CoVid-19 Industry Updates

CoVid-19 Industry Updates (169)

 

Automotive analysts acknowledged the grim status of the industry while speculating about a potential auto stimulus package and how the industry will get through the crisis caused by COVID-19.

A  recent webinar hosted by the Automotive Press Association and the Society of Automotive Analysts brought together Cox Automotive’s Michelle Krebs, LMC Automotive’s Jeff Schuster and IHS Market’s Stephanie Brinley for the wide-ranging discussion.

On a global basis, the short-term news was not good.

Around the world in March, auto markets dropped from 70 to 85 percent in countries like France Spain, Italy and China, according to Schuster.

“Our base case forecast is we’re seeing about a 15-percent decline for the year globally,” he said.

That would mean a drop in the worldwide light-vehicle market to 73 million from last year’s 90 million.

Schuster expects automakers to essentially be shut down in April across North America.

“We’ve got about 140,000 vehicles expected to be produced, roughly a 90 percent decrease from what is normally produced in April,” he said. “About 100,000 of those will be in Mexico.”

He said the pull-back in demand is expected in the 14- to 15 percent range and likely to get weaker.

“It remains an extremely fluid situation,” Schuster said.

Brinley, principal analyst at IHS Market, said what makes  this situation different from 2008-2009 is that there is both a “supply-side and demand-side shock” in this environment.

“We’ll still have to wait and see how consumers respond coming out of it,” she said. “This is certainly unprecedented. I can’t remember a time that we’ve actually shut down auto manufacturing like this before.”

While the government’s CARES economic relief package won’t stop the coronavirus, it may help in repelling the “big old bad ‘depression’ word,” Brinley said.

There was a debate about what, if any, auto stimulus should look like.

Krebs said Cox expects that an auto stimulus plan will be part of a future package.

Schuster added he’d be “shocked” if there wasn’t some type of government incentive program to help boost auto sales.

Krebs said Cox is bullish on EVs and hybrids, believing that a package would involve some variation of a ‘Cash for Clunkers,’ the 2009 program that incentivized the scrapping of older cars to sell newer, more environmentally friendly cars

Brinley questioned whether a ‘Cash for Clunkers’ stimulus would be the best move. She said this is a unique situation in which consumers are not being allowed to go outside or they’re being encouraged to stay inside.

‘Cash for Clunkers,’ the 2009 program
‘Cash for Clunkers,’ the 2009 program

“So, their reason for not buying now is much different than it was during the recessionary time period,” Brinley said.

She said an incentive may drive someone to make a purchase – if that person were already inclined to buy a vehicle. But she’s not sure that would drive a purchase otherwise.

“And even when you look at ‘Cash for Clunkers,’ all it did was (boost) pull-ahead sales,” Brinley said. “I would question whether or not that’s the very best use of funds.”

She said automaker incentives like 0-percent financing or other relief would be more effective in getting people back to showrooms. Brinley said making customers feel comfortable that they can continue to make payments is more important than a one-time check.

Cox predicts the recovery will be “very uneven” for different brands and segments.

Segments that do worse will likely be compacts and subcompacts, Krebs said, since those already attract budget-constrained buyers.

High-end performance cars and luxury cars are discretionary purchases which track with the stock market, Krebs said.

“We see those slower to come back,” she said.

Vehicle segments likely to do best are trucks, SUVs and crossovers.

Krebs said Cox has spent lot of time looking at shopping habits in the crisis.

“What we have been doing is monitoring on a daily basis shopping on our websites like Kelley Blue Book and Autotrader,” Krebs said. “We watch used vehicle activity at our Manheim auto auctions, although those have gone totally digital.

“As we looked at our credit application data, by the end of March, sales had fallen 64 percent for new cars and 50 percent for used. Of course, this comes at the worst time. March is one of the biggest months for sales, especially for used car sales. Typically, when tax refunds come in, people will use those to buy used cars.”

Tax season came to a “screeching halt” on March 10, Krebs said. She believes people are now holding on to their tax money for other essentials like rent or food.

Krebs said Cox is also having open office hours with clients, be it dealerships, lenders, rental car companies, etc., a couple of days a week.

“That is really eye-opening and, in some cases, heart-breaking,” she said. “I had some who were laid off or just closed their dealerships last week. That was tough.

“We think that April may will be the lowest sales rate in the history of data collection.”

 

APCO Holding LLC, a provider and administrator of automotive F&I products, will continue to provide COVID-19 assistance by joining the F&I Providers Relief Fund for F&I Managers as a founding partner.

