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Report: Auto sales T-boned by COVID-19 restrictions

Henry Payne
The Detroit News

The COVID-19 virus could slash sales of new vehicles by more than a third this month, according to automotive forecaster J.D. Power.

With state-mandated shutdowns in major markets accelerating across the country from New York to Detroit to San Francisco, the company says sales are already off 19% from its original March forecast. If current trends hold, J.D. Power expects sales by the end of the month to be off 32-40% from pre-virus forecasts.

Sales of new vehicles could plunge as much as 40% this month.

J.D. Power’s Tyson Jominy expects Metro Detroit sales to decline by 80% in coming weeks as its March 25 shelter-in-place order mirrors those of other metro areas. San Francisco, for example, saw sales crater by 86% over the weekend after its March 17 stay-at-home order.

“It’s pretty clear that stay-at-home orders are the determining factor,” said Jominy, vice president of data and analytics. “Even in Detroit that has an unusually high lease rate due to home-town automakers. We expect Detroit to have similar levels of decline to other areas in the near future.”

Looking ahead, the Troy-based firm expects March through July to be the most heavily impacted months with a sales losses of 1.8-2.8 million units. The company is using China’s 12-week cycle of recovery as a baseline for its forecasts on the virus’s impact. Assuming fewer government restrictions in the latter half of the year, it forecasts annual sales between 13.3 and 14.8 million units – down 12-21% from a forecast of 16.8 million sales before the virus struck. U.S. sales for 2019 were 17.1 million, a record fifth-straight year over 17 million.

The J.D. Power numbers dovetail with other forecasts. IHS Markit sees a decline to 14.4 million in sales, a 15.3% drop, while Browne Consulting predicts a decline in US sales to 14.28 million units, a 16.5% reduction. The drops are shy of the 19% reduction in the 2008-2009 Great Recession.

Globally, IHS Markit forecasts a “stalling of demand in 2020” worse than the 8% global recession with car sales dropping 12% from 2019 to 78.8 million units.

Among major markets through last week, Detroit was least impacted with sales up 2% in March. San Francisco saw sales drop 41% this month, including the 86% weekend plummet after its March 17 shelter order. Seattle, once the US epicenter of the pandemic, is now the fourth most affected market, dropping behind San Francisco, Sacramento, and San Diego.

“It is important to recognize that while month-to-date results in some markets appear relatively robust, the sales pace in all markets is falling rapidly and a majority of ‘stay-at-home’ orders had not taken effect last week,” wrote Jominy in J.D. Power’s report. “The complete impact of the new rules will become apparent this week.”

Auto sales declines have tracked the coronavirus panic as it has emptied US streets week by week. Sales on March 8 were off 1%, March 15 by 15%, and March 22 by 35%.

Those numbers are expected to accelerate into April with J.D. Power predicting sales off 79 percent nationwide to just 230,000 units as more governors follow the 25 states (60 percent of the US population) that currently have stay-at-home orders.

However, the forecast sees bright spots assuming the restrictions start to lift in the weeks ahead.

Some 31 percent of consumers lease vehicles and J.D. Power expects 50 percent of them will postpone a decision when their vehicles come off lease in the next few months.

“When the restrictions lift, that means a large numbers of people will be coming back to the market,” said Thomas King, chief product officer for J.D. Power.

Unlike past economic downturns, King does not see auto production as an issue as plants were going full tilt before they shut down for COVID-19. Inventories are at a healthy 3.7 million units on the ground meaning customers will have lots of choice to return to.

Returning to production, however, is expected to be difficult, says JD Power, due to supply chains issues after weeks of shuttering. New production is expected to decline by 50% in April, 33% in May, and 10 in June.

To motivate buyers to return, dealers are ramping up rarely-used, 84-month lease terms. “We anticipate such loans to be prevalent” says King who notes they normally account for just 7% of the market.

The longer-term loans should also help the industry maintain record-high, pre-COVID-19 transaction prices of $33,600– key to maintaining auto profitably.

Sellers in the used market, however, will see their assets depreciate as used car values are falling faster than new cars.

Henry Payne is auto critic for The Detroit News. Find him at hpayne@detroitnews.com or Twitter @HenryEPayne.