The used car market in a shambles along with everything else, Hyundai likes its position amid coronavirus, and the price of oil is nosediving. All that and more in The Morning Shift for April 20, 2020.
Like new cars, used car sales are tumbling amid the pandemic, but used car prices are in a strange gray zone.
No one seems to have a good idea how much used cars are worth.
Before the pandemic, dealers were buying up used cars to grow their inventories. This year was expected to feature a strong used-car market, but now, with so much uncertainty, that activity has largely stopped. As such, trade-in values are falling, as Automotive News reports with an eye on dealers:
For the week ended April 12, wholesale auction volume totaled just 19,000, an 83 percent drop from the pre-virus weekly average, according to J.D. Power. Retail used-vehicle sales during the first 12 days of April for franchised dealers tumbled 63 percent vs. the same period in 2019. J.D. Power now forecasts used-vehicle prices to fall 7 percent through June before beginning to recover — though Jonathan Banks, vice president of vehicle valuations and analytics, notes the outlook is fluid and contingent on a gradual recovery in the back half of the year.
The market is all fucked up:
Still, used-vehicle prices at retail as of mid-April are off by just 1 percent, while wholesale values are estimated to be down 10 to 12 percent, said Cox Automotive executive Dale Pollak. It’s an odd gap.
“Generally speaking, there’s a correlation between the movement of wholesale and retail pricing,” said Pollak, Cox executive vice president and co-founder of vAuto inventory- and market-tracking software. “But we’re at a strange moment in time where we’re not seeing that correlation.”
One reason could be dealers remain optimistic the economy will reopen soon and so have mostly held steady on retail prices. Some may be leery of marking down vehicles acquired at pre-pandemic prices.
“All of us have seen stronger new-vehicle sales than used over the last month, which is totally opposite as to the way the year started,” Maroone USA CEO Mike Maroone told Automotive News’ “Daily Drive” podcast. “And at this point, I don’t think any of us really know ... what the right values are on used vehicles.”
Maroone said he sees a “tremendous amount of risk” in today’s used-vehicle market and suspects dealers will absorb “significant losses.”
If you have the cash and it makes sense for you, now is probably a good time to be buying used because of the uncertainty but as ever no one seems to know anything about where things are headed.
It’s trading below $12 a barrel, or its lowest price in over two decades.
A deal between oil-producing countries last week to cut global production by 10 million barrels initially gave investors some optimism that the price might rebound but with around a third of the world under some kind of lockdown because of coronavirus demand is simply not there. And the supply of crude oil continues to pile up.
Futures fell as much as 40%. While the collapse reflects the most immediate May contract expiring on Tuesday, it nonetheless highlights a fast-growing glut of oil, and rapidly expanding stockpiles at the American hub at Cushing, Oklahoma. OPEC+’s record production cuts from next month are paling in the face of this evaporating demand.
There are signs of weakness everywhere. Buyers in Texas are offering as little as $2 a barrel for some oil streams, raising the possibility that producers may soon have to pay to have crude taken off their hands. China reported its first economic contraction in decades on Friday, an indication of what’s to come in other major economies that have yet to emerge from coronavirus-driven lockdowns.
“There is no limit to the downside to prices when inventories and pipelines are full,” commodities hedge fund manager Pierre Andurand said on Twitter. “Negative prices are possible.”
What this means for you, a humble car-driving enthusiast, is cheap gas at the pump, but that isn’t much consolation if you don’t have the opportunity to use it or, worse, are one of the tens of millions of Americans who have recently lost their job.
The automaker made moves early with its program to cover a half-year’s worth of payments for buyers who lose their jobs because of coronavirus, and, unlike competitors like Ford, have stuck with small cars that don’t cost an arm and a leg. That could give it an advantage if and when the economy continues to get worse.
From Automotive News:
The Korean automakers also have fundamentals in their favor once the market recovers. One is product: Hyundai and Kia still have inexpensive cars in their lineups that could be in demand as consumers look for economy over style. They also have inexpensive crossovers.
