COVID-19’s Continuing Toll on the Auto Industry

Current Battles and Financial Adversity:
A Continued Test for the U.S Auto Industry

East Lansing, MI; July 9, 2020—Anderson Economic Group analysts note that May 18, 2020 was a historic Monday in the U.S. automotive industry. On that day, after several weeks of halted production due to the pandemic, major manufacturers scored a small but long-awaited win when manufacturing resumed at many U.S. plants.

In the weeks that have followed, every tier of the industry continues to be tested. Before the industry can claim victory over the virus, there are many battles that still must be won and financial adversities that must be endured.

Current Battle: The continuous growth of COVID-19 cases in the southern U.S. and its impact on the industry. As an example, a GM plant in Arlington, Texas, is witnessing an uptick in positive cases, affecting the company’s workers and the surrounding communities. Where May’s battle was to restart production, the current challenge is to keep assembly lines running with minimum disruption. The industry desperately needs to succeed in this fight to keep production, productivity, and morale going strong.

“A production delay in any auto plant can disrupt sales for dealers across the country, many of whom are already showing some signs of inventory depletion,” said Shay Manawar, a market and industry analyst at Anderson Economic Group (AEG). “These challenges are unprecedented,” he continued, “but the auto industry needs to find a formula to balance risk and reward to serve the interconnected supply chain.”

Financial Adversity: The grinding halt to the travel, tourism, and hospitality has left rental car fleets idled on America’s parking lots. Among the more impactful and widespread economic distresses across the country, the travel industry’s woes have shaken the auto industry. One of the casualties is Hertz, the storied U.S. car rental company founded in 1918 (at the onset of the Spanish Flu pandemic). As a result of the company’s bankruptcy filing, Hertz has canceled 90 percent of its new fleet orders for the latest models. While the bankruptcy’s final tally is still unknown, U.S automakers are gearing up to endure a significant blow. A little more than half of Hertz’s fleet consists of cars manufactured by the Big Three automakers.

“Hertz is one of the top three leading car rental companies in the U.S. We are concerned about the bankruptcy and are keeping an eye on its impact to competitors,” notes Cristina Benton, AEG’s director of market and industry analysis. “Moreover, many conventions, expos, and conferences—bread-and-butter for the rental industry in the pre-pandemic world—are now going virtual. This noticeable slump in business travel followed by the Hertz bankruptcy represents a profound psychological and financial blow to the U.S car rental market.”