CoVid-19 Industry Updates

CoVid-19 Industry Updates (169)

 

In the week ending July 18, the advance figure for seasonally adjusted initial claims was 1,416,000, an increase of 109,000 from the previous week’s revised level. The previous week’s level was revised up by 7,000 from 1,300,000 to 1,307,000. The 4-week moving average was 1,360,250, a decrease of 16,500 from the previous week’s revised average. The previous week’s average was revised up by 1,750 from 1,375,000 to 1,376,750. The advance seasonally adjusted insured unemployment rate was 11.1 percent for the week ending July 11, a decrease of 0.7 percentage point from the previous week’s revised rate. The previous week’s rate was revised down by 0.1 from 11.9 to 11.8 percent. The advance number for seasonally adjusted insured unemployment during the week ending July 11 was 16,197,000, a decrease of 1,107,000 from the previous week’s revised level. The previous week’s level was revised down by 34,000 from 17,338,000 to 17,304,000. The 4-week moving average was 17,505,250, a decrease of 758,500 from the previous week’s revised average. The previous week’s average was revised down by 8,500 from 18,272,250 to 18,263,750.

The advance number of actual initial claims under state programs, unadjusted, totaled 1,370,947 in the week ending July 18, a decrease of 141,816 (or -9.4 percent) from the previous week. The seasonal factors had expected a decrease of 247,115 (or -16.3 percent) from the previous week. There were 196,382 initial claims in the comparable week in 2019. In addition, for the week ending July 18, 49 states reported 974,999 initial claims for Pandemic Unemployment Assistance. The advance unadjusted insured unemployment rate was 11.2 percent during the week ending July 11, a decrease of 0.7 percentage point from the prior week.

 

Ally Financial reported total net review of $1.61 billion, up 4 percent year-over-year, with adjusted total new revenue of 1.53 billion down 2 percent year-over-year.

Net income was $241 million, with $0.64 EPS and $0.61 adjusted EPS.

On the auto finance side, pre-tax income of $329 million was down $130 million year-over-year, primarily due to higher provision for credit losses associated with COVID-19 variables and lower net financing revenue.

Jeffrey Brown CEO of Ally Financial
Jeffrey Brown CEO of Ally Financial

Net financing revenue of $989 million was $33 million lower year-over-year, driven by lower commercial auto portfolio yield and balance and losses on off-lease vehicles, partially offset by higher retail auto portfolio yield, which increased 20 basis points (bps) year-over-year to 6.77 percent, excluding the impact of hedges. Provision for credit losses increased $76 million year-over-year due to COVID-19 variables. The retail auto net charge-off rate was 0.76 percent, down 20 bps year-over-year. Consumer auto originations decreased to $7.2 billion from $9.7 billion in the prior year period and included $4.3 billion of used retail volume, or 60 percent of total originations, $2.0 billion of new retail volume and $0.9 billion of leases. End-of-period auto earning assets decreased $11.6 billion year-over-year from $114.7 billion to $103.2 billion, as an increase in consumer auto earning assets was more than offset by a decline in commercial earning assets. End-of-period consumer auto earning assets were up $0.3 billion year-over-year, driven by growth in operating lease assets. End-of-period commercial earning assets of $21.7 billion were $11.9 billion lower year-over-year, driven by industry-wide vehicle inventory declines.

“Against a difficult and shifting backdrop, we remain focused on serving our customers at the highest level, and our solid operational and financial foundation positions us to continue supporting our customers,” said Ally Chief Executive Officer Jeffrey Brown. “We finished the quarter with robust capital and liquidity levels and observed improved trends across our key businesses. Our resilient and adaptable auto finance business saw meaningful improvement toward the end of the quarter, delivering $7.2 billion of consumer originations, and maintaining estimated retail auto originated yields above 7 percent for the ninth consecutive quarter, a tremendous accomplishment given the low interest rate environment.”

Urban Science and The Harris Poll released information from a June 2020 study of 1,505 consumers indicating that 61 percent of consumers agree that the entire vehicle purchase process will change forever due to COVID-19.

More than three-quarters (78 percent) see some benefit to shopping for a new vehicle entirely online versus in-person, with about a third or more citing less pressure from salespeople (38 percent) and the convenience (37 percent) or safety (32 percent) of not having to leave the home. Though they see the benefits, even more (93 percent) express some concern with an entirely online new-vehicle purchase process. 

89% OF Dealers agree they must find alternate ways to sell
89% of Dealers agree they must find alternate ways to sell to car buyers

“It’s important to note that one-third of consumers (36 percent) agree that there is no reason to ever visit a car dealership again,” said Simon Bradley, global practice director, at Urban Science. “While this sentiment could change as we return back to normal, this potentially indicates alternative retail formats may play a role in changing consumer sentiment.”

