'A Dark Cloud Over the Dealership' As New Car Sales Face a Huge Downturn
Today on Speed Lines: Dealers face big trouble and factory shutdowns begin in North America.
Welcome back to Speed Lines, The Drive's morning roundup of what matters in the world of how we get around. Or more specifically, how we aren't getting around. It's hard for me to even know where to start with all of the (entirely bad, I'll be honest) news facing the transportation business, but let's see if we can parse out what's most important.
Bad News For Dealers
I often like to say there are two easily determinable measurements for the health of any economy: cars and houses. If people aren't buying cars and they aren't buying houses, your economy is, to use a technical term, screwed.
The automotive industry spent much of the post-recession 2010s riding high on years of record new car sales. That started slowing down in recent years as demand started drying up (and an economic downturn hit China pretty hard.) But that was before our new reality set in with the coronavirus outbreak, and even though America likely hasn't seen the worst of it yet, this Wall Street Journal story is full of doom and gloom for car dealers:
Now, the industry’s concerns have shifted from fretting about factory disruptions to bigger worries about whether people will buy cars as much of society shuts down.
“It feels like there is a dark cloud over the dealership,” said Andre Woods, a 40-year-old sales associate at Village Ford in Dearborn, Mich. “It’s got me unnerved, and I don’t shake easily.”
For many U.S. dealers, the recent drop off-in buyer traffic was sharp and sudden, just as the industry was gearing up for the busy spring-selling season.
Stores in most areas had seen little virus-related slowdown before last week, when schools began closing and states and the federal government declared emergencies, said Rhett Ricart, an Ohio dealer and chairman of the National Automobile Dealers Association.
“That changed everything,” Mr. Ricart said. On a conference call with the heads of dozens of state dealership groups Monday, those in states with tighter restrictions on gatherings reported sales or showroom traffic down 25% to 50% in the past few days, he said.
One interesting trend spotted in that story is that dealers may finally want to invest more in online sales. Historically, dealer franchises have been resistant to the idea, wanting to stick to the traditional brick-and-mortar inventory, servicing and finance setup instead of the model Tesla uses. Maybe they'll come around now. Worth a read in full.
Factory Shutdowns Or Slowdowns In The U.S.
Asia and Europe went first, but now we're seeing auto factory slowdowns here in the U.S. too. Honda is halting all production in the U.S., Canada and Mexico for at least six days starting on Monday. It is the first automaker to do so in this country.
And Automotive News reports the Big Detroit 2.5 are about to "stagger" production at General Motors, Fiat Chrysler and Ford plants to allow for extensive cleaning. We'll know more about this later today. For now:
The automakers will implement “rotating partial shutdown of facilities, extensive deep cleaning of facility and equipment between shifts, extended periods between shifts and extensive plans to avoid member contact,” the UAW said in a statement.
The UAW said the automakers have also agreed to lobby in Washington on behalf of union workers. It was not immediately clear what that entailed or what the plant changes would look like. The union said more details would be released within 24 hours.
UAW President Rory Gamble said earlier Tuesday that the union was prepared to seek stronger measures if it was not satisfied that General Motors, Ford Motor Co. and Fiat Chrysler Automobiles were working to adequately safeguard hourly workers.
Meanwhile in California, in a reversal from yesterday, Tesla has been told it's not an "essential business" and has been ordered to suspend operations at its Fremont, California factory, reports The Verge.
Controversy Over Airline Stock Buybacks Amid Bailout Ask
Meanwhile, in the world of commercial aviation, the American airline industry is requesting a $50 billion taxpayer-funded bailout as part of President Donald Trump's trillion-dollar stimulus package. And Trump has indicated he'll back the airlines. But this raises an important question: amid record profits, shrinking seats, price gouging and skyrocketing executive pay, why wasn't the airline industry more prepared for this?
In part, it's because much of that money in recent years has gone toward stock buybacks to push share prices higher. And critics on both sides of the political aisle don't want that to happen again if they get a bailout, reports Business Insider:
But there's a catch. Over the past decade, major airlines — including Delta Airlines, United Airlines, and Southwest — have used roughly 96% of their available cash on stock buybacks, according to Bloomberg. By reducing share count, these repurchases have pushed stock prices higher.
In the process, they've drawn criticism for how they've boosted shareholder returns without directly helping businesses. The activity is central to a broader discussion about how companies use their cash — and whether they should be doing something different.
Some experts argue that these companies should have instead used those proceeds to build themselves a financial cushion or address labor issues. Tim Wu, a Columbia University professor, targeted American Airlines in a recent New York Times op-ed.
"It could have stored up its cash reserves for a future crisis, knowing that airlines regularly cycle through booms and busts," Wu wrote. "It might have tried to decisively settle its continuing contract disputes with pilots, flight attendants and mechanics."
Sara Nelson, president of the powerful Association of Flight Attendants union, added that a bailout must aid workers and keep the industry afloat, "not enrich shareholders or pad executive bonuses." Here's to hoping!
On Our Radar
NADA, Alliance urge Trump to treat dealerships as essential businesses (Automotive News)
The Newsroom at the Center of a Pandemic (NY Times)
Do you work at a dealership, or work with one? What's been your experience so far?