Listen to “AD #2830 – Hertz Going Bankrupt; Transplants Change Plans to Open U.S. Plants; New Car Prices Up During Lock Down” on Spreaker.
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Runtime: 9:55
0:07 U.K. Sales Down 97% in April
0:49 Hertz Could File for Bankruptcy
1:27 FCA Q1 Earnings Dismal
1:52 Ferrari Posts Amazing Q1 Earnings
3:01 Transplants Change Plans to Open U.S. Plants
3:44 Will Dealers Order New Cars?
4:39 New Car Prices Up During Lock Down
5:37 Refreshed Toyota Supra Delayed
6:29 Daimler Helps Protect Bus Drivers
7:01 VW Still Paying for Diesel Scandal
7:48 Tesla Has More Paint Quality Issues
8:24 It’s Just a Video Game!
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U.K. SALES DOWN 97% IN APRIL
We start today in Europe, where the virus crisis has devastated car sales, far worse than we saw in China, or in the U.S. so far. Only 4,321 cars were sold in the U.K. down 97% and the worst they’ve been since 1946, when Britain was just emerging from the end of the Second World War. Bloomberg reports that sales were down by about the same in Spain and Italy and were down 89% in France. Europe felt the impact of Covid-19 earlier than in the U.S. and adopted much stricter quarantine measures, which explains why sales fell further there.
HERTZ LIKELY TO FILE FOR BANKRUPTCY
Now to the ‘States where we’re about to see the first big name casualty to the crisis. Rental car company Hertz is going to file for bankruptcy if it can’t reschedule debt payments and get lenders to give it a grace period. Hertz could file for Chapter 11 as soon as today if it doesn’t work out a deal, which would allow it to stay in business while it works out a plan to pay creditors. It’s also negotiating with the U.S. Treasury Department for a bailout. But the Treasury and Hertz’s lenders must be wondering if the rental car business is ever going to come back.
FCA A1 EARNINGS DISMAL
FCA and Ferrari reported their first quarter earnings this morning and the numbers are dismal, and amazing, respectfully. FCA lost nearly €1.7 billion and burned through €2.8 billion in cash. No surprise there. Amazingly, it did make an EBIT profit in North America, but lost money in every other region of the world.
FERRARI POSTS AMAZING Q1 EARNINGS
But Ferrari, which used to be owned by FCA, reported amazing Q1 earnings. It sold 2,738 cars, which actually went up nearly 5%. But it must have discounted those sales because revenue was down 1%. It turned a net profit of €166 million. Geez, if Ferrari can do this well as the global economy goes down the drain, imagine what it can do when we finally return to normal. Ferrari’s stock jumped on the news. And here’s where it gets crazy. Ferrari’s market cap of nearly €30 billion is now higher than that of GM, Ford and FCA. Of course, Tesla with a market cap of $141 billion, dwarfs them all. Funny, because Elon Musk tweeted out that he thought Tesla’s stock was too high. The stock took a tumble on that tweet, then came roaring back, jumping nearly $60 a share yesterday, and putting Elon right on track to earn a $700 million payout.
AUTOMAKERS ROLL BACK PLANS TO RESTART U.S. PLANTS
Last week we reported that most of the transplants in the U.S. planned to reopen this week. Well, looks like there’s been a change of heart. Hyundai and BMW still say they will resume production this week, but Roland Berger reports that Toyota, Honda and Subaru pushed back their plans by another week, while Volkswagen now says it has no definite date. GM, Ford and FCA say they will start to reopen on May 18th, but the UAW officially says there is no restart date. Suppliers will have to reopen their plants before the automakers do, because as we keep pointing out, you can’t start building cars until all the parts are laid out along the assembly line.
WILL DEALERS ORDER MORE CARS?
Automakers need to get their plants going again to start bringing some cash through the door, but you have to wonder if their dealers will be in any rush to order more cars. Ward’s reports that last month dealers reduced their inventory by 752,000 vehicles. But because their sales rate slowed so much, they went from an average of 95 days’ supply in March to 120 days’ in April. There are now nearly 3.3 million vehicles parked on dealers’ lots, meaning that dealers can live off their inventory for several months without having to order any new cars.