With the auto industry facing unprecedented losses, dealers are confronting slow business and serious challenges. For some, that means temporarily closing their doors or making the difficult decision to lay off staff, enact furloughs, or make pay cuts. Founded in April, the F&I Providers Relief Fund has brought more than 40 providers together and raised over $500,000 to provide grants to F&I professionals who are confronting financial setbacks as a result of this crisis. Contributing members include a variety of F&I administrators, underwriters, roadside companies, technology platforms, and others who are involved with dealers and their employees on a day-to-day basis.

“As we continue to see the fallout from this pandemic, it is essential to come together and collaborate on what we can do as an industry,” says Fin O’Neill, Chairman & CEO of APCO Holdings. “If our responses are going to be effective and sustainable, they have to be built from a wide range of experiences. The F&I Providers Relief Fund has brought us together with one goal in mind—to help the people we do business with every day who are now impacted by this crisis. It’s an honor and a privilege to be a part of this effort.”

 

John Lee, president of APCO’s EasyCare and GWC Warranty, holds a seat on the seven-member Relief Fund board of directors tasked with raising awareness about the need within the industry and reviewing applications to award financial assistance grants.

 

Sales of certified pre-owned (CPO) vehicles decreased 46 percent year over year in April, according to Cox Automotive.

CPO sales were on a record-setting pace for the year before COVID-19 and ended down 20 percent month over month compared to March. For April, only 127,068 CPO units were sold, Cox Automotive reported.

The 46 percent drop in CPO volume was larger than both the estimated 34 percent drop in used-vehicle retail volume and the 41 percent drop in new-vehicle sales. Cox analysts said this suggests consumers in market during the COVID-19 pandemic are likely looking for low prices and value and steered away from CPO. While CPO are excellent used vehicles, with full warranties and benefitting from factory-backed inspections, they are often priced higher than a traditional used vehicle. At the same time, new-vehicle retail sales in April benefitted from high retail incentives and 0 percent financing deals, improving the value proposition. CPO units, stuck in the middle, suffered, Cox reported.

This year, CPO sales are down 18.7 percent versus 2019, with 739,838 CPO units sold through April.

Cox stated Toyota, Honda and Chevy continue to be the biggest players in the CPO market, collectively representing a third of all CPO sales. Those three plus Ford and Nissan account for 45 percent of CPO sales so far in 2020.

The Independent Automobile Dealers Association Of California updated its members on new guidelines for brick-and-mortar dealers who would like to perform online sales and home delivery. The announcement came from DMV in VIN memo 2020-04. 

If California dealers are not signed up to view DMV VIN memos, they are encouraged to go to the state DMV website. IADAC first began discussion of this topic with DMV in 2014 and saw little movement until recently when the COVID-19 crisis halted person to person interaction. The online sales and home delivery model became recognized as a health compliance solution for auto sales, but various items required attention as California laws were being violated by dealers practicing online sales and home delivery. 

“IADAC thanks DMV, CalSTA, CNCDA and California NMVB for their diligent efforts in this task,” said IADA Executive director  Larry Laskowski.

IADAC recommends that dealers fully understand these new guidelines to make sure they are compliant should they choose to adopt this model.

Stephan Wöllenstein CEO of VGC
Stephan Wöllenstein CEO of VGC

More than 2,000 Volkswagen dealerships across China have reopened, and the Chinese public is responding with strong interest. Showroom foot traffic is rivaling numbers from March 2019, Volkswagen announced on its website this week. Volkswagen Group China (VGC) is the best-selling brand in China today by sales and sold around 4.23 million cars in the Chinese market in 2019.

Volkswagen's joint venture, SAIC Volkswagen, has operated in China since 1984. SAIC Volkswagen, which includes the production of cars, parts, components and internal systems, is also back in full swing with 32 of 33 of the group's car and component plants operating again. VGC imports and produces in China the brands Volkswagen, Audi, SEAT, Škoda, Bentley, and Lamborghini, mainly for sale in China.

Stephan Wöllenstein, the CEO of VGC, said via the company’s website, “Hope is returning to the Chinese market, as we are experiencing a certain normalization of business. In 2020, highlights like the start of MEB production and the introduction of the Volkswagen ID. model family still lie ahead.”

This bodes well for the reopening of the U.S. car market.

General Motors Co. reported revenue of $32.7 billion and first-quarter earnings heavily impacted by the COVID-19 pandemic. Revenue was down 6.2 percent from 2019’s first quarter and income of $0.3 billion was down nearly 87 percent year-over-year.

“GM has suspended the quarterly dividend on its common stock and the company’s share repurchase program was also paused,” GM’s release stated.

The company described its underlying business performance as “strong.” In the first quarter, GM reported EPS-diluted of $0.17 and EPS-diluted-adjusted of $0.62; EPS diluted-adjusted includes a $(0.28) impact from Lyft and PSA revaluations; income of $0.3 billion, and EBIT-adj. of $1.2 billion, which includes a $(1.4) billion COVID-19 impact.

