Auto industry seeks help in Washington to weather COVID-19 crisis
Washington — Days after passage of a $2 trillion stimulus bill in which lawmakers set aside little specifically for carmakers, the industry is looking at ways Washington can help them weather the COVID-19 storm as Congress readies further rounds of relief.
Detroit’s automakers are walking a fine line: Although they have been hit hard by the coronavirus crisis, they are wary of appearing to ask for handouts a decade after the federal government was forced to bail out General Motors and Chrysler. Before Congress approved its massive aid package in March, carmakers had lobbied for loan guarantees, deferred corporate tax payments and tax deductions for paid leaves to employees.
Lawmakers largely ignored the requests while granting financial assistance to hospitals and airlines. But as part of the relief package, automakers and their parts suppliers will be able to qualify for loans that can become grants if they demonstrate they used the money for operations expenses.
U.S. Rep. Debbie Dingell, D-Dearborn, said there are actions the federal government can take to boost the industry.
Replacing old cars and trucks in government fleets would be a fast way to give carmakers an injection of cash. Congress could also revisit “cash for clunkers,” the $3 billion program created in 2009 during the financial crisis that gave money to car owners to encourage them to trade in old, less fuel-efficient vehicles.
“We’ve got to think of a new name for cash for clunkers, but we can encourage the retirement of older vehicles in the fleet,” Dingell said.
One thing is clear: The auto industry is in trouble.
Factories across the U.S. have ground to a halt. Dealerships have been ordered by governors to go dark in large parts of the country, including Michigan. In those places where it’s still possible to purchase a new car, potential buyers are in no position to take on such debt during this time of stay-at-home orders, mass layoffs and widespread closings of businesses deemed nonessential. April sales of new vehicles are expected to be down as much as 80%.
Congress is preparing for the possibility of passing multiple large bills to combat the economic fallout of the pandemic, Dingell said. Last week’s $2 trillion package was already the third piece of legislation intended to boost the economy.
“I think what you're going to see in the next bill is putting the third bill on steroids,” Dingell said. “No new programs. More unemployment insurance. More economic stimulus will come in the fifth package.”
The automotive industry has been lobbying behind the scenes in Washington for initiatives that will help them.
Ford Motor Co. spokeswoman Rachel McCleery said the Dearborn automaker is “encouraging Congress to look at a variety of ways to drive job creation, increase demand, support customers and provide long-term stability for the entire auto ecosystem.”
She declined to comment about Ford’s stance on specific programs, including cash for clunkers. General Motors Co. and Fiat Chrysler Automobiles NV did not respond to requests for comment.
John Bozzella, president and CEO of the Alliance for Automotive Innovation, which lobbies for carmakers in Washington, said in a memo released Tuesday that the industry needs “clear and consistent federal guidance” that “encompasses everything from best practices in health to financial resources and other benefits that can assist businesses large and small weather this unprecedented public health emergency.”
Besides asking for loan guarantees, tax deductions and deferred corporate tax payments, the group has pressed Washington to declare auto dealerships “essential” businesses as states declare emergency shutdowns.
Some states do consider dealerships essential, though others, such as Michigan, allow only their service departments to operate. The Alliance for Automotive Innovation also wants to delay the June 1 entry into the replacement for the North American Free Trade Agreement.
Largely left out of last stimulus
Despite requests, automakers came away from the last stimulus bill largely empty-handed. The measure included $150 billion for hospitals, $50 billion in loans for airlines, $25 billion for transit systems and $10 billion for airports.
Although automakers were not granted any special carve-outs, lawmakers said they would be able to apply for relief via a $500 billion fund for loans to distressed companies. The corporate loans will be good for eight weeks and can be converted to grants if businesses can document they used the money for operating expenses that allow them to remain open.
Dingell said automakers are cautious about public perceptions after GM and Chrysler received bailouts of $51 billion and $12.5 billion respectively a decade ago. Ford did not take federal money, but as a result, was saddled with some obligations the other two carmakers were able to rid themselves of in bankruptcy.
“Not one of the companies want to be asking for a bailout,” said Dingell, noting all industries are hurting in the COVID-19 economy.
“The airline industry is worse off than autos are,” she said. “(Lawmakers) are going to have incentivize demand. People are not going to buy a car right now.”
U.S. Rep. Andy Levin, D-Bloomfield Township, said lawmakers will have to remain vigilant about the economic fallout of the coronavirus pandemic.
“There's things we don't even know yet,” Levin said. “A national crisis on this scale is going to need constant attention.”
U.S. Rep. Dan Kildee, D-Flint, agreed, saying he is certain “there will be a need a for us to act in a couple of weeks, unfortunately.”
Kildee said lawmakers are likely to focus next on infrastructure spending as a way to jumpstart the economy.
“There’s a need for something far more robust on stimulating the economy,” he said. “There’s broad agreement we need to do something on infrastructure. But nobody has been willing to hold hands and jump.”
Suppliers have thinner cushion
Liquidity is the most pressing concern for automakers and parts suppliers, said Kristin Dziczek, vice president of the Ann Arbor-based Center for Automotive Research. She said the pain is likely to be most acute for suppliers.
Dziczek noted that 78% of auto parts suppliers have fewer than 100 employees. Those companies average $4.5 million in revenue in a typical year, she said, which gives them a limited buffer to withstand long shutdowns in the industry.
Most North American auto plants started closing in mid-March and are not expected to resume production until at least the first week of May. When they closed, their suppliers were not far behind.
“These are not big companies, but you need all the parts to make a car,” she said. “There’s lots and lots of little suppliers that need to weather the storm and come out on the other side.”
In addition to supply chain disruptions, Dziczek said the industry is getting hit by reduced demand, and health and safety challenges related to their workforces.
“When does demand come back?” she said. “Does a future bill contain government demand incentives? How do you go back safely in an environment when we don't have a vaccine yet?”
The federal government likely will have to take steps to incentivize car buying directly, says Jessica Caldwell, executive director of insights for market researcher Edmunds.
“Car buying is closely tied to consumer sentiment since it's so costly, and shoppers need to feel comfortable before committing to such a large purchase,” she said.
“If consumers choose to opt out of the market, there will be a significant trickle-down effect for the broader auto industry: businesses such as dealers, suppliers, transport companies and ad agencies suffer when auto sales suffer.”
Dziczek said the amount of assistance the auto industry is likely to need depends on how long major parts of the U.S. economy are shut down.
“If it’s five to six weeks, it could be OK,” she said. “If it’s three months, it’s going to be ugly.”