To say that the automotive industry has been hard hit during COVID-19 and its negative economic effects would be an understatement. Vehicle inventory is out of whack as plants have temporarily shut down, plunging used-car prices are having unintended consequences for major manufacturers, March sales declined drastically for major automakers, and restrictions on travel and transportation have rental company Hertz on the verge of bankruptcy.
To put it bluntly: It's ugly out there in the broader auto industry. Thankfully, General Motors (NYSE:GM) and rival Ford Motor Company (NYSE:F) can offer investors a silver lining even as U.S. sales slump.
The bright side
You could ask ten different people when they think the U.S. economy will rebound, how quickly it will rebound, and which industries will bounce back the fastest, and you'll get a hundred different opinions. But General Motors, the second-largest foreign automaker in China, is offering U.S. investors a potential glimpse into the future as it witnesses the auto sales rebound from COVID-19 overseas.
GM reported that its sales in China jumped over 13% in April, compared to the prior year. That's a complete night and day difference compared to the first-quarter results. GM's first-quarter sales in China plunged 43% from 813,973 units in 2019 to 461,716 units. The pain was widespread as Buick, Chevrolet, and Cadillac sales dropped 42.5%, 54.7%, and 40%, respectively, and its joint venture brands Wuling and Baojun declined a similar 34.3% and 51.5%, respectively.
Even though Ford has a much smaller footprint in China, compared to its crosstown rival GM, it recorded a significant rebound in March China sales. Ford sold over 40,000 vehicles in China during March, which jumped to about 75% of sales during the prior year, but the month was such a strong rebound it accounted for almost half of Ford's total first-quarter sales in the region. The improving results in China mean the worst could be over in the region, and that the U.S. might experience a similar bounce-back in roughly four to six weeks.
Tap the brakes
By the second week of April, over 99% of car dealerships in China had reopened, a massive reversal from the dire days of Feb. 10, 2020 when only 28.3% of dealerships were open, according to the China Automobile Dealers Association. Yes, investors and consumers alike are willing to latch on to any silver lining or glimpse of improvement after COVID-19 has slowed the economy to a near standstill. But, while the store reopening count sounds fantastic, keep in mind that showroom traffic has only recovered to about 70.8% of pre-pandemic levels. Furthermore, daily revenue from new-vehicle sales is back to only 67.9% of normal levels.
Part of that slower bounce-back in consumer activity is simply people avoiding big ticket purchases while the world remains uncertain about its ability to keep COVID-19 under control as we reopen parts of the economy. As long as consumers are afraid there's a possible second wave of new COVID-19 coronavirus cases, and another potential wave of job losses and economic restrictions, big ticket sales will likely remain slow to recover.
Control what you can
Make no mistake, GM seeing a double-digit rebound in its China sales is phenomenal news, especially if the U.S. follows a similar trend. But all major automakers can do at this point is control what they can, and adapt where possible. For GM, part of that means preparing a strategy to safely return part of its business and production to activity, while bolstering its financial position. GM recently extended $3.6 billion under its three-year revolving credit agreement, in addition to its $2 billion 364-day revolving credit agreement, to provide necessary liquidity to outlast the COVID-19 pandemic.
But at a time when you can ask a handful of people what type of economic recovery is expected, and receive a hundred different opinions, it's reassuring for GM and Ford to provide hard data of a sales rebound in China. It's a silver lining the auto industry will take, currently.