Good morning and welcome back to Speed Lines, The Drive's morning roundup of what matters in the world of cars and transportation. I do hope you're staying safe from pandemics and Murder Hornets. I'm not a big fan of 2020 so far, I can tell you that much!
Michigan, Ohio Automakers Seek Industry Aid
Factories, supplier companies, finance arms, dealerships—every facet of the global auto industry has been upended by the pandemic and its resulting extreme downturn in consumer spending. It's a bad time for the business, which had been dogged by slowing sales for years after a strong recovery from the last recession and was already facing an expensive tab as it transitioned to an electric and autonomous future.
The point is, the car business is going to need some help this year and beyond. I don't especially think that anyone has the stomach for another bailout—and I think that's extremely unlikely if President Trump secures reelection in November—but there may be some other forms of aid involved.
That's what lawmakers in Michigan and Ohio are asking for in a letter circulated to other members of the U.S. House of Representatives, according to The Washington Post, which broke the story, and other outlets. And in that letter, they make the case that this downturn could be worse than the one the world experienced more than a decade ago.
From the story:
To make their case, lawmakers including Reps. Marcy Kaptur (D-Ohio), Debbie Dingell (D-Mich.) and Fred Upton (R-Mich.) began circulating a draft letter Tuesday emphasizing that the “projected economic fallout for the industry is grave,” according to a copy obtained by The Washington Post.
In some respects, they said, the challenges facing the automotive ecosystem “exceed those of the 2008 financial meltdown,” referring to the recession more than a decade ago that ultimately yielded an approximately $80 billion auto industry bailout.
[...] “Members of Congress are going to be focused on the drivers of their regional economy,” said Democratic Rep. Haley Stevens. She said an early focus is on ways to “address the drop in sales, and what that means for future legislative action.”
Though automakers are taking advantage of the $2 trillion CARES Act relief package, members of Congress may seek additional help. For now that could include tax breaks, aid for workers and the "creation of a new federal program that might persuade penny-pinching Americans to purchase new vehicles."
What it does not necessarily mean, Dingell said, is another Cash for Clunkers-style trade-in program. Here's Automotive News on that:
In response to any sort of federal program that might coax customers to make new-vehicle purchases, Dingell said “Cash for Clunkers is gone.”
“There is a lot of discussion and zero agreement about what might be needed to drive demand down the road,” she said.
This makes sense. As we wrote early last month (which feels like a year ago now) Cash for Clunkers had an extremely mixed track record, to put it politely. Some at Ford have argued for a similar program moving forward, but at the very least it'd need to be done differently. (I'd like to see such a program incentivize only American-built hybrids and EVs up to a certain price point, for example, to both spur new car sales and address some climate issues at the same time. But I doubt anyone will go that far.)
We'll see how other lawmakers and the White House respond to this.
China's Car Sales Up, Finally
To my point earlier, you have to remember that new car sales weren't exactly white-hot even before the pandemic. They were especially slow in China, the world's largest car market and one long considered an infallible and unstoppable money printer. (I'm no economist, clearly, but I've been shocked at the number of people I've met in this world who assume unlimited and unfettered growth is somehow possible.)
But China's recovering slowly but surely from coronavirus, and in April, we saw the first increase in new car sales there in some two years. Via Reuters:
April’s sales of 2 million units likely rose 0.9% from a year earlier, and 39.8% from March, the China Association of Automobile Manufacturers (CAAM) said in a post on its official WeChat account.
It added its forecast was based on sales data it had collected from key companies, without giving further details.
A gain in April would be the first rise in auto sales in China after 21 straight months of decline as the world’s second-largest economy slowed.
Still, China's looking at steep, double-digit declines in auto shows again this year. It may be a small ray of hope for automakers right now, but it's not to be counted on.
Why It Sucks To Be A Rental Car Company Now
No one's traveling. Tons of pre-existing debt. Competition from Uber and Lyft. Massive overhead costs. An inability to access small business relief funds because they're not small. The big rental car giants are up there with the airlines in terms of being totally screwed, to use a technical business term, by the pandemic. Via the Wall Street Journal:
Hertz Global Holdings Inc., which was already carrying massive debt and attempting a turnaround before the health crisis, on Monday hired an additional adviser to help prepare for a bankruptcy filing, people familiar with the matter told the Journal. The company didn’t immediately respond to a request for comment.
Avis was in a better position heading into the viral outbreak, with the company saying last month that strong results in January and February were pointing toward a record year. But business collapsed in March with global travel virtually halted.
On Monday, the company said it is seeking to raise $400 million by issuing a new secured bond with the proceeds tagged for general corporate purposes.
Stocks for rental-car firms have been hammered in recent weeks as the pandemic played out. On Monday, Avis shares closed at $13.97, compared to $50 at the end of February, according to Factset. Hertz shares have hovered around $4, down roughly 80% since February.
Worth a read in full.
On Our Radar
Magna profit halves on COVID-19 hit (Reuters)
Carvana Q1 net loss more than doubles as virus slows demand (Automotive News)
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What's the ideal government-backed auto industry relief, in your mind? Is it "nothing?" You can say that too, I won't be offended.