Coronavirus pandemic will be a problem for the auto industry for a while: former Ford CEO
When you are suddenly tasked by the U.S. government to make ventilators in enormous manufacturing plants designed to churn out cars and SUVs, you know something is off in the world.
But that’s the current positions that Ford and General Motors find themselves in amidst the coronavirus pandemic. While it’s commendable to see both auto giants step up support for the relief effort, the reality is cars are more profitable than ventilators and making them causes major supply chain disruption. With that comes excess costs for companies that already have bloated budgets.
At the same time this bottom line unfriendly aspect is happening, a quarantined America is at home fretting over job loss. The last thing on their minds is visiting a car dealership to lock in a new $50,000 ride. Hence, reports are on the rise of overstuffed car dealerships across the country amid a complete crash in consumer demand. The incentives to buy cars have already picked up, with several of the most prominent industry names offering 0% financing and extended payment terms.
TPG Global Advisors senior advisor and former Ford CEO Mark Fields tells Yahoo Finance dealers have seen ‘significant’ falls in traffic in the second half of the month. Fields — credited with bringing an electric future and new in-car technologies to Ford as CEO from 2014-2017 —is on the mark here as the latest sales results are downright brutal. The numbers are so horrific that the sector looks almost un-investable at the moment even as the stocks are trading at all-time cheap price-to-earnings multiples.
First quarter sales plunged 7.1% and 10.4% at GM and Fiat Chrysler, respectively, each reported Wednesday. All four of GM’s brands saw sales decline, led by a 34.7% drop at Buick. Only Fiat Chrysler’s Ram truck business notched a sales increase of 3% — Fiat’s other brands had sales declines ranging from 14% to 49%.
As for when the situation may turnaround for automakers, Fields says consumer confidence must bounce-back. Until then, the auto industry may be in for a rough road.
“This all comes down to consumer confidence. At the end of the day consumer confidence will not be rebuilt until there is clear and unmistakable evidence we have turned the tide on the virus along with making sure there is continued financial support from the government. Until that happens, I think you will continue to see consumer confidence — to use an automotive term — in a little bit of limp home mode,” Fields said on Yahoo Finance’s The First Trade.
Brian Sozzi is an editor-at-large and co-anchor of The First Trade at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.
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