It could take three years or more to return to the 17-million-unit level of new vehicle sales that prevailed prior the recession precipitated by the coronavirus pandemic, which has locked down the U.S. economy for an indefinite period.
The National Automobile Dealers Association estimated new light-vehicle will drop to between 13 million and 13.5 million units for the year – down from an original 2020 sales forecast of 16.8 million units and substantially below the 17.1 million units sold in 2019.
“While the impact of the coronavirus is uncertain at this point, we do know that the leases on 1.8 million vehicles are set to expire between March and July according to data from J.D. Power, and most of these customers will be in the market for a replacement vehicle,” added NADA Chief Economist Patrick Manzi.
“Additionally, once Americans return to work, we expect pent up demand, but just how much is still ambiguous.”
Manzi noted at the macrolevel, the coronavirus has impacted the U.S. GDP, jobs and equities markets – all culminating in lower consumer confidence and decreased auto sales. Initial jobless claims have totaled more than 10 million in the last two weeks. Additionally, the March jobs report indicated the unemployment rate rose to 4.4%, however, the data for this report was collected nearly three weeks ago and does not capture the full extent of job losses across the country.
Furthermore, GDP estimates are continuously being amended with many estimating that second quarter result will decline by more than 30% on an annualized basis. Equities markets remain incredibly volatile with the Dow having its worst quarter since 1987, dropping 23.2 percent.
Likewise, the S&P and Nasdaq posted a 20% and 14% drop, respectively. Furthermore, consumer confidence dropped to 89.1, a 11.9 index point drop from February’s reading of 101, and the fourth largest decline in nearly half a century.
“As the coronavirus continues to hold the country captive with stay-at-home orders across much of the U.S. in place, we will continue to monitor for the impact on the economy, auto production, sales and dealers,” said Manzi.
“In light of the recently passed $2 trillion stimulus bill and other efforts by the government, my hope is that consumer confidence will increase, and consumers will be ready to spend once they return to work en masse,” Manzi said.
Jonathan Smoke, chief economist for Cox Automotive, said during a conference call with reporters and analysts that consumer confidence probably holds the key to strength of recovery. “Retail sales are down by two-thirds,” Smoke said citing Cox daily tracking reports,” he noted. “There is still traffic,” he added.
For now, a recession of uncertain duration is inevitable, he added.
However, returning the sales levels of the long economic expansion that preceded the pandemic recession could take three years even if sales begin to show signs of recovery by the end of the year. But will also depend on the course of the pandemic and whether the virus lingers and reappears again over the next several months.
Major sports leagues, which carry the major portion of automotive advertising, are talking of reopening but playing games in distant locations for television. Meanwhile, the damage to the industry continues to grow. BMW, for example, reported this week that roughly 70% of its dealers in North America are now closed.
The investment firm CFRA dropped General Motors to a “Sell” rating from Hold on its view that shares don’t reflect the upcoming huge drop in U.S. auto sales and that a dividend cut is inevitable.
CFRA Analyst Garrett Nelson said the 12-month price target on GM of $15 is based on 4.7X the 2021 EPS estimate. “We cut our adjusted earnings per share estimates (for GM) by 80 cents to $2.20 for ’20 and by $1.05 to $3.20 for ’21,” he said.
But other analysts have suggested the figures could be too optimistic and the industry as a whole could lose more than $100 billion this year.