How Soon Can the Economy Bounce Back After Coronavirus?
Also today on Speed Lines: Ford expects a $600 million hit in Q1 alone thanks to coronavirus.
Welcome back to Speed Lines, The Drive's morning roundup of what matters in cars and transportation. It's Tuesday, April 14, whatever that means anymore. Let's dive right in! It'll be great.
At Least There's No Housing Crash This Time?
There are three things I'm truly passionate about in this life: cars, studying global economic systems and wallowing in my own existential despair. The coronavirus pandemic its resulting financial downturn have hit on all three of those things, so covering it has been a lot of fun. And by fun, I mean garbage, of course.
But today, this piece in Automotive News highlights something I've been thinking about a lot lately: how soon can the world's economy recover post-coronavirus, especially since there's no single, underlying issue keeping things down besides the virus itself and necessary social distancing? In other words, it's not like we have a housing market crisis underpinning this crash as we did in 2007 and 2008.
Using car sales as a backdrop—it can be a good indicator of economic health—this story argues that since things weren't "broken" to begin with, we have reason to hope for a recovery that won't be super protracted:
The economy is largely shut down because — and this is an important distinction — political, business and health leaders forced it to. This is intentional and not a fundamental crack in the global, national or local economies. Economic activity cratering is exactly what we want to curtail the disease. We, collectively, hit the pause button.
That has ramifications, such as job loss and near total loss of demand for everything but streaming services and groceries — U.S. consumer discretionary retail spending is down 80 to 90 percent right now, according to credit rating agency Fitch Ratings Inc. But jobs aren't being wholly destroyed.
[...] The question of when and how the economy recovers hinges on the ability to control the virus and its health impact. But it's also true that at some point, businesses are going to have to reopen or we face a tragic economic fallout.
China has largely returned to work — its auto sector is running at at least 90 percent pre-coronavirus capacity. Auto seating supplier Lear Corp. last week released its "playbook" on how it reopened plants in China, and CEO Ray Scott and a host of other multinational CEOs are advising Michigan's governor on how they were able to do that.
Yes and no, is what I think. That story accurately notes that people in China are back to work in many sectors, but hardly rushing back to movie theaters and restaurants. I'd also argue that the virus has exacerbated fundamental existing problems with America's system in particular, like slow wage growth, a broken unemployment system and a comparatively weak social safety net. But "reopening" America's economy depends on our ability to roll out mass testing, containing a future resurgence of the virus, keeping our medical system from becoming totally overwhelmed, securing a vaccine and keeping businesses and working people afloat in the meantime. And obviously, the longer that process takes, the fewer businesses will be able to "come back" to what they were.
I'll leave you with this rosy gem, which shows just how much predictions are all over the map, emphasis mine:
The same will likely occur in the U.S. The economic slog could carry on for some time — economic predictions range wildly, forecasting a full recovery as early next year or not until 2031. The shock could linger like the Great Recession, which saw unemployment stuck at 9.4 percent in 2010, recovering only to 8.2 percent in 2011. Unemployment didn't fall below 5 percent until early 2016.
But in this whole mess, I'm trying to take silver linings where I can find them. And the fact that we don't have a housing collapse or something similar at the heart of this gives me some hope we can come back from it all relatively quickly, without it becoming this century's Great Depression.
Ford Predicts Big Hit, But No Bailout Ask Yet
In the meantime, everyone is feeling the sting. And Ford—which was struggling in several ways even before this crisis hit—is already anticipating a $600 million loss for Q1 alone thanks to a 21 percent drop in new vehicle sales. This, from Reuters:
The news sent Ford’s shares down more than 5% in morning trading.
Only Ford’s joint ventures in China, where the COVID-19 pandemic has been receding, are currently producing vehicles. The automaker said it is working on a scenario for a phased restart of its manufacturing plants beginning in the second quarter.
“However, we believe we have sufficient cash today to get us through at least the end of the third quarter with no incremental vehicle production and wholesales or financing actions,” Chief Financial Officer Tim Stone said in a statement.
Asked whether Ford would apply for loans from the U.S. government or the Federal Reserve to sustain its operations for longer if needed, a spokesman for the automaker said that unlike during the Great Recession - when financing dried up - there is still plenty of liquidity in the capital markets.
“We have a broad range of options” for obtaining additional financing if needed, the spokesman said.
Somehow it's still better than Ford's Q4 2019 loss of $1.67 billion, something CEO Jim Hackett accurately said "wasn't nearly good enough." But that was pre-coronavirus. Expect more bad news to come.
Alabama's Mazda-Toyota Plant Delayed
No surprise there. The opening of this joint venture plant, meant to build crossovers, has been punted down the road in 2021. From Automotive News:
"On April 9, we informed state and local government officials in Alabama, along with our key suppliers, how the COVID-19 pandemic is impacting our ability to maintain critical equipment delivery schedules, creating labor shortages and slowing construction," Toni Eberhart, a spokeswoman for Mazda Toyota Manufacturing, said in a statement emailed to Automotive News.
"As a result, we will delay the start of production of the Mazda Toyota Manufacturing plant to a time period later in 2021. We are eager to keep the project moving forward and appreciate the ongoing support of all key stakeholders."
The plant was to begin production of 150,000 units each of a Toyota and a Mazda crossover yet to be named, beginning in 2021. Eberhart declined to comment on when production would start.
Again, it's not like anyone's buying cars anyway.
On Our Radar
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For China, the ‘USA Virus’ Is a Geopolitical Ploy (The Atlantic)
When do you think the economy will reopen? And what does that even mean? We treat coronavirus like it's a war, something that can definitively "end." I'm not sure that's the case—at least, not until a vaccine is here.