With no handy playbook, no precedents for the toxic economic fallout from COVID-19, the only thing predictable about auto sales is now unpredictability. And with viral spikes forcing fresh public restrictions — including in California, the nation’s largest auto market — any automotive recovery seems likely to follow the same topsy-turvy course.
Analysts say the worst may be over. But they can’t be sure. The pandemic drove auto sales to a sickly, 30-year-low in April, as Americans bought just 633,000 cars — down 53% from April 2019, and worse than any sales month of the Great Recession in 2009.
June brought a few rays of hope. But June’s annualized selling rate of 12.9 million units was still a stark reminder of the booming 17.2-million pace of the previous June. Second-quarter sales at General Motors, Ford and FiatChrysler fell 30% or more. Tesla’s mere 5% drop —and a stock price that has risen six-fold since May 2019 — suggested it was better-positioned than legacy automakers to ride out the storm.
Dealers have no choice but to keep chugging along. Galpin Motors, one of California’s largest dealer groups, is recovering from a brutal May that saw sales plummet 88%.
Yet Beau Boeckmann, Galpin’s president and chief operating officer, said sales are down only about 10% for the year, as Galpin got out in front of online buying, store-and-car disinfecting — including an electrostatic fog machine to kill viruses — and other strategies to reassure consumers.
“We’re still down pretty good, but strangely, some brands have recovered nicely,” including a signature Ford dealership in Los Angeles — the world’s largest in sales volume for nearly three decades — that posted a year-over-year increase in June.
Boeckmann said forecasting is more difficult because of stark differences in fortunes and confidence, between people who’ve held onto jobs, and those struggling without.
“Those are two very different sets of consumers,” Boeckmann said. “The (unemployed) set will ultimately get hired again, and they can become next year’s buyers.
“But I would completely agree with the ‘bumpy road’ analysis. Nobody would dare to predict the rest of 2020; there’s just been so much disruption.”
Boeckmann was on his way to Santa Monica following a phone interview, for the opening of Galpin’s 11th automotive brand, a temporary store for Volvo’s new Polestar. That could seem a tough break: A fledgling electric-car brand being forced to launch into the teeth of the pandemic. Yet Boeckman sees reasons for guarded optimism, including the ongoing availability of virtually “free money” in the form of 0% or low-interest loans.
“A lot will come down to the deals,” he said. “The other is, “How can I shop safely?’”
Despite some unexpected gains, consumer confidence also remains far below pre-pandemic levels, said Lynn Franco, senior director of economic indicators at The Conference Board. More than 19 million Americans are officially unemployed, with enhanced jobless benefits set to expire in July. Despite a fitful reopening of the economy, consumers’ long-term outlook is anything but rosy.
“Faced with an uncertain and uneven path to recovery, and a potential COVID-19 resurgence, it’s too soon to say that consumers have turned the corner and are ready to begin spending at pre-pandemic levels,” Franco said.
IHS Markit now forecasts 2020 sales to slump to 13.2 million, a far cry from pre-pandemic predictions of 16.8 million, yet relatively stronger than the 10.3 million back in 2009. Stephanie Brinley, principal auto analyst for IHS Markit, said the recovery will be slow and fitful. The firm forecasts that annual sales won’t return to 16 million before 2024, let alone the booming, 17-million levels that had become routine.
“We have a more optimistic outlook than we did three months ago, but the reality is a down market and a recession,” Brinley said. “We’re not going back to 17 million units for a long, long time.”
Brinley said many stay-at-home Americans are driving less, and aren’t seeing the need to replace their current cars.
“You don’t have to drive to soccer practice or school, because there is no soccer practice or school,” Brinley said.
COVID spikes in Sunbelt states are already dampening consumers’ urge to run out and buy a new car, analysts said.
“As long as we’re having continued concerns about cases spiking, it contributes to lengthening uncertainty,” Brinley said. “The longer consumers are in an uncertain space, the harder it is to get them out.”
Wards Intelligence said that dealership inventories have now fallen to a nine-year low, driven by factory shutdowns in spring, as automakers looked to prevent a glut of unsold vehicles on dealer lots. Efforts to stem the pandemic in Mexico could lead to plant shutdowns or parts shortages for American automakers. Boeckmann said those lingering production issues will have rippling effects on dealer supply, creating shortages of certain models — potentially including mega-popular pickup trucks.
“A dealership might run out of one model of SUV, but not another,” Boeckmann said.
In contrast with the Great Recession — when automakers pulled out all the stops to keep factories humming, no matter the harm to long-term profits — companies are avoiding an overreliance on rebates to artificially boost sales. Rather than throwing more and more money on the hood, Brinley said, automakers will likely focus on payment protection plans and other non-cash incentives to reassure anxious consumers. Several major automakers, including some who learned the hard way — with bankruptcies at General Motors and Chrysler — have laid the groundwork to ensure they can earn profits, even at recessionary sales levels that once would have threatened their survival.
“Incentives are part of our world, but they’re doing in a more careful, pragmatic manner,” Brinley said. In this pandemic, automakers seem willing to take their lumps now to come out stronger on the other side.
“It doesn’t mean that automakers won’t lose money this year. But they’re not necessarily beholden to increase incentives to get you in the door.”