Further, 71 percent agree that they would limit the number of dealerships they visited if they were purchasing a new vehicle right now due to health and safety concerns. Long-term, a quarter of adults think fewer people will do in-person test drives before buying/leasing (27 percent) and that more people will be willing to use virtual or augmented reality to experience a vehicle (25 percent) with nearly one-third (31 percent) believing sales departments will do more mobile visits to customers' homes. Finally, even once the pandemic subsides, over half say having dealership sanitation measures in place both within each vehicle (55 percent) and throughout the building (54 percent) are must haves to help customers feel safe when visiting the dealership.

The Federal Trade Commission released the final agenda for a July 13, 2020 virtual workshop that will seek input on proposed changes to the Gramm-Leach-Bliley Act‘s Safeguards Rule, which requires financial institutions to develop, implement, and maintain a comprehensive information security program.

The virtual workshop will examine some of the issues raised in response to amendments the FTC has proposed to the Safeguards Rule. In 2019, the FTC sought comments on the proposed amendments to the rule.

The virtual workshop will feature five panel discussions examining such issues as: the costs and benefits of information security programs; how information security programs and practices scale to smaller businesses; continuous monitoring, penetration, and vulnerability testing; accountability, risk management, and governance of information security programs; and encryption and multifactor authentication.

The workshop will be held online. Information about how to view the workshop will be posted on the event page.

FCA US LLC reported second-quarter sales of 367,086 vehicles – a 39 percent decline over the same period a year earlier – as the economic havoc caused by the COVID-19 pandemic in April was partially offset by the stronger than expected retail sales rebound in May and June.

Fleet sales were impacted in the quarter as customers initially delayed or reduced their orders, in addition as production restarted deliveries have been focused on the dealer channel.  

“This quarter demonstrated the resilience of the U.S. consumer,” said Head of U.S. Sales Jeff Kommor. “Retail sales have been rebounding since April as the reopening of the economy, steady gas prices and access to low interest loans spur people to buy. Our fleet volume remained low during the quarter as we prioritized vehicle deliveries to retail customers. As a result, we have built a strong fleet order book, which we will fulfill over the coming months.”

This was also the first quarter consumers could completely purchase their vehicles online through the company’s new Online Retailing Experience (ORE). ORE is accessible through the Chrysler, Dodge, Jeep, Ram, FIAT and Alfa Romeo websites, participating dealer sites and a variety of social media applications. Customers simply click on the link to begin the process. About 20 percent of new sales leads now come from online retailing compared with about 1 percent a year earlier.

“ORE is another tool dealers can now use to reach those consumers who like shopping from their home computer,” Kommor said.

The coronavirus pandemic has had a significant impact on the fleet management industry, resulting in a sharp reduction in vehicle sales across the world, according to Beroe Inc., a  provider of procurement intelligence and supplier compliance solutions.

As manufacturers return to production, global automotive sales forecast is revised to 20 percent reduction from the previous forecast of 22 percent, with sales of approximately 72 million units, according to Beroe Inc.. The impact of COVID-19 is high on car manufacturers and alternate mobility, and medium on leasing companies.

Car manufacturers in the U.S. and Europe are returning to production with limited capacities and adequate health safety measures, according to Beroe. There has been a slow resumption of fleet activities across the globe, majorly by the essential service operators. It is almost certain that the demand for fleet vehicles has reduced worldwide. OEMs are expected to offer high discounts, as the residual value is likely to reduce. Lease prices are expected to go up as residual values and profitability reduce.

Cox Automotive’s Mid-Year Review brought mixed news, but with a rosier outlook for used cars as we move later into the summer and fall.

Chief Economist Jonathan Smoke started with a high-level view of the economy and, not surprisingly, it wasn’t pretty.

“Obviously, the COVID-19 pandemic has produced a significant recession,” Smoke said.

The economy felt a 5-percent decline in Q1, even though the pandemic only really affected the second half of March, he said.

“We are forecasting that the second quarter, when all is said and done, will be down 39 percent on an annualized basis,” Smoke said. “That is unprecedented in the quarterly GDP data.”

That led to increase unemployment from 3.6 percent in May 2019, to 13.3 percent this past May.

However, consumer sentiment and confidence could have been worse,” said Smoke, who credits the economic stimulus payments as one reason for that.

Wages and disposable income were stronger than expected, he said, but the numbers don’t tell the complete story.

