classes. So what I’m getting at is I have no idea what the heck is going to happen either!

  • avatar
    SuperCarEnthusiast

    I think the upscale luxury SUV market will be the first to bounce back!

  • avatar
    eggsalad

    I cherish the assumption you all seem to have that things will return to what they once were. I do not share your assumptions.

    • 0 avatar
      Hummer

      I think society will feel more like a technological advanced 1930s. People will not want to live on these tiny 1 acre postage stamps lots up close to people they don’t know, family will become more important, hopefully people will be less image conscious and make more ration based decisions based on needs, and people start buying from companies that employ their countrymen to build the products.

      • 0 avatar
        Scoutdude

        1 acre is not tiny be any stretch of the imagination. What we will see is people clamoring for the “huge” 1/4 acre lots of older homes and not the 5,000 sq ft lots today’s homes are built on. You’ll also see a big drop in the use of public transportation. Neither of which will be bad for the automakers.

      • 0 avatar

        1 acre is huge in the US for a lot these days. Average single family lot in the US is under 10,000 sq ft. I think you will see more single family home sales but not on lots that big.

    • 0 avatar
      SCE to AUX

      I certainly don’t.

      We’ll see:
      * the disappearance of some brands,
      * the disappearance of some dealers,
      * the disappearance of many buyers,
      * a market contraction that takes years to recover. Even without the virus, the market was contracting.

      Dealers will be forced to embrace online buying, and it won’t be long before mfrs begin asking themselves what value the dealers really bring (other than brand-dedicated service).

      I’m still thinking 10 million sales in 2020, a 40% reduction from 2019.

      • 0 avatar
        volvo

        I completely agree with your view. The main limiting factor in vehicle sales recovery will be buyers with the cash/monthly payments to complete a sale. I think job/income recovery in the private sector will be very slow.

      • 0 avatar
        donatolla

        I think this is nearly all right.

        It’s just the 10 million in sales. I also don’t know how JD Power is so optimistic. If April doesn’t hit 90% drop, I’ll be surprised. There is going to be an extended period of time with no one going out, and certainly no one buying cars. The curve is still on the upswing in the US, so social distancing should be a thing for at least another 3 months (we’re being told 12 weeks in Canada, and the situation is starting to look slightly better). I suspect Q1 and Q4 this year may be almost normal, but Q2 and Q3 is going to be a bloodbath.

        Unless there’s drastic measures to stop the spread of the virus in the US really quickly, or it mutates suddenly and isn’t a big deal, I’d bet on the decline in sales being closer to 10M vehicles with a year end closer to 7M. I assume this will bankrupt somebody. Maybe Mazda is too small to recover? Maybe Nissan goes away? FCA? Dunno.

      • 0 avatar
        hreardon

        Don’t disagree with this assessment. However, the one thing the automakers love is being able to offload the carrying cost of vehicle inventory to 3rd parties as soon as those cars are loaded onto carriers.

        Obviously the industry can (and will) change, but their model has been based on low margins, high expenses, cashflow is king. The manufacturers need the dealers to keep the cash moving and limit liability.

        Direct sales just means the manufacturers need to absorb a lot more costs of the retail operation. Not that this has to happen, but it’s a common topic around here.

        • 0 avatar

          My guess is a hybrid business model will start to form. Dealers will stay independent, but you will be able to order a car online for MSRP plus published discounts on the manf website. How they handle the details remains to be seen. I mean right now I can order a drill online from ace hardware (corporate website) and pickit up at my local independent store. Cars could be the same but with a lot of added logistics.

  • avatar
    Jerome10

    Where does the industry go from here?

    Probably to DC to ask for a bailout like every other company on the planet.

  • avatar
    whynotaztec

    first order of business for GM should be to at the very least redesign the mirrors on the HD trucks – that should be quick and easy. Oh and have an adult do the design.

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