Reopening the auto industry
Analysts right now are unsure which American will emerge this summer — the spender or the saver. One dire forecast shows 12.8 million auto sales in 2020. The research firm J.D. Power's latest report calls for 14.8 million auto sales.
Trying to lure shoppers, carmakers are beginning to roll out incentives. Deals are not wild. It's not like 1986, when some Cadillac dealers awarded each buyer of a new $19,000 Deville one free Yugo, a $4,000 subcompact car imported from Eastern Europe. Deals today shave about $1,000 to $2,000 off the typical $38,000 new vehicle.
What's common now are terms like Nissan's. Its lending arm will defer loan payments for three months. Honda offers $1,000 price cuts on many models. Chrysler charges no interest for 84 months on some vehicles. One of the better deals: VW'S. It'll waive loan payments six months for buyers who lost jobs in the pandemic.
What's not taking shape, at least not yet, is a big price war. Automakers instead are figuring their next step. Two tests face them.
Late model cars coming off of leases generally compete with new cars; 2017 was a big year for three-year leases. Dealers will be showered with 2017 models. At the same time, most dealer lots already are full of new autos, including 2019 models left unsold when the pandemic shut down the economy, Brauer said.
To meet the tests, automakers will offer deals on some models to make sure dealers can sell them, and hold on to prices where demand for the vehicle remains strong. “It's going to be different for every brand and every model,'' Brauer said, referring to incentive levels.
What automakers still need to know is the consumer's mood.
In recent weeks, sales volumes rose for lower-priced sedans, instead of $50,000 pickup trucks full of expensive options. It's not clear a new frugality swept the nation, although some economists contend it has, and will last into 2021, especially if the national economy rebounds slowly. That's possible.
“It wasn't just the industrial portion of the economy that shut down in March and into April. Non-manufacturing also cratered,” Philadelphia-area economist Joel Naroff reported to clients, noting the widely-watched Institute for Supply Management index has fallen to an 11year low. “With order books thinning, conditions are likely to worsen over the next few months, despite the beginnings of the economy reopening.”
Naroff cautioned clients. More than 30 million people have filed unemployment claims. Low jobless rates won't appear soon. “This is going to be a very long process that should stretch through the summer,” Naroff said of a jobs recovery. “And that assumes no major resurgence in the number of new (coronavirus) cases and deaths.”
La Vergne’s come back
Even with the uncertain economic outlook, Americans could shake off the frugal mindset as they put the shelterin-place mandate behind them.
In Middle Tennessee, La Vergne Mayor Jason Cole said spirits rose when Nashville-based tire maker Bridgestone Americas' 1,000-employee plant reopened in April.
“You could see it and know the difference was there in the traffic in the streets and the attitudes around town,” Cole said. “The families that have people who work there, they turned a little more upbeat, a little more hopeful. That's their livelihood.”
While the economy gains speed, La Vergne is preparing to trim its 2020 municipal budget. Most restaurants served takeout food and deliveries, a boon for sales taxes, but the city of 36,000 population is situated close to big factories that shut down for the pandemic, including the 7,000-employee Nissan Smyrna assembly complex.
The state government sent $820,000
One dozen vehicle assembly plants located within 5 hours of Nashville account for nearly a third of U.S. automobile production. Five have reopened since the coronavirus shelter-in-place shutdown. Here are the scheduled restart dates for the plants:
General Motors Spring Hill: May 11
Nissan Smyrna: mid-may
Volkswagen Chattanooga: Undetermined
Honda Lincoln: after May 8
Hyundai Montgomery: May 4
Mercedes-benz Tuscaloosa: April 27
Kia West Point: May 4
Toyota Georgetown: May 11
Toyota Blue Springs: May 11
Nissan Canton: mid-may
BMW Spartanburg: May 4
Volvo Ridgeville: May 4
in assistance, part of a program to aid cities during the pandemic. However, the aid won't replace all the lost tax revenue. Cole said the General Fund for regular services such as police, fire and parks will contain an estimated $23.5 million this year, compared to $25 million last year.
City leaders most likely will compensate. “We are proposing a conservative budget with capital spending being held off until January so we can have a better look at our situation,'' Cole said.
While work linking city government services to the fiber optic cable will continue, La Vergne likely will postpone ordering a hotel tax audit and hold off plans for capital spending on public works gear and a new vehicle for the planning department.
“I think going through the pandemic, every mayor in the country is learning something new from this,” Cole said. “One big takeaway for me is how strong our community is. People really stepped up and came together to make it through this.”
Now, with the economy reopening, Tennessee's automotive belt is waiting to see how quickly it puts behind it the state's first Detroit-style automotive crash.