General Motors, Ford Provide Silver Lining Amid Falling US Sales
To say that the auto industry was hit hard during COVID-19 and its negative economic effects would be an understatement. The vehicle inventory is out of whack because the factories have temporarily closed, the fall in used car prices has unintended consequences for major automakers, March sales fell significantly for major automakers, and restrictions on travel and transportation have a rental company Hertz on one’s last legs.
To put it bluntly: it’s ugly over there in the wider automotive industry. Fortunately, General Motors (NYSE: GM) and compete Ford Motor Company (NYSE: F) may offer investors a silver lining even if sales in the United States plummet.
The bright side
You can ask ten different people when they think the US economy will rebound, how fast it will rebound, and which industries will rebound the fastest, and you’ll get a hundred different opinions. But General Motors, China’s second-largest overseas automaker, is offering U.S. investors a potential glimpse into the future as it witnesses the rebound in COVID-19 auto sales overseas.
GM said its sales in China jumped more than 13% in April from a year earlier. That’s a complete night and day difference from the first trimester results. GM’s first-quarter sales in China fell 43%, from 813,973 units in 2019 to 461,716 units. The pain was widespread as sales of Buick, Chevrolet and Cadillac fell 42.5%, 54.7% and 40%, respectively, and its joint venture brands Wuling and Baojun fell 34.3% and 51, 5%, respectively.
Even though Ford has a much smaller footprint in China, compared to rival GM, it recorded a significant sales rebound in March in China. Ford sold more than 40,000 vehicles in China in March, which climbed to around 75% of sales over the previous year, but the month was such a strong rebound it accounted for nearly half of total Ford sales in the first quarter in the region. Improving results in China means the worst could be over in the region and the United States could experience a similar rebound in about four to six weeks.
Hit the brakes
By the second week of April, more than 99% of auto dealerships in China reopened, a massive reversal from the difficult days of February 10, 2020, when only 28.3% of dealerships were open, according to the Association. of car dealerships in China. Yes, investors and consumers are ready to hang on to any silver lining or glimpses of improvement after COVID-19 has slowed the economy to a virtual halt. But, while the number of store re-openings looks fantastic, keep in mind that traffic in showrooms has only reached about 70.8% of pre-pandemic levels. In addition, daily turnover from new vehicle sales fell to only 67.9% of normal levels.
Part of this slower rebound in consumer activity is simply that people are avoiding big ticket purchases as the world remains uncertain about its ability to keep COVID-19 under control as we reopen parts of the world. ‘economy. As long as consumers fear a possible second wave of new cases of the COVID-19 coronavirus and another potential wave of job losses and economic restrictions, sales of big tickets will likely remain slow to recover.
Control what you can
Make no mistake, GM sees a double-digit rebound in sales in China to be phenomenal news, especially if the United States follows a similar trend. But all the big automakers can do at this point is check what they can and adapt where possible. For GM, this means, in part, preparing a strategy to safely turn over some of its business and production, while strengthening its financial position. GM recently extended $ 3.6 billion under its three-year revolving credit agreement, in addition to its $ 2 billion 364-day revolving credit agreement, to provide the cash flow needed to survive the COVID-19 pandemic.
But at a time when one can ask a handful of people what kind of economic recovery is expected, and receive a hundred different opinions, it is reassuring for GM and Ford to provide concrete data on a sales rebound. in China. It’s a silver lining that the auto industry will take, right now.
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