For a global industry operating in a global pandemic, the auto industry is operating without any clear unity on coronavirus. All that and more in The Morning Shift for Tuesday, March 17, 2020.
1st Gear: $58 Bn Airline Bailout Brings Unwanted Scrutiny To Airline Companies Being Run By Morons
Small businesses across the country are in a crisis and need government support to stay afloat. Also, the gigantic airline industry is in trouble, and it wants $58 billion to weather this storm. But in asking for that money, the airline industry has put some unwanted attention to its poor planning, as Bloomberg reports:
Help in the U.S. is needed because “this crisis hit a previously robust, healthy industry at lightning speed,” Airlines for America said in a statement. The trade group outlined a proposal for $50 billion for passenger airlines and $8 billion for cargo carriers.
But the request for taxpayer assistance via loans, grants and tax relief comes after a decade of massive consolidation — and billions in profits — that put the industry in a far more robust condition than before.
What’s more, from 2010 to 2019, U.S. airlines spent 96% of their free cash flow, some $45 billion, to purchase shares of their own stock, according to data compiled by Bloomberg. The world’s largest carrier, American Airlines Group Inc., was the biggest buyer, spending $12.5 billion.
Share repurchase programs aim to help boost share prices. And that effort — as opposed to using the cash to build up reserves — is bound to draw attention as the question of aid is debated.
Basically, the airline industry had all the money it needed to prep for a crisis like this, was advised to do so, and instead dumped what it had into boosting share prices. I can’t wait for these morons to get all the money they asked for.
2nd Gear: Elon Is Getting This Wrong
The move is simple: Close the factory, pay for everyone to be home. What’s not the right thing to do? Vaguely tell people not to show up if they feel bad, but don’t incentivize them to do so, and keep their work open anyway. Guess what Elon has been up to?
Indeed, while the Bay is on lockdown, Tesla’s Fremont plant is open for business, and nobody even knows why, as the LA Times reports:
Alameda County has declared Tesla an “essential business” that is allowed to remain in operation, according to a county spokesman.
What’s essential about automobile manufacturing in the midst of a viral pandemic? “That’s a good question,” said spokesman Ray Kelly, promising more information would be forthcoming. “We’re in uncharted waters right now.”
This is not uncharted waters, as everywhere else where coronavirus has been a problem, car companies have shut down or workers have shut things down for them.
Elon, however, stood above the mess and issued more of a bad message, per the LA Times:
Operations will continue, Tesla Chief Executive Elon Musk told employees in a Monday night email. “If you feel the slightest bit ill or even uncomfortable, please do not feel obligated to come to work,” he said.
Several Tesla employees sent copies of the email to The Times. Tesla did not respond to repeated requests for comment. Requests for information from Alameda County Supervisor Scott Haggerty, who represents the Fremont district, went unanswered.
“I’m going in on [when my next shift starts] Thursday unless anything changes,” one employee emailed The Times. “Don’t want to risk losing my job. But the main thing I am worried about is getting it and bringing it home to my senior parents 67 and 74 one of which has emphysema. But what [am] I supposed to do??”
When your life and livelihood is tied to your work, but your work threatens your livelihood, that’s life under The Virus, baby.
3rd Gear: There’s No Point Running The Factories Anyway
Yesterday we ran two stories on auto workers in the time of The Virus, the first being Basque workers shutting down their Mercedes van plant, the biggest factory in the region, because they weren’t getting adequate protection, and workers in America being pissed that they didn’t feel safe on the line and didn’t have any alternatives.
Another line from the Detroit News article we highlighted in that second part stuck out to me. There’s no point in making all these new cars anyway:
While shutdowns typically are very costly for automakers, analysts say, they may not matter in the end. They predict demand will take a tumble as stores and schools close across the country. Ford has said showroom traffic is down in certain parts of the country.
“We saw Seattle pull back further than the national number in the last week’s data,” said Jeff Schuster, president of global vehicle forecasting at market analysis firm LMC Automotive. The virus has “pushed some people to car dealers because they have time now, but I think eventually all of that goes away and people will stay home. It’s just a matter of if people stay home or not and listen to that notion of expanding the social distancing.”
Schuster says demand could fall by double digits, though not likely to the nearly 80% drop seen in China year-over-year in February. But even a small slump can be costly: If for just one week, people did not buy any vehicles, the companies could lose $7.3 billion in revenue, the economy 94,000 jobs and the government $2 billion in receipts, according to the Center for Automotive Research in Ann Arbor.
“It’s not out of the realm of possibility,” Dziczek said. “If people don’t buy cars for a week, it’s going to be painful.”
All this, for what? Another Ram 1500 to sit on the lot?
4th Gear: Cheap Gas Could Kill Biofuel
Biofuel always seemed to operate in a tenuous balance, aided by heavy government support at every turn. I don’t know if I ever loved it, but I may soon see a world without it thanks to hideously cheap gas, as Bloomberg reports on Brazil:
The spectacular plunge in the crude market is sparking unprecedented reverberations across commodities and economies, with Brazil’s corn-ethanol producers standing out as a concentration of the pain.
It goes to show how the unraveling in the oil market is threatening production of cleaner, renewable energy.
[...]
The collapse in oil comes at a time when corn costs had already been surging for the mills that turn the grain into biofuel. But relatively high energy prices allowed the processors to stay profitable, with output expected to jump more than 50% this year from last season. That’s now been thrown into question.
“The corn-price boom combined with the oil plunge really concerns us that a hold is coming for investments,” Nolasco said at an industry conference last week in Sao Paulo.
I don’t know if corn-based fuel is exactly the horse I want to ride into the apocalypse, but who even knows anymore.
5th Gear: U.S. Is A World Leader In Being Bad At Fixing Traffic
If anybody is going to be an expert in traffic and the ways you can be bad at fixing it, it’s going to be America. This is a charming one from Germany’s Der Spiegel, detailing an American report on how increasing the size of roads doesn’t help alleviate traffic at all:
Clear the morning traffic jam with an additional lane: This approach seems logical - in fact, according to a US study, there is no connection between the expansion of roads and the decrease in traffic jams. Between 1993 and 2017, freeway capacity in the 100 largest urban areas in the United States grew by 42 percent, according to a study by the Transportation for America (T4A) organization, which is committed to a better road and transportation system in the United States.
Read the whole thing, it’s wonderful that we are at least a global leader in doing things poorly. When you’re done with that, read Jalopnik alum Aaron Gordon’s longread on why we are horrible at building public transit, too.
Reverse: Just Some Nice Guys Hanging Out
Via Hells Angels:
On March 17th 1948 the first Hells Angels Motorcycle Club was founded in the Fontana/San Bernardino area in the United States of America. About the same time, other clubs were formed in various places in the state of California, but none of these clubs were associated with Hells Angels nor with each other.
Neutral: Do They Deserve It?
You can’t let the airlines fail, can you?
(You can.)