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Guinea pigs

6 May 2020 By Antony Currie

Finally some good news from Detroit. General Motors reported first-quarter earnings that beat virus-depleted analyst estimates on Wednesday. The carmaker run by Mary Barra also hopes to restart production across much of its U.S. and Canadian operations on May 18. Fiat Chrysler Automobiles and Ford Motor want to resume operations this month, too. Collectively they are testing hopes for a V-shaped recovery, as opposed to a U-shaped one.

Car sales depend on how financially secure Americans feel and how willing lenders are to extend credit. Analysts at IHS Markit are worried about “a bleak demand slump” and expect annual sales to fall by 26% to 12.5 million vehicles compared to 2019. That, though, equates to losing just one quarter’s-worth of business, so implies a fairly rapid pickup in activity.

That looks too optimistic. Sure, people who still have jobs may have the money to go car shopping. But it’s worth noting that companies of all stripes are declining to give guidance on how they think the rest of the year will go. A potential vaccine for Covid-19, the chances of further lockdowns and the possibility of further job cuts all add to the uncertainty. At least 20 million people in America became unemployed last month, payroll services company ADP estimates.

Carmakers have other customers besides individual consumers to think of. Many small businesses are struggling, assuming they have survived. And industries like construction and oil and gas that buy automakers’ higher-margin small trucks like the F-150 and Chevrolet Silverado are in real pain. It’s hard to imagine many of these hitting up dealers’ lots, even if big discounts are on offer.

Shares in GM, Fiat Chrysler and Ford may be off their pandemic nadir, but all are still just shy of 40% below their precrisis level in late February. But for the broader economy, hopes of a V-shaped recovery endure. The S&P 500 Index is only down 15%, while shares in companies like Apple and Microsoft that sell less-expensive but discretionary products are close to their all-time highs again. Carmakers will be an early test of whether, if you make it, the customers do indeed come.


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