J.D. Power’s Tyson Jominy says the U.S. is in for a bad March and a disastrous April when it comes to new vehicle sales.
What started out seeming to be just a small, downward blip quickly has turned into a rout. Last Sunday, U.S. car sales were off 36% and could be down 41% for the entire month of March, according to Tyson Jominy. But that’s just likely the start of a systemic shock from the coronavirus pandemic, warns the head of the J.D. Power PIN system.
Short for Power Information Network, it offers an inside look at the actual sales data thousands of U.S. car dealers are reporting in real time. And, Jominy said during a lengthy interview, the picture it reveals is deeply worrisome, the American automotive market likely to tumble over the next few months even more severely than it did during the Great Recession.
Jominy took some time to discuss what he’s seeing in the numbers, and whether there may be an upside for automakers and auto buyers at some point in the future.
(U.S. car sales verging on Great Recession-level collapse.)
TheDetroitBureau: I received a news release from you that is shocking, to say the least, with its forecast of where U.S. car sales are heading.
Jominy: Well, the industry was actually really humming along through the end of February, to the point where we said this was almost too good to be true, and then, March happened. The impact from the coronavirus was muted, at first, but this past weekend, it started to show a real high level of stress on (sales). We had to update our forecast but, for the first time ever, we had to come up with a range of forecasts because we can’t quite nail down all the variables.
TDB: The news release said sales were down only about 1% during the first week of March but hit 20% last Friday and plunged 32% by Sunday. How much of that is the result of confusion, as much as concern, about the pandemic? Was the situation worsened by the fact that the president was initially calling the coronavirus a hoax and then, just two weeks later calling it a major threat?
Virtually every regional U.S. market plunged into the red over the last week, Detroit a rare exception. (Click to expand.)
Jominy: The first week of March began to see a change in the position taken by the administration, and that’s when you go from pretty much what we predicted to what we started seeing (by mid-March). But even in the absence of a clear message from the administration, you saw others taking a stand, like the NCAA and the NBA (canceling and postponing their seasons). You saw Tom Hanks get it and it seemed more like it was driven by state and local governments. And, when we look at our data, the situation progressed very rapidly … as the Trump administration was standing on the sidelines.
TDB: The escalation we’ve seen reminds me of what happened in China where we saw a 90% decline for the first two weeks of Feburary, and then it rounded out to 79% for the month. At this point, just how bad is the situation, and how low could U.S. auto sales sink?
Jominy: We have a robust lease market in this country which is about 31% of sales. So, if you have a lease coming back in the next five months you don’t have a lot of options. You could try to extend your lease, get something new or get something used. So, at least we have this minimum level of sales.
TDB: Okay, so that’s the good news.
Jominy: To your point, a 41% decline (for all of March) is a possibility. For April, we are basically at 50% and maybe 60%, maybe a 500,000 unit cut (from what the industry sold in April 2019). Everything is unfolding so quickly … getting any (forecast) out is very challenging.
While Jominy says sales are going to take a hit, the popularity of leasing means that there is always some sales due to the constant churn of replacing those cars.
(Detroit automakers set to temporarily shutter North American production.)
TDB: You’re talking about getting down to levels from the Great Recession a decade ago – or worse?
Jominy: This is unprecedented. We haven’t seen anything like it. It combines elements of 2008 with what we saw after 9/11. A commerce stop is probably something nobody thought about.
TDB: It appears that there have been lots of differences from one regional market to the next.
Jominy: The markets that are (deep in the) red right now are in California: Sacramento, San Diego, San Francisco, LA. But we’re (also) seeing declines of 10 percentage points or more in Lexington, Kentucky, and Nashville, Tennessee. We’re still seeing growth in Detroit, but its data lags and I expect Detroit will reverse soon.
TDB: We’re seeing some automakers take steps to try to prop up sales, like GM’s 0% loan program, but will it be a while before the real incentive programs kick in?
Jominy: Back in 2001, the big incentive programs didn’t kick in on Sept. 12. It was many weeks later when GM said it was going to do something big and bold. Even a great incentive program in April isn’t going to generate noticeable sales. April is going to be a disaster. A new “Keep America Rolling” campaign likely won’t happen until at least May, after things have started to recover and we’ve bottomed out. There is a big upside. It’s been done before.
Auto dealers are going to see some tough times in April as automakers aren’t likely to try to offer significant incentive programs until May.
TDB: Okay, so assuming that this pandemic gets under control in a couple months, what would we be looking at for the full year compared to the 17.1 million vehicles sold in 2019?
Jominy: Our (original) forecast was for a drop of 2% for the year. You know we’ll assume some kind of modest recovery out there. But, (even so), we’re looking at a 14 million to 16 million range for total sales. More likely, a decline of around 2 million to 3.5 million for the year.
TDB: A decline of anywhere from 12 to 20%?
Jominy: Yes.
TDB: Let’s talk about the move by so many automakers to close their U.S. plants for a week or more. While they say they’re focused on protecting worker health, GM specifically noted it is taking into account “market conditions.” A little more than a decade ago, the automakers continued pumping out cars, even as sales collapsed, spending billions in incentives and draining their bank accounts. Is this a better approach?
Jominy: They’re certainly doing the right thing here dealing with the demand issue. There’s more than enough inventory on the ground right now. It will certainly cut revenues, but retail consumers won’t see the impact of this other than with some hot vehicles like the Hyundai Palisade. This would show there is truth in the industry which has said it will only produce what it can sell. The problem is if they cut too far, it will implode our ability to recover. There’s a very fine line there between doing the right thing and cutting too far.
Shutting down production plants in the U.S. will help automakers keep from an oversupply of vehicles once things begin to rebound.
TDB: The good news is that autoworkers will get most of their pay while plants are down.
Jominy: The auto industry generates about eight (outside) jobs for every job at one of the manufacturers, you know, parts workers or food workers. Each plant is its own sort of city with an ecosystem supporting it. For the autoworkers, they’ll be whole or mostly whole. But then there’s all the people around them and this is going to be a very frightening time.
TDB: Wrapping up, your thoughts about the industry overall as we deal with so many unknowns?
Jominy: This is not the same industry as in 2008. This is a much different, leaner and more efficient industry than it was. It’s not perfect. We have structural challenges in places. We have challenging times directly in front of us and we’re going to have to make tough choices. But the automakers and their retailers are very resilient.
(Facing sales collapse, wave of repos, automakers reach out to consumers.)