Crunch puts key cars on ice

COVID-19

CAMERON KIRBY

THE COVID-19 CRISIS

PLANS FOR THE V8 RAPTOR AND C8 CORVETTE IN OZ HANG BY A THREAD AS MANUFACTURERS BLEED CASH

WHEN Wheels broke the news of Ford’s secret V8 Ranger Raptor project earlier this year, the response from our readers was significant: “Hell yeah!”

Well, we now come bearing bad news, as the highly anticipated muscle truck has been put on ice; a victim of the global financial belt-tightening in response to the coronavirus pandemic.

An industry source confirmed it’s unlikely the V8 Raptor will be the only victim, with many ‘indulgence’ programs being shelved as companies focus on higher-profit products.

This is true for General Motors’ latest baby, the mid-engined C8 Corvette. It has been reported that GM’s executive director in charge of program management, Michelle Braun, told suppliers to hold fire, as all development programs have been halted. This includes the righthand-drive Corvette, which had been expected to come to Australia despite Holden’s closure. Its arrival is now slated for 2023 at the earliest, if at all.

Why? Well, if you were searching for the perfect metaphor for the impact COVID-19 is having on the global car industry it would be a giant mountain of cash, licked with vicious flames, and no buckets of water in sight. 

Volkswagen CEO Herbert Diess admitted the German giant, which has 124 manufacturing plants and 671,000 staff, is bleeding money, with the shutdown costing 2 billion a week.

“It’s pretty dire … it’s clear that we’re going to be doing it tough for a little while” 

Renault is burning 600 million a month, prompting it to organise a state-backed loan of 4-5 billion.

Mercedes-Benz is also hurting, with preliminary adjusted first-quarter earnings before interest and tax (EBIT) falling more than 56 percent, while parent company Daimler’s adjusted EBIT plummeted nearly 69 percent.

The sharp fall prompted some industry experts to state the company should be investigating new cost-saving measures. “Perhaps it is time for Daimler to think about a [alliance or merger] given the low valuation,” NordLB analyst Frank Schwope said.

Hyundai’s Chief Financial Officer Kim Sang-hyun said in an earnings call, global manufacturers should expect “to see their profitability decline in earnest” going forward.

“Demand is expected to worsen in the second quarter due to the prolonged suspension of dealer operations and factory operations in overseas markets,” he added.

Used car prices also have hit the skids, hurting manufacturer-endorsed financing businesses such as Ford Credit and GM Financial in the US. J P Morgan analyst Ryan Brinkman estimated any further drop will result in nearly $6 billion in incremental losses from leasing impairments.

The entire UK car manufacturing supply chain has ground to a halt amid a government-mandated lockdown. It is feared the industry may not recover.

“It’s clear from what Volkswagen has been saying that lost sales will not be found again and there will be a massive hit in terms of loss-making for the major car makers,” Professor Karel Williams at Manchester Business School told The Guardian.

“The markets will recover but the companies will be weakened just when they’re requiring large-scale investments in electrification. That will force them to rethink their portfolios of factories, models and markets.”

In the US, many manufacturers targeted an early-May date to restart production. However, the powerful United Auto Workers union pushed back, saying the scientific data had not proven it was safe for its members to resume work. Restarting manufacturing also requires the entire supply chain to kick back into life, which some suppliers may be reluctant to do.

The plant shutdowns haven’t yet affected supply in Australia, with one industry insider saying manufacturing

slowdowns aren’t usually felt locally for three months. But new car sales have taken a massive hit.

“It’s pretty dire,” admitted Lenore Fletcher of the Federal Chamber of Automotive Industries. “We’ve now had 24 months of continuous negative growth. Compare that to the GFC in 2009 when we had 14 months of decline. Nobody’s got a crystal ball here, but it’s clear that we’re going to be doing it tough for a little while.”

It’s a sentiment echoed in car dealerships. One sales manager told Wheels: “No one wants to even think about buying a new car right now.”

With annual new car sales all but guaranteed to dip below one million units for the first time since 2009, manufacturers are trying to save cash wherever possible. Marketing budgets have evaporated, employees are being encouraged to use up their leave, and new hires have been frozen.

Australia has managed to ‘flatten the curve’ when it comes to the spread of COVID-19, but it seems the local car industry is in for the fight of its life.

CAMERON KIRBY

IN FOCUS

COVID-19 effect

HOW BIG PLAYERS ARE FEELING THE PAIN OF THE GLOBAL PANDEMIC

VOLKSWAGEN 

€2 BILLION  LOST PER WEEK 

RENAULT 

€600  MILLION LOST IN MARCH 

DAIMLER 

69%  EARNING LOSS IN 1Q 2020 

USED CARS 

$6 BILLION  INCREMENTAL LOSS