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The Auto Industry Has Borrowed An Absurd Amount Of Money To Get Through COVID

Illustration for article titled The Auto Industry Has Borrowed An Absurd Amount Of Money To Get Through COVID
Photo: Pedro Vilela / Stringer (Getty Images)
The Morning ShiftAll your daily car news in one convenient place. Isn't your time more important?

Automakers have borrowed a ton of money to get through the pandemic, FCA and GM salaried employees are getting their full paychecks, FCA and Mazda are struggling, and the UK is discussing EV mandates. All that and more in The Morning Shift for July 31, 2020.

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1st Gear: The Auto Industry Has Borrowed An Absurd Amount Of Money To Get Through COVID

Governments and private lenders around the globe have been offering automakers financial relief in the form of loans. Without these, and with depressed demand for cars and severe constraints on vehicle production, it’s unlikely that the furloughs and salary deferrals that automakers instated to stay afloat would have sufficed. So, how much has the auto industry borrowed so far? Well, according to Bloomberg, quite a lot. Apparently more than any other industry. From the news site:

The automotive industry has borrowed $132 billion since March as the spread of the coronavirus curbed demand for cars and closed factories.

The sector is the largest user of funds put in place to ease the effect of the COVID-19 pandemic.

The amount consists of $79 billion in new loans and $53 billion in drawdowns from existing credit lines. Facilities linked to the pandemic account for almost 80 percent of overall loan borrowings by the sector in the year to date.

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It’s not entirely clear which loans exactly Bloomberg is referring to, but “funds put in place to ease the effect of the COVID-19 pandemic” sound like at least some of them may be government loans.

In any case, that’s a lot of borrowing.

2nd Gear: Fiat Chrysler Salaried Employees Are Getting Their Full Paychecks, GM-ers Will Soon

Back in late March, as pandemic shutdowns were in full-swing, Jalopnik was first to report about Fiat Chrysler’s 20 percent pay deferments for most salaried employees, including a number of my engineering friends at the Auburn Hills headquarters.

As of the beginning of July, after over three months of pay deferment, “Chryslerians” (as I like to call people who work at Chrysler) stopped having to live 80 percent of their former lives. GM employees will soon be able to do the same. From the Detroit Free Press:

Unlike General Motors, which announced its own restoration of full pay for salaried workers, the move was not earlier than expected, according to FCA, but was in the planned time frame for addressing the financial impact of the coronavirus. Ford had announced a similar plan beginning in May for 300 executives to take salary deferrals for at least five months.

[...]

GM told its white collar employees on Tuesday that the 20% pay deferral for 69,000 salaried workers worldwide would end on Aug. 1, a month earlier than expected. For FCA’s salaried workforce, 15,000 of whom work in the United States, that happened on July 1, according to spokeswoman Shawn Morgan. The FCA workers are to receive their deferred pay, without additional interest, by mid-March 2021; GM said it would return the money to its workers in October with 6% interest.

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Mid-March 2021 is going to be a good time for my former coworkers at Chrysler. And my god, in October, when GM employees get all that deferred money back, the Detroit area is going to see lots of spending.

3rd Gear: Fiat Chrysler Sales Aren’t Good

Yesterday, we wrote about VW and Renault second quarter financial results, and of course, they weren’t good. Pandemics tend to have that sort of effect. Second quarter results continue trickling in from other companies, and now we’re seeing Fiat Chrysler’s numbers.

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Again, they’re not good, but—at least as the Detroit Free Press has framed it—they could be worse. From the article:

The question on Friday was how bad things would get for FCA, the last of the Detroit Three to announce its results for the second quarter of 2020. It was bad, as expected.

FCA said it lost $1.24 billion (1.05 billion euros) in the second quarter, a drop of 232% compared to the same period a year ago. That follows FCA’s woeful first quarter performance, when the automaker said it lost $1.9 billion (1.7 billion euros).

That’s bad, of course, but it’s bad for most in the auto industry these days, with the coronavirus pandemic continuing to rock the global economy. That’s forced companies to focus on finding the bright spots.

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The company’s CEO, Mike Manley, had positive things to say about how FCA has handled the pandemic. From the Free Press:

For the quarter, FCA reported revenues of $13.8 billion (11.7 billion euros), and an adjusted earnings loss before interest and taxes of $1.09 billion (928 million euros).

FCA CEO Mike Manley touted the company’s efforts to manage the crisis, which included a one-quarter pay deferral of 20% for salaried workers and pay cuts for top leaders.

“Our second quarter showed that decisive actions and extraordinary contributions from our workforce enabled FCA to contain the impact of the COVID-19 crisis. While the company remains vigilant about the health and safety of employees, our plants are up and running, dealers are selling in showrooms and online, and we have the flexibility and financial strength to push ahead with our plans,” Manley said.

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Now we’ll need to wait and see how the PSA merger into the company called STELLANTIS will help cut costs.

