The road ahead for U.S. automakers is bumpy and riddled with uncertainties.
With millions of Americans now out of a job and the coronavirus pandemic still far from being contained, car sales have fallen dramatically. If alarm bells haven’t already rung at the likes of GM (NYSE:GM) and Ford (NYSE:F), they should now.
According to analysts at automobile information resource Edmunds, April’s vehicle sales plunged 52.5% year-on-year. The decline is attributed to the coronavirus-fueled demand destruction.
Edmunds estimates that 633,260 new vehicles were sold last month–the “biggest hit since 1990. Th
The April 2020 figure is worse than the numbers recorded at the height of the Great Recession in January 2009 when 655,000 vehicles were sold.
The two major legacy vehicle manufacturers in the U.S., General Motors and Ford Motor Company, are expected to record a similar drop in annual sales.
GM is forecast to see its sales decline by 46.7% while Ford will record a 46.9% drop. Compared to March sales, Ford will see a bigger drop– 39% versus GM’s 26.3% plunge.
The forecast does not come as a surprise, though, as the auto manufacturing sector had already telegraphed bad news.
Earlier this week, Ford posted a first-quarter loss of $2 billion following a drastic fall in sales. In Q1 2019, the company recorded a profit of $1.1 billion. The second quarter is expected to be bleaker, with Ford estimated to post an adjusted loss over $5 billion.
Year-to-date, Ford’s stock has lost 45% of its value.
General Motors, on the other hand, will report Q1 earnings on May 6. On average, analysts expect the automaker’s revenues to fall by 10.8%. Greater revenue declines are forecast in the second quarter.
GM’s share price has lost about 40% of its value year-to-date.
Used cars have also witnessed reduced demand, and this has depressed prices. Plunging used-car prices may see the financing divisions of the Detroit giants lose billions.
More bankruptcies in the car rental industry would mean even more trouble for auto manufacturers. That’s because some vehicle manufacturers are highly dependent on fleet sales to these firms. In March 2019, for instance, 19% of Ford’s sales were to rental-car companies.
Already, Hertz (NYSE:HTZ) is on the verge of bankruptcy after failing to make lease payments on around half a million vehicles. The car rental firm’s budget shortfall is linked to the declining value of used cars amid the pandemic.
This article was edited by Sam Bourgi.