“The wage looks so strong because the low-wage jobs were disproportionately included in the job losses, so that the remaining employees tended to be at higher wages,” Smoke said.

The disposable income may be due to the stimulus checks, combined with the enhanced unemployment payments included with the overall stimulus.

Smoke said data is still positive in the areas of auto finance, interest rates, borrowing costs and mobility costs.

Mobility costs have dropped because of the lower price of gasoline, as well as the fact that consumers are not driving as much, he said.

However, gas and oil prices are now creeping back up.

In terms of dealer sentiment, the view is that the economy was weak as of April and May. Independents have a more negative view of the market than new-car dealers, Smoke said.

The biggest surprise coming out of the quarterly data for Smoke was that more franchise dealers than not are optimistic about the next three months.

Independents collectively expect the markets to be weak, Smoke said.

But he expects that by the third quarter, sentiment should be up for both new- and used-car dealers.

Used car sale recovery
Cox Automotive's used car sale recovery index

“The vast majority of economists – 69 percent –­ and that includes myself,” Smoke said. “believe that we’re going to see a Nike swoosh-shaped recovery.”

Despite sentiment, the data show there is – like the new-car market – a recovery in the used-car market, said Zo Rahim, manager of economic & industry insights.

He said the used market has “improved greatly” since the shutdowns in April.

“Though the market is still down year-over year,” Rahim said, “you can still expect continued recovery in the used-car market as we navigate the second half of 2020.”

The Manheim Index gained 9 percent in May and an estimated 6.6 percent by mid-June, Rahim said.

Retail prices remained fairly stable, even has wholesale prices dipped during the downturn. But wholesale prices were recovering in June for three-year-old units.

Both retail and wholesale supply are dropping, however.

On April 8, based on a rolling seven-day estimate of used retail days-supply, it peaked at 118 days.

“Normal used vehicle supply is about 44 days,” Rahim said. “The most recent seven-day estimate of used retail supply is at 30 days.

“We estimate that wholesale supply peaked on 149 days on April 9, when normal supply is just at 23 days. It was down to 27 days for the most recent seven-day period.”

Rahim said wholesale supply may be below normal by July 4. However, he sees “waves of supply coming in later this summer and fall from lease returns, repossessions and even rental car companies could lead to an environment where supplies during that period are higher than normal.

“CPO sales decreased 6 percent year-over-year in May, but were up 87 percent month over month,” Rahim said. “It’s just another sign of the recovery in sales being led by demand.

Younger used cars are expected to have strong interest the rest of the year.

Optimism is on the rise with franchise dealers
Optimism is on the rise with franchise dealers        photo credit Ildar Sagdejev

Senior Economist Charlie Chesbrough said that before COVID-19, the bottom of the new-car market this year hit the week of April 20, though based on year-over-year data, it was probably closer to the end of March.

 

“Since then, the recovery has begun,” Chesbrough said.

Current data shows the used market is up at last check, while the new-car market was lagging, he said.

But on the new-car side, seasonably-adjusted annual selling rates hit rock bottom in April with a sales pace of about 8.7 million – following 2019’s 17 million.

That figure is the lowest going back as far as the industry has measured, Chesbrough said.

He expects the rate for annual new-car sales will be 12.6 million for June.

Cars have done worse than trucks, with cars down about 40 percent and trucks only down 25 percent.

Retail activity is better among new cars, with fleet sales down 28 percent.

“Leasing activity is also down,” Chesbrough said. “It fell to 20 percent (of sales) by April.”

The 0-percent deals had a big impact on that

“On the optimistic side (for new-car sales), the worst of the crisis may be behind us,” Chesbrough said.

Among manufacturers, Hyundai and Kia seem to be the early winners. Nissan, meanwhile, is having the toughest year, Chesbrough said, in some part due to its aging products and reliance on fleet sales.

Chesbrough warns that sales numbers varied by states because of shutdowns over COVID-19. Texas and Florida won bigger market share because of the closings in the Northeast.

Florida and Texas are seeing infections spike while states that had lost market share during the worst of the crisis are not bouncing back, Chesbrough said.

Wholesale supply may be below normal by July 4
Wholesale supply may be below normal by July 4       photo credit Helgi Halldórsson

One concern is low inventory, which has dropped to a 71 day supply, below where it was at this time last year, Chesbrough said.

“This number could go down even further,” he said.

Michelle Krebs, Cox executive analyst, said delays in purchases began as a response to COVID-19, but more recently are affected by the recent civil unrest and overall uncertainty about unemployment and a potential second wave of the coronavirus.