“Things have worked out in their favor because they haven’t discontinued all their smaller, more affordable cars yet,” said Sam Abuelsamid, principal research analyst at Navigant Research. And small crossovers such as the Hyundai Venue and Kia Seltos — both new models — “are available at a more reasonable price point than pretty much anything you could buy from a Ford dealer today,” he said.
The brands also had sales momentum before the virus struck. A lot of that comes from a product lineup that continues to improve with each new model.
[Brian Smith, COO of Hyundai Motor America] said Hyundai is working with dealers to establish inventory levels that should help with a quick rebound when conditions in the U.S. allow for it. “When we come out of this, it’s likely to be a pendulum swing; there’s going to be a lot of pent-up demand,” he said. “So there’s many dealers that are saying they still want to keep the flow of vehicles coming.”
I welcome this new future where the Hyundai Venue is the hottest-selling car in America.
Stroll took over Aston Martin earlier this year with a huge personal stake. He said Monday that getting manufacturing going again is important to Aston Martin’s business and that the launch of the DBX was vital as well, which both seem self-evident.
Like thousands of UK firms, Aston Martin suspended production at two factories in late March under the country’s stringent lockdown against the coronavirus outbreak. It extended the suspension to April 27 last week. (reut.rs/2zfInYq)
“In this first year we will reset the business,” Stroll, the company’s new executive chairman, said on Monday.
“Our most pressing objective is to plan to restart our manufacturing operations, particularly to start production of the brand’s first SUV, DBX, and to bring the organization back to full operating life.”
Both of these things do seem pressing, though they are in large part out of Aston’s hands, and more in those of the British government.
That is a funny headline to write amid a pandemic, but Automotive News says that Ford’s internal goal is to reach at least ten percent margins, which is ambitious considering that Ford’s operating margin last year was 6.7 percent and we are in the midst of a global pandemic that is wrecking the economy.
Ford’s recent management shuffle had this ten percent goal in mind.
[North American COO Lisa Drake], 47, was promoted to the newly created role last week as part of a shakeup of Ford’s North American leadership team aimed at improving operational execution. Drake, who will retain her previous duties as vice president of global purchasing, will report to Kumar Galhotra, who is now Ford’s president of the Americas and the International Markets Group.
Ford, in a statement, said Drake will “bring enhanced focus to product launches, warranty cost reduction and material cost improvements.”
Those areas were weaknesses last year that led to a disappointing fourth quarter and dinged the company’s full-year profits.
She also will lead Ford’s charge to increase its North American operating margin to 10 percent. Ford has used “return to 10" as a rallying cry in recent years but has not put a time frame on when it might accomplish that goal.
Drake’s biggest accomplishment is leading the launch of the 11th-generation F-150 in 2004, though helping to get Ford anywhere close to ten percent would outstrip that. It all feels like an impossible job in this economy.
Reverse: Danica Patrick Wins
On April 20, 2008, 26-year-old Danica Patrick wins the Indy Japan 300 at Twin Ring Montegi in Montegi, Japan, making her the first female winner in IndyCar racing history.
During the 2006 season, Patrick finished in ninth place in the overall IndyCar standings, but didn’t win any major races. In 2007, she moved to the Andretti Green Racing team and finished the season seventh in the standings. On April 20, 2008, Patrick won the Indy Japan 300–her 50th IndyCar Series race–at Twin Ring Montegi, a 1.5-mile oval track, making her the first female winner of a major U.S.-sanctioned open-wheel race. She finished the 200-lap race 5.8594 seconds ahead of Helio Castroneves, then a two-time Indy 500 champ. At the 2009 Indy 500, Patrick came in third behind winner Castroneves and second-place finisher Dan Wheldon.
There something discordant about its confidence, given that it seems so exposed in the event of a really bad recession. But perhaps there is some reality in which Jim Hackett is in fact a business genius.