Daimler is in the garbage can, so is Renault, so is Hyundai, and so are auto suppliers. I am happy to report that I am not (currently) in a garbage can. All that and more in The Morning Shift for April 23, 2020.
Daimler (which had one of its factories closed down by workers concerned they weren’t adequately being protected from coronavirus) is having a time, and it’s almost entirely because of coronavirus, of course.
The maker of Mercedes-Benz vehicles suffered as customers shunned car and truck showrooms during coronavirus lockdowns and analysts said the slide in Daimler’s valuation over the past year put more pressure on it to deepen alliances with rivals.
Daimler said preliminary adjusted first-quarter earnings before interest and tax (EBIT) slumped 68.9% to 719 million euros ($777 million) while both vehicle sales and revenue would fall this year. Adjusted EBIT for Mercedes-Benz vehicles fell more than 56% to 603 million euros.
One analyst even speculated that Daimler should consider a merger with another automaker to save costs. Which would be kind of wild! Even in these trying times.
NordLB analyst Frank Schwope said the company’s fourth profit warning since Chief Executive Ola Kaellenius took over in May was no surprise but the pandemic was putting pressure on carmakers to find savings through alliances or mergers.
“Fiat Chrysler and PSA are just the start. Perhaps it is time for Daimler to think about a deal given the low valuation,” he said, referring to the planned merger between the Italian-U.S. car giant and France’s Peugeot.
NordLB’s Schwope said three combinations for Daimler were logical: deepening an alliance with BMW (BMWG.DE) or partners Renault (RENA.PA) and Nissan (7201.T), or combining with Volvo which shares the same Chinese investor, Geely.
Bloomberg’s thesis in this new story is that the little-appreciated germophobe demographic could push up car sales because they no longer trust public transit. The data supporting said thesis is, well, somewhat shaky but I am relieved that Bloomberg can always be relied on to tackle the most Bloomberg angle to a story possible.
When Jason Rogers’ Buick Rendezvous blew its exhaust system and became undrivable last year, the cable-and-internet salesman and weekend songwriter decided he’d just take the bus to downtown Nashville from his home 10 miles south.
That 45-minute commute worked until the coronavirus hit U.S. cities starting in February. Then, Rogers said, he started renting cars by the week to avoid catching Covid-19 on the bus and bringing it home to his two children. With rental rates costing him $1,200 a month, the single father says he’s now looking to buy a car and stay off public transit.
I fail to see how getting a rental car, which has presumably accommodated multiple drivers in recent weeks, is much of an upgrade, but I digress.
The precautions Rogers and others are taking are a glimmer of hope for carmakers and dealers who need depressed vehicle sales to bounce back.
Any bump in car-buying from virus-averse commuters will only mitigate the damage being done to U.S. vehicle sales that IHS Markit sees falling 27% this year to just 12.5 million cars and trucks.
There’s also embedded in here a parallel story here about how Uber and Lyft are also suffering because of virus fears but I’m still stuck on the first angle. Still “Germophobes Shunning Public Transit Give Carmakers a Bit of Hope” is about as 2020 as Bloomberg headlines get.
Every carmaker’s earnings are about the same now, some better and some worse than others. This is all very bad for now, they all seem to say, but for sure there will be a recovery in the second half of 2020! We think! We hope! Hyundai is no different.
“Demand is expected to worsen in the second quarter due to the prolonged suspension of dealer operations and factory operations in overseas markets,” Hyundai’s Chief Financial Officer Kim Sang-hyun said in an earnings call.
“Global automakers are expected to see their profitability decline in earnest.”
Hyundai said global auto demand fell 24% in the first quarter and more than 40% in March.
Tracking the spread of the outbreak, declines for Hyundai’s first-quarter retail vehicle sales were sharpest in China where they slumped 43%. In South Korea, they dropped 14% while in the United States, they fell 11%.
But... better than Daimler!
Net profit slid 44% to 463 billion won ($376 million), below an average Refinitiv estimate of 607 billion won, hit by the slump in China sales, a smaller profit from its affiliates and financial losses.
By comparison, Daimler AG (DAIGn.DE) warned on Thursday of a near 70% plunge in core earnings for the quarter just ended.
Automotive News reports that even if many auto plants restart in the first week of May, as several plan to do, it will be slow going at first, because suppliers need to restart as well.
“Yes, suppliers will have to be ramping up now for the planned (May 4) restarts across North America,” Kristin Dziczek, vice president of industry, labor and economics at the Center for Automotive Research in Ann Arbor, Mich.
To resume production, manufacturers must not only ensure that they are legally allowed to operate, but they most persuade employees that it is safe to do so.
“This is going to be a very slow process in terms of everyone getting back to production. So much is going to be new and different within the plant facilities as well as for employees themselves. My sense is the first few days, if not, even weeks of production, will be much slower,” said Julie Fream, CEO of the Original Equipment Suppliers Association.
Social distancing inside suppliers’ plants also doesn’t sound great.
Faurecia’s April 17 memo to employees addressed health and safety measures the plant will implement, including checking employees’ temperatures, restricting entry to the center gate and distributing masks. These safety measures have been encouraged by auto suppliers, such as Lear Corp., and OESA.
Workers were told that upon return to the plant, the recommended 6-foot rule for social distancing in the workplace would apply only to employees that did not have a mask — otherwise, all employees will be working at a 3-foot distance, a Faurecia plant employee who requested to remain anonymous told Automotive News. At least 75 employees work on Faurecia’s Tesla shift.
This is all going to be pretty messy, and (very likely) dangerous.
It will be seeking a line of credit from the French government to the tune of billions of euros.
From the Financial Times:
The carmaker hopes to put in place the agreement, which will involve a state-guaranteed loan given through banks and is expected to be about €4bn to €5bn, in the coming weeks. The state is Renault’s biggest shareholder, with just over 15 per cent of the capital.
“We don’t have any visibility on the length of the crisis, nobody has, so as there is a possibility to go get credit facilities with the French state’s backing . . . we are going to go get it to be on the safe side,” said Renault’s interim chief executive Clotilde Delbos. She expects the agreement to be in place by the second half of May.
It’s somewhat refreshing to hear “We don’t know what the fuck is going on and no one else does either” from an automaker executive rather than the usual “We’ll definitely get production back on soon, for sure, absolutely happening.” Especially because Renault’s problems aren’t terribly unique.
Costs are being held down as all of the group’s production workers in Europe are on partial unemployment schemes while 85 per cent of their non-factory workers are on half-time, including 16,000 in the Paris region. Renault has also cut its marketing budget in half.
Ms Delbos said Renault was still experiencing a trickle of sales around the world, in countries such as Russia and Turkey, while first-quarter sales plunged 19.2 per cent to €10.2bn. Renault’s global sales dropped 25.9 per cent. In Europe they slid 36 per cent.
The group has cancelled its dividend and suspended financial guidance, saying it remained “impossible to assess” what the impact would be this year.
Reverse: Space Exploration Is Dangerous
Soyuz 1 (Russian: Союз 1, Union 1) was a crewed spaceflight of the Soviet space program. Launched into orbit on 23 April 1967 carrying cosmonaut Colonel Vladimir Komarov, Soyuz 1 was the first crewed flight of the Soyuz spacecraft. The flight was plagued with technical issues, and Komarov was killed when the descent module crashed into the ground due to a parachute failure. This was the first in-flight fatality in the history of spaceflight.
I’m honestly bewildered by the concept, but I’m also not a germophobe.