GM North America reported EBIT-adjusted of $2.2 billion and GM Financial had EBT-adjusted of $0.2 billion.

 

Honda recently delivered to the city of Detroit 10 Odyssey minivans that have been specially outfitted to transport people potentially infected with COVID-19, as well as healthcare workers. To protect the health of the driver from the potential for droplet infection during transportation, the Honda Odysseys have been retrofitted with a plastic barrier installed behind the front seating area, as well as modifications to the ventilation system to maintain an air pressure differential between the front and rear seating areas.

After seeing news reports about similar specially equipped vehicles modified by Honda in Japan, officials from the state of Michigan and Detroit approached Honda in the U.S. in mid-April about the possibility of acquiring similar vehicles for use in transporting local residents and healthcare workers to COVID-19 testing. A team of volunteers at Honda’s R&D center in Raymond, Ohio, including senior engineers and fabrication experts, quickly conceived and designed a method to modify the U.S. Odyssey at the Honda R&D Americas vehicle development center in Raymond, Ohio, where it was originally developed.

“As of today, the city of Detroit has tested over 20,000 residents and employees for COVID-19.  Transportation is a critical component of ensuring every Detroiter has access to a test. We are very appreciative of Honda for choosing Detroit to deploy these newly modified vehicles,” said Detroit Mayor Mike Duggan.

As states lift restrictions, Manheim will begin to allow limited access to its property, in accordance with enhanced safety measures outlined by Center for Disease Control guidelines.

Manheim President Grace Huang made the announcement in a statement on May 1.

“Starting next week, select Manheim locations will begin providing access for clients to preview inventory on a limited basis,” Huang wrote. “These locations are aligned with relevant local and state ordinances to ensure our clients have a safe experience on our lots. Upon entry, clients can expect to comply with certain protocols to ensure their health and safety.  It is our hope that, we will be able to offer this access at other locations as local and state ordinances allow.”

She added “as always, the health and safety of our team members, clients and communities remains our top priority.”

Under these updates, limited preview periods will be available during specific days and times on non-sale days only. Should clients plan to preview inventory, strict safety and compliance measures will be in place. However, auction offices and facilities will remain closed.

Manheim will maintain Simulcast-only sales at its locations, where local and state directives allow. All digital channels and tools remain fully operational. Simulcast selling will continue to be handled by Manheim’s Remote-Seller tool.

The company will continue to allow vehicle pick-up and drop off at our auction locations as local and state directives allow.

As Manheim continues to update its operations, further COVID-19-related developments could alter its plans, Huang stated.

“Should this occur, we will adapt accordingly and communicate any changes to our employees, clients and partners,” she wrote.

Manheim will continue to offer support to dealers by:  waiving Simulcast buyer and seller success fees;  extending through May the waiver of Manheim Express sell fees for all self-listed vehicles;  waiving seller fees for vehicles sold without a title or Title Absent and temporarily changing the arbitration policy by not allowing arbitration on a TA vehicle. 

“As a team, we will continue to monitor industry conditions and stay close to our clients to understand their short and long-term business challenges and opportunities. Manheim remains committed to our industry and our client’s success and appreciate their continued partnership during these extraordinary times,” stated Huang.

 

As part of its ongoing response to the COVID-19 pandemic, NextGear Capital announced it will continue to support dealers by extending its initial dealer relief program.

 

NextGear is continuing to defer curtailment and extension payments for eligible floorplan advances – for all NextGear Capital dealers in good standing – through May 31, 2020. Within the first 30 days of NextGear Capital’s original relief package, NextGear Capital deferred more than 160,000 payments, providing assistance to more than16,000 dealers when it was needed most.

 

“After discussions with our dealers, we decided to continue the relief terms that were the most important, beneficial and meaningful to them and their businesses,” said Scott Maybee, president of NextGear Capital. “Our hope is that, between the relief package, our incredible staff and the resources we’ve put together online, we can help our dealers make it out on the other side of this unprecedented economic crisis.”

The Federal Trade Commission announced that it has postponed its workshop seeking input on proposed changes to the Safeguards Rule under the Gramm-Leach-Bliley Act until July 13. The event will be held online.

The virtual workshop, originally scheduled to take place May 13, will continue to focus on some of the issues raised in response to amendments the FTC has proposed making to the Safeguards Rule, which requires financial institutions to develop, implement, and maintain a comprehensive information security program. In 2019, the FTC sought comments on the proposed amendments to the Safeguards Rule.

The FTC has extended the deadline to submit a comment on the topics that will be examined at the workshop until August 12, 2020. Instructions for filing comments can be found in the Federal Register notice, which will be published soon. Those interested in participating as a panelist at the workshop can email the FTC at This email address is being protected from spambots. You need JavaScript enabled to view it. by May 14. The workshop will be webcast on the FTC’s website.