Digital retailing has jumped as a result of the pandemic and 58 percent of customers felt buying online was a better experience, Krebs said.

“That is no surprise to us,” she said.

One enormous jump was in the category of year-over-year numbers for deals submitted online. May 2020 saw a 662 percent increase of deals submitted online compared to May 2019 of those types of deals.

New-vehicle retail sales in June are expected to be down from a year ago, according to a joint forecast developed jointly by J.D. Power and LMC Automotive. Retail sales are projected to reach 1,002,600 units, a 5.7 percent decrease compared with the J.D. Power pre-virus forecast and 11.3 percent decrease compared with June 2019. Reporting the same numbers without controlling for the number of selling days translates to a decrease of 14.7 percent over last year. (Note: June 2020 contains one less weekend and one less selling day than June 2019).

“The industry continues to show signs of recovery in June, with retail sales down only 6 percent compared with the J.D. Power pre-virus forecast,” said Thomas King, president of the data and analytics division at J.D. Power. “This represents a significant improvement from May when retail sales were off 20 percent from the pre-virus forecast. The combination of pent-up demand, states relaxing coronavirus-related restriction and elevated incentives are all providing a tailwind for the industry.”

Total sales in June are projected to reach 1,085,600 units, a 25.1 percent decrease compared with June 2019. Reporting the same numbers without controlling for the number of selling days translates to a decrease of 28.0 percent over last year. The seasonally adjusted annualized rate (SAAR) for total sales is expected to be 12.8 million units, down 4.4 million units from a year ago.

Remarkably, in markets like Detroit (one of the most severely affected areas by COVID-19), retail sales are on pace to exceed 2019 levels.

Record levels of manufacturer incentives for the month of June are supporting the sales recovery. Incentive spending is on pace to reach $4,411 in June, the highest ever for the month and an increase of $445 from June 2019. Incentives on cars are expected to be up $459 to $4,031, with trucks/SUVs up $407 to $4,524.

Transaction prices continue to set records and are on pace to rise by 3.9 percent to $34,981, the highest level ever for the month of June. Record prices are being supported by the ongoing shift in consumer demand from cars to trucks/SUVs. Car sales are on pace to account for just 24 percent of new-vehicle retail sales in June, the lowest level ever for the month of June and the third month in a row below 25 percent. As the industry shifts towards more expensive products, SUV mix is expected to reach a record 56 percent.

Analysts at Edmunds report that June will be another down month for auto sales as the industry continues to combat challenges posed by the coronavirus pandemic, forecasting that 1,080,656 new cars and trucks will be sold in the U.S. in June for an estimated seasonally adjusted annual rate (SAAR) of 12.8 million. This reflects a 28.7 percent decrease in sales from June 2019 and a 3.6 percent decrease from May 2020.

“It comes as no surprise that the second quarter was a disappointing one for the automotive industry, but the good news is that auto sales didn’t come to a complete standstill either,” said Jessica Caldwell, Edmunds’ executive director of insights. “The fact that retail sales — not fleet — are what kept the market propped up speaks volumes to the resilience of the American consumer. And the way that dealers were quick to pivot to online sales also underscores the incredibly responsive and resourceful nature of the industry in the face of adversity.”

Edmunds experts note that sales are also down for the second quarter in a row this year, forecasting sales of 2,914,860 new cars and trucks in the second quarter, which reflects a 34.3 percent decrease from the second quarter of 2019.

“The marketplace is growing less inviting as automakers pull back on incentives and inventory dwindles due to factory shutdowns, particularly when it comes to trucks, which have been the one bright spot for sales during the pandemic,” Caldwell said.

Honda and General Motors are producing nearly 12,000 gallons of hand sanitizer through their Fuel Cell System Manufacturing (FCSM) partnership. The hand sanitizer will be used by both companies at their facilities throughout the region and Honda is donating 3,750 bottles to health care facilities in Ohio and Michigan this week.

The hand sanitizer is being made at the Brownstown, Mich., facility where the FCSM team has been working on the development of fuel-cell fuel stacks for the next generation of hydrogen-powered cars. Using an apparatus designed to manufacture the electrodes used in the fuel cells, the team developed a process to re-purpose the equipment to produce a hand sanitizer that would allow employees and health care professionals to work more safely.

Honda will donate nearly 75 percent of its allocation of the hand sanitizer, packaging the product in easy-to-use nine-ounce bottles for health care facilities. On June 22, Honda made the first such donation of 1,250 bottles each to ProMedica Toledo Hospital in Toledo, Ohio, Memorial Health in Marysville, Ohio, and the DMC Children’s Hospital of Michigan in Detroit.