As Sales Rise, Automakers Ramp Up Production

Financial and Banking News

As Sales Rise, Automakers Ramp Up Production


Demand has been stronger than expected since states began reopening, but some experts worry about the effect of a new surge in coronavirus cases.

Fiat Chrysler’s factory in Windsor, Ontario, last month. Instead of a “doomsday scenario,” sales of new vehicles are “pretty encouraging,” an analyst at Edmunds said.Credit…Fiat Chrysler Automobiles, via Reuters

Just two months ago, the auto industry was bracing for disaster. As the coronavirus spread, automakers shut down plants, and car sales plunged.

But the industry is starting to breathe a little easier. Factories are churning out trucks and sport utility vehicles, with many of the plants nearly back to production levels that prevailed before the pandemic took hold. While some factory workers have tested positive for the coronavirus, automakers have reported no major outbreaks. Perhaps most important, vehicle sales have perked up more than many industry executives had expected.

“At the end of March, it did seem like we were heading for a doomsday scenario,” said Jessica Caldwell, a senior analyst at Edmunds, a research firm. “But people are starting to buy cars now. June sales will still be well off record levels, but they will be OK. It’s pretty encouraging.”

A rebound in the auto industry would probably help the economy. It is the nation’s largest manufacturing sector and employs roughly 1.5 million people in manufacturing, sales and service.

That said, auto sales will be down sharply this year, more than in any year since at least 2009; AlixPartners, a consulting firm, expects sales of new vehicles to fall about 19 percent this year, to 13.7 million. Experts worry that a surge in coronavirus cases in places like Arizona, Florida and Texas could drop sales further as more people stay home to avoid getting sick or making others ill.

In addition, more than 20 million Americans were out of work in May, according to the Labor Department, and unlikely to be in the market for new cars. Rental car companies, which have been hit hard by the drop in travel and typically account for up to 20 percent of the new car market, have all but stopped buying vehicles. Hertz, which operates a fleet of more than 500,000 cars in the United States, filed for bankruptcy protection last month.

“Will we see rental orders come back in the fall?” asked Charles Chesbrough, a senior economist at Cox Automotive. “We don’t know yet, but is seems like most business travel is going to be on hold at least until the end of the year.”

Yet automakers and car dealers say they are feeling optimistic because sales of new cars to individuals and families, the industry’s main customer base, have rebounded strongly.

Automakers have been using financial incentives to lure buyers back to dealerships.Credit…Jeff Roberson/Associated Press

Factory procedures have been updated to screen workers for the coronavirus and reduce their contact with one another.Credit…Paul Sancya/Associated Press

“There’s pent-up demand,” said Doug Waikem, owner of six new-car franchises in Massillon, Ohio. “There are people who were ready to buy, and then the virus hit. They put it on hold, but some are starting to come back.”

Auto manufacturers have lured buyers back to dealerships with generous financial incentives. For a time, several companies, including General Motors, Ford Motor and Fiat Chrysler, were offering zero-interest loans for 84 months on most or all of their vehicles. Most automakers have phased out those offers, but interest-free loans for up to 72 months are still available on many models.

Many consumers appear to be buying cars with the help of some of the $1,200 federal stimulus payments and money they saved when they cut other spending in March, April and May, said Pete DeLongchamps, senior vice president of manufacturer relations at Group 1 Automotive, a large dealership group based in Houston.

“It’s certainly not as bad as we feared right now,” he said. “The government put a lot of money into the market, and now people are spending money on cars.”

Sales have rebounded so fast that automakers are working to ramp up production to restock dealerships. Inventories dwindled over the last few months because so few cars were produced. The industry made just 4,840 vehicles in North America in April, according to Automotive News. Output jumped in May, but the month’s total, 371,551 cars and light trucks, was still far below the 1.5 million produced in the same month in 2019.

The supply of pickup trucks and S.U.V.s, which American drivers prefer to sedans these days, has been particularly tight. G.M. has an especially short supply of Chevrolet and GMC trucks, dealers said, because its production was halted by a 40-day strike by the United Auto Workers union last fall.

The General Motors plant in Flint, Mich., last month. Most G.M. plants have returned to the schedules they were on before the pandemic.Credit…Jeff Kowalsky/Agence France-Presse — Getty Images


High-quality used cars are also scarce. “Our used sales have exploded,” Mr. Waikem said. “A $10,000 to $14,000 used car is gold.”

Robert Watkins, a production supervisor at a manufacturing company in New Hampshire, is among those buying a used car. Because of the virus, he and his wife had to cancel a trip to Germany this summer, freeing up some cash.

“So I thought, I should probably get a better car,” Mr. Watkins said. Last week, he traded in his beat-up Hyundai Accent with 163,000 miles for a 2017 Volkswagen Golf SportWagen with almost every option imaginable.

To reopen their factories, automakers developed new procedures to screen workers for coronavirus symptoms and reduce interactions between employees. These included allowing time for cleaning work places, staggering arrival times, adding transparent barriers to assembly lines and installing no-touch faucets and doors.

So far, production appears to be ramping up with few major disruptions. Ford said it now expected to have all its U.S. plants back on normal shift schedules this Monday, two weeks sooner than expected. G.M. has returned all of its truck and S.U.V. plants to three shifts a day, and most of its other plants are on the schedules they were on before the pandemic took hold. Ninety percent of the company’s hourly workers are back to work, the company said.

G.M., Ford and Fiat Chrysler have most of their assembly plants in the Midwest, where coronavirus cases have been falling or are flat. But even foreign automakers, which have most of their plants in the South where cases are rising, said factories were more or less back to normal.

Honda, which makes cars in Alabama, Indiana, Ohio, North Carolina and South Carolina, said it had planned to halt production for three days at the end of June as part of the July Fourth holiday but would now keep its plants running.


source: nytimes

Date: 27.06.2020


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