NEW CAR PRICES UP DURING LOCK DOWN
When Ford reported its Q1 earnings, one of the things it bragged about is that it’s selling a richer mix of vehicles with higher transaction prices. ALG, or Automotive Lease Guide, reports that new car prices in the U.S. shot up 5.7% in March or by nearly $2,000. So how can prices be shooting up when sales are so weak? Here’s our Autoline Insight. People who buy entry level or lower priced cars have been hit harder by the quarantines, so they’re not buying much. Take out those cheaper cars and what’s left has a higher transaction price. Also, commercial fleet sales are doing much better than retail. Those sales are mostly full-size pickups and vans, which have a higher transaction price than mid-market sedans. So average transaction prices are not going up because automakers are raising prices. It’s because the bottom end of the market is getting hit harder.
REFRESHED TOYOTA SUPRA DELAYED
The refreshed version of the Toyota Supra will be delayed a few months due to coronavirus. If that seems like a quick turnaround on a refresh, it is. Most sports cars see a spike in sales when an all-new model comes out, then a big drop off when demand weakens. Toyota wants to avoid that drop off by keeping the Supra as fresh as possible. Not all those changes will make their way to the BMW Z4, which the Supra is based on, and Toyota believes that will help create a separation between the two cars over time. Although, Toyota still has engineers in Germany working with the folks at BMW. 400 refreshed Supras were made before the virus shut down its plant. Toyota says those are on a boat to the U.S. right now and will go on sale in June. More examples will arrive this fall.
DAIMLER HELPS PROTECT BUS DRIVERS
In an effort to keep bus drivers safe, Daimler is offering a glass partition for its Citaro bus. The retrofit solution fits buses back to 2011 and comes in two versions: one that’s closed and another with a small opening for tickets. Daimler says it’s also working on a plastic version that will be easier to make, install and fit on more models.
VW STILL PAYING FOR DIESEL SCANDAL
Nearly five years after the story first broke, Volkswagen is still paying for its diesel scandal. A German federal court said the company may have to pay a customer who purchased one of its diesels with emission cheating technology but it won’t have to fully reimburse the buyer. VW reached a settlement earlier this year with about 240,000 customers in Germany that will pay them 750 million euros. But it’s still facing thousands of lawsuits. More than 10,000 related cases are under review and another 60,000 are still pending. So far, Volkswagen has paid $33 billion in fines and settlements related to the scandal.
MORE TESLA PAINT ISSUES
Tesla is running into more early build quality control issues. Sandy Munro showed panel gaps are still a problem with the Model Y in a recent interview we did with him and several owners are complaining of paint issues. The electric SUV is coming off the assembly line with swirl and scuff marks, scratches and smudgy finishes. Tesla has had problems like this before, which it tends to fix over time. So, anyone that can, might want to wait for their Model Y so these issues get worked out.
IT’S JUST A VIDEO GAME!
Mix hyper competitive race car drivers against each other in a video game, and you just know there’s bound to be some drama. Last weekend IndyCar invited Lando Norris, a rising star in F1, to join them at Circuit of the Americas. He smoked the field. This weekend in Indianapolis Norris was once again leading the race with three laps to go when he ran into the back of Simon Pagenaud. It might have seemed like a silly mistake but Pagenaud was caught saying to his race engineer, “We take out Lando, let’s do it.” He says he only meant to hold up Norris, but no one is really buying the excuse. If that’s not enough, the two lead drivers crashed within plain sight of the finish line when Santino Ferruci deliberately took out Oliver Askew, who was about to win the race. That paved the way for Scott McLaughin, an Australian Supercar driver, to take the win. Everyone keeps saying that these are just video games, but wow, do these drivers take it seriously.
But that wraps up today’s show, thanks for watching and please join us again tomorrow.
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John McElroy is an influential thought leader in the automotive industry. He is a journalist, lecturer, commentator and entrepreneur. He created “Autoline Daily,” the first industry webcast of industry news and analysis.