No one ever thought an American car company could go bankrupt. That is until 2010 when both GM and Chrysler BK’d big. Now, the unheard-of is being levied a second time in ten years. Both GM and Ford only have about 15 weeks of liquidity if the coronavirus shutdown continues as it is. There are minimum levels established for both companies to be able to run their businesses. Deutsche Bank’s Emmanuel Rosner has lowered GM’s rating to hold. He says, “Despite considerable declines in equity values since the start of the COVID crisis we see additional downside risk for the US autos stocks on light od significant liquidity concerns from the prolonged production shutdown. This according to Bloomberg.
GM’s shares have dropped almost 50% in 2020
Through yesterday’s stock market close GM shares had dropped almost in half since the beginning of this year. According to Bloomberg most analysts still recommend buying GM shares so not everyone looking at the market sees GM as Rosner does. In spite of his dire conclusion, GM shares rose 14% to $22.21 in a rally on Tuesday.
With recovery not possible until the shelter-in-place restriction has been lifted we could be months away from auto production resuming. Most think that we are looking at June before that can happen. That is about 12 weeks away. So, both companies would be closing in on that dire 15-week threshold if production can resume by mid-June. But, that doesn’t forecast where consumer demand will be at.
Will enough people be able to retain jobs after companies have been closed for so long?
Will enough people be able to retain their jobs and will smaller companies be able to weather being closed this long? “A recession is unavoidable,” says Cox Automotive researcher Jonathan Smoke to Bloomberg. “The shutdown of activity in March will be big enough for the first quarter to be negative on real GDP growth.”
As for the second quarter of this year? Smoke says the decline will be “historic.”
Rosner has slashed 2020 earnings estimates for most companies by an average of one-third. Obviously, some will be worse off than others. There will be many companies that won’t make it to the restrictions being lifted even with help from the feds.
Forecasts predict yearly vehicle sales down from 17- to 11-million or even less
For the last five years, auto sales have hit 17 million a year. Now analysts are thinking the year’s run will be down to 11 million or even less. “That’s a bleak outlook compared to where we were in January,” Smoke says. “I hope we’re wrong.”
The decline in sales and capital will mean that new model development will be pushed off throughout the industry. Incentives and an increase in marketing to help push the iron is likely. That money will have to come from future vehicle programs in the works now.
Vehicle intros like the Bronco and Bronco Sport have been pushed back
We’re already seeing this happen with probably the most anticipated new vehicle introduction to take place this year; the Ford Bronco and Bronco Sport. These two all-new models were supposed to have been launched a month ago. The coronavirus crisis has put the launch on hold. No one at Ford is saying when the introduction will take place.
The all-new Chevy Suburban was supposed to be at dealers soon but production hasn’t started. Last week workers were asked to return to Arlington to knock out a few pre-production Suburbans for marketing and promotional purposes.
So, whether it is starting production of a new model or launching one everything will be pushed back by months at least.