4th Gear: Oh, And Mazda Too

Let’s continue down this path of “poor financial performance in the auto industry,” just to get it over with. Here’s how Mazda fared (not well), per Reuters:

Japan’s No. 5 automaker anticipates a 40 billion yen ($383.5 million) loss for the year to March, joining a growing number of automakers including Ford Motor Co (F.N) and Nissan Motor Co (7201.T) which expect annual losses after the virus shuttered vehicle plants and kept customers away from car dealerships.

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The story goes on to single out the second quarter, in which Mazda did see some positive results from China (which has been seeing a resurgence in vehicle demand as people eschew public transportation in favor of cars), but otherwise struggled:

In the April-June quarter, sales fell to 244,000 units, largely due to a drop in demand at home and in Europe. Sales in North America, Mazda’s biggest market, fell 19% in the same period.

But China was a bright spot, as sales rose 13% during the quarter as car demand has returned to the world’s largest auto market, having recovered relatively quickly from the virus.

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5th Gear: The UK Is Phasing Out Internal Combustion Engines—Carmakers Say The Poor Will Pay

The cost of climate change is carried by us all, especially the poor. But enacting certain regulations aimed to help stem the tide of climate change, automakers argue, will put a financial burden on those same people.

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As governments around the world enact ever-stricter vehicle emissions regulations, car manufacturers have been suggesting that these measures will finally harm poor people. The idea behind these thoughts is that reducing emissions—and especially electrifying—adds cost, which has to be absorbed by someone. That could be automakers, that could be consumers, or of course, that could be the government (in the form of financial incentives).

UK dealers and carmakers are asking these questions now, as plans to phase out gas and diesel cars by the early to mid 2030s loom. From the Financial Times:

Ministers want to phase out the sale of new petrol and diesel cars by 2035, but are considering whether to move the date to 2032, and whether to include hybrid cars in the ban. They have asked the industry to submit their reactions to the proposals by Friday, several of which have been seen by the Financial Times.

“Restricting customer choice to expensive electric vehicles would result in less affluent customers being excluded from mobility, preventing the government from achieving its levelling up agenda,” said the submission from one carmaker with UK manufacturing operations.

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The story goes on:

Banning traditionally powered cars will “put additional strain on those with low incomes where public transport is not available”, one carmaker said in its filing, seen by the Financial Times.

“We do not believe that all customers will be able to afford the latest technologies, and social injustices could be exaggerated further if those in hardship continue to use their internal combustion engine technologies beyond the end sale date,” it added.

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One of the key arguments included in the article is that plug-in hybrids should be allowed, as they can offer significant CO2 reductions without range anxiety and within the budgets of a greater number of people than EVs. Generally speaking, when it comes to government mandates on emissions, have to agree with one automobile company, which stated:

“A broad approach, that makes use of a range of technologies and energy sources, will deliver the necessary CO2 reductions more quickly and more effectively.”

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It’s worth nothing that EV prices are dropping, and also, keep in mind that automakers care about making money. This bit about electrification affecting the poor is almost certainly not the companies’ main motivation. But that should be obvious.

Reverse: 1971: The Lunar Rover Sees Action

From Encyclopedia Britannica:

On this day in 1971, Apollo 15 astronauts James B. Irwin and David Scott first used the four-wheeled battery-powered Lunar Roving Vehicle to extensively explore the Moon’s surface, in particular the Hadley-Apennine site.

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Neutral: Should BEVs Be Mandated?

Do you think fully electric cars are what the world needs right now, or do you think plug-in hybrids may actually be more palatable for consumers, financially speaking (and also more practical from a range standpoint and possibly even cleaner due to their smaller batteries that can power the vast majority of trips)?

Sr. Technical Editor, Jalopnik. Always interested in hearing from auto engineers—email me. Cars: Willys CJ-2A ('48), Jeep J10 ('85), Jeep Cherokee ('79, '91, '92, '00), Jeep Grand Cherokee 5spd ('94).

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DISCUSSION

v045381
Bitter Old Dude

5th Gear: The UK Is Phasing Out Internal Combustion Engines—Carmakers Say The Poor Will Pay

To quote Mr. Spock...”Fascinating.”

Are these carmakers currently worried about the poor? Those folks who do not buy their product new, nor tend to use OEM parts when repairing said second
(or third or more) -hand cars? Are they really worried about some poor person not being able to afford the new technology? They don’t seem to care about that same poor person being able to afford current technology. Are they looking into ways to make EVs cheap and affordable, or offering other options for poor people to get around, or are they just blowing smoke out of their asses? What exactly are their plans for helping poor people’s transporation needs now? How will that change prior to 2035?

Or are they instead worried that they know Jack Shit about building an EV at a profit like they currently build ICE cars and trucks for great margin? That they will be forced to spend Billions or Trillions to remake their facilities to manufacture, to change up their current supply chain, and to do things in a new way, and are trying to weasel out of doing such things?

Fascinating, indeed.