The Auto Industry Is Really Ready For This Shit To Be Over

Car sales are (maybe) on the uptick, reopening factories is extremely complicated, and GM needs cash. All that and more in The Morning Shift for April 27, 2020.

We've already begun to see what the new normal will look like: a sales rebound, but a small one and over a long period of time. The number-crunchers at JD Power think that is already happening.

From Automotive News:

The company said retail sales, compared with its forecast from before the coronavirus pandemic, showed signs of stability in the first half of April. Retail sales were 55 percent below expectations for the week ending April 5 and rose slightly in each of the following two weeks.

Retail sales grew during the week ending April 19 in 24 of the country's top 25 markets, though demand was still down significantly year over year, J.D. Power said. The exception was Denver, where sales were flat.

Thomas King, president of J.D. Power's data and analytics division, said the industry still faces a difficult environment but that the regional data shows sales are gradually getting back to a "more normal" pace. Stay-at-home orders in many cities and states have not affected auto sales as severely as expected, King said.

It's almost touching how much King wants this all to be over.

"We have likely experienced the worst of the decline," he said, though the current level of decline is still "extremely damaging to the industry."

That's basically 'this is a complete disaster but let's look at the upside.' That's not the most inspiring thing at the moment, but it's where we're at. Anyhow, like I said, this will take a long period of time:

Cox projects that 69 percent of consumers who are delaying a purchase would come back to the market for the right deal. But with unemployment surging and consumers fearful of becoming infected, it could take up to two years for some people to bounce back, said Dale Pollak, executive vice president of Cox Automotive.

"These are levels and rapidity of unemployment claims the likes of which we've never seen in our country," Pollak said during a webinar last week. "What you have to understand about those sort of levels of unemployment claims is that there has to be a lot of financial stress in households. It's our belief that it's going to take a period of time — perhaps 18, maybe 24 months, maybe even longer — for those households to reclaim their jobs and dig out of the hole that they're in today and going further into being laid off and furloughed or just simply unemployed."

That's because suppliers are also shut down and beginning their own piecemeal attempts at returning. One, in particular, has done something interesting: gone public with just how messy it will be. That company, Lear, makes seats and electronics.

From Automotive News:

This month, after his management team compiled a 51-page guide for how Lear's plants will have to be operated to minimize the spread of the coronavirus, [Ray Scott, CEO of Lear Corp.] ordered the document be made public.

He said his motivation was to help the industry see the amount of work required to resume factory operations in the new era. But of particular concern, he said, is making sure Lear's own supply chain — numerous small Tier 2 and Tier 3 companies — are on the same page as they feed into Lear and Lear feeds into its automaker customers.

Having a clear line of sight on those other companies "is going to be a challenge," he said.

"I think time is a critical element here," Scott said. "As opposed to going and having to make sure that suppliers got the information, read the information, understood the information, let's just go public," he recalled saying of the guide.

The document details appropriate social distancing measures for suppliers to implement among employees in manufacturing plants. It also includes information on educating employees on new work procedures and protocols for taking proactive health measures in plants, such as worker temperature checks.

Every layer you peel back in the auto industry, you find a new supply chain.

In trying times like these, who will think of the stockholders? GM hasn't said when it will reopen its factories but the UAW has said next week isn't a good idea. In the meantime, the company needs all the cash it can get its hands on.

From Reuters:

General Motors Co said on Monday the automaker has suspended its quarterly cash dividend on its common stock and its share buybacks to save cash in the face of the coronavirus crisis that has severely hurt global automobile sales.

Shares of GM were 1.4% lower at $21.65 before the bell.

"We continue to enhance our liquidity to help navigate the uncertainties in the global market created by this pandemic," said GM Chief Financial Officer Dhivya Suryadevara.

Volkswagen's biggest factory, in the German city of Wolfsburg, is back in production as of today. Germany has been adept at swiftly dealing with coronavirus, with sharp drops in new cases. The Volkswagen Wolfsburg plant will only be at up to 15 percent capacity this week, but could get up to 40 percent capacity next week. (Demand is still down.)

Reuters reports:

Encouraged by a fall in infection rates, Germany eased lockdown rules and carmakers are relying on the country's ability to trace and contain the coronavirus to put Europe's largest economy back to work.

Volkswagen Group, which owns the Skoda, Audi, Bentley, Porsche and Seat brands, is also re-starting production in Portugal, Spain, Russia, South Africa, the Czech Republic and South America this week.

Its plans mirror moves by rivals Renault (RENA.PA), Peugeot (PEUP.PA) and FiatChrysler (FCHA.MI).

FiatChrysler will open its Sevel plant in central Italy on Monday, with plans to resume production at a rate of between 70%-80%.

But the company is also dealing with the same tensions others in the auto industry. Michelin has begun to restart some factories with a host of measures the company says will keep employees safe, but the unions aren't totally convinced. That's in part because of, well, from The New York Times:

The company justifies its early restart by pointing to the trucks, farm machinery, ambulances, fire engines and other essential vehicles still operating despite national quarantines. Michelin is reopening its European plants that produce tires for these vehicles, which make up about half its business.

But the company has also resumed the production of molds used to make tires for high-end cars manufactured by the likes of Porsche and Tesla. Michelin is eager to restore passenger car tire production generally, Mr. Menegaux said, and is betting on a surge in people driving, partly to avoid crowded public transportation, when confinement orders are lifted.

Unions in France, however, challenged the company's motives as it began to reactivate employees on a voluntary basis from paid furloughs. The plan calls for the work force to return in gradual increments over several months.

"Making tires for luxury cars like Porsches is not essential," said Jérôme Lorton, the spokesman for the Union Syndicale Solidaires, one of France's biggest industrial unions. "Protecting workers by keeping them at home during a quarantine is."

Absolutely none of this surprises me anymore.

From History:

On April 27, 2009, the struggling American auto giant General Motors (GM) says it plans to discontinue production of its more than 80-year-old Pontiac brand.

Pontiac's origins date back to the Oakland Motor Car, which was founded in 1907 in Pontiac, Michigan, by Edward Murphy, a horse-drawn carriage manufacturer. In 1909, Oakland became part of General Motors, a conglomerate formed the previous year by another former buggy company executive, William Durant. The first Pontiac model made its debut as part of the Oakland line in the 1920s. The car, which featured a six-cylinder engine, proved so popular that the Oakland name was eventually dropped and Pontiac became its own GM division by the early 1930s.

Pontiac was initially known for making sedans; however, by the 1960s it had gained acclaim for its fast, sporty "muscle cars," including the GTO, the Firebird and the Trans Am. The GTO, which was developed by auto industry maverick John DeLorean, was named after a Ferarri coupe, the Gran Turismo Omologato. According to The New York Times: "More than any other G.M. brand, Pontiac stood for performance, speed and sex appeal." Pontiacs were featured in such movies as 1977's "Smokey and the Bandit," in which actor Burt Reynolds drove a black Pontiac Trans Am, and the 1980s hit TV show "Knight Rider," which starred a Pontiac Trans Am as KITT, a talking car with artificial intelligence, alongside David Hasselhoff as crime fighter Michael Knight.

My Nintendo Switch has been declared an essential business in my apartment and will never be shut down. I've been working my way through The Witcher 3 in recent days though I have high hopes for Car Mechanic Simulator Pocket Edition. How have you been?