Pete Kaczmarski
Senior Member
save you money to get some of the "collector" cars that will be cashed in.....
Get Ready for Mega Cash for Clunkers, Morgan Stanley’s Adam Jonas Says
Adam Jonas covers the auto industry for Morgan Stanley. Barron’s spoke with Jonas recently about how the car industry can survive the shutdown, and how it might be left changed. His edited comments follow.
–– ADVERTISEMENT ––
On differences between this downturn and the 2008 global financial crisis:
The global financial crisis, or at least the stimulus to alleviate it, happened after the election, whereas this one is leading up to an election. That’s not a subtle difference. The other thing is that the machinery of stimulus had been primed in the not-too-distant past. So the ability to move much faster and pre-emptively in some cases is more apparent this time than in 2008 to 2009. And of course, we were still selling cars [in 2008 and 2009] even though demand fell. The factories were still running and we didn’t have the complete weight of the fixed costs burden with virtually no production.
Crisis Hits the Car Business, Again
Ford CEO Jim Hackett and Wall Street analysts discuss how the pandemic will change the car industry.
00:00 / 21:12
SUBSCRIBE
On a mega cash for clunkers program:
We don’t think the [car makers] are going to fail the way some did back in 2008 and 2009. But the industry is going to need support. We expect a cash for clunkers program to be much larger in scope and longer in duration than what we saw. In 2008 and 2009, we saw a $3 billion package that stimulated about $14 billion of purchases. This time around we’re expecting about $10 billion of stimulus that drives $50 billion of purchases and adds about four million of SAAR [seasonally adjusted annualized rate, a measure of car purchases] over a six-month period beginning in the fall and then into early 2021.
We think that’s going to happen because without the stimulus, our best guess is that the consumer is only going to support an 11 million to 12 million SAAR, or 25% to 30% below where the industry was producing before the crisis. We’re reminding investors of the importance of the U.S. auto industry to manufacturing and jobs, particularly in Michigan, Ohio, Indiana, Illinois, Texas, Kentucky, Tennessee, Mississippi and Alabama. These are really important swing states, certainly this year. The idea is to keep factories moving and support three or four million jobs, and indirectly, 15 million jobs.
Read more: How the Pandemic Will Change the Car Business
On how the program might work:
These are numbers more for discussion: a $5,000 coupon to scrap a car subject to a variety of criteria, including U.S. local content percentages, call it 60% U.S. content. So there’s an American domestic angle that will of course include Japanese and Korean cars produced in the U.S. There may be some household income limitations and then limitations on the kind of vehicle you can scrap, and then how much you can buy. It might have a $60,000 maximum price limitation. It’s going to be designed, we think, to support lower and middle income classes to get bipartisan support.
Also, there will be a fuel economy and a sustainability angle to it. The fuel economy of the car bought, we suspect, will be 50% better than the fuel economy of the car scrapped. By getting rid of those old clunkers, you’re getting rid of the least efficient cars on the road, too. And then there’s a safety element to it—some level of minimum driving assistance technology—so the car you’re scrapping versus the car you’re buying has a lifesaving element to it, which would get some support.
When we run the math on that, you get some interesting paybacks because you’re stimulating factories. You’re creating sales tax for states that are in pretty dire straits. You’re creating registration fees while saving fuel and lives and insurance. That’s kind of how the pitch will be.
On electric vehicles, including Tesla:
Before the crisis, we were underweight Tesla (ticker: TSLA). Then we went to equal weight. We think that Tesla’s relative lead on electric vehicles might actually be improved coming out of the downturn, as other companies pare back on what they see as nonessential spending. Though longer-term, we’ll look back on the crisis as a blip in electric vehicle adoption. Tesla over time will face a lot more competition.
On changes to the car business after the pandemic:
We came up with a list: less commuting, less car rental, younger cars, fewer dealers, more digital and touchless service. Restructured supply chains to reduce geographic dependence. Possibly less ride-sharing. You know, the whole concept of hygiene and who the prior rider was in a ride-sharing or pooling operation, or in a car rental operation, or even in the used car business, might take on an elevated importance for some time to come.
When you think about car dealers, there are so many unpleasantries about the experience from the consumer side. That’s even if you feel that you were getting a fair price. It’s just got to change. It might be wishful thinking, but I’m kind of hopeful that one of the silver linings here is that this could accelerate a better experience. The things that a well-capitalized, publicly traded car dealer can do, the average mom and pop car dealer may not be able to or willing to do. So it’s possible that you might have fewer dealers over time, but also a better experience for car buyers.
Read more: Ford’s CEO Says Its Cars Will Be Built to Kill Viruses
Get Ready for Mega Cash for Clunkers, Morgan Stanley’s Adam Jonas Says
Adam Jonas covers the auto industry for Morgan Stanley. Barron’s spoke with Jonas recently about how the car industry can survive the shutdown, and how it might be left changed. His edited comments follow.
–– ADVERTISEMENT ––
On differences between this downturn and the 2008 global financial crisis:
The global financial crisis, or at least the stimulus to alleviate it, happened after the election, whereas this one is leading up to an election. That’s not a subtle difference. The other thing is that the machinery of stimulus had been primed in the not-too-distant past. So the ability to move much faster and pre-emptively in some cases is more apparent this time than in 2008 to 2009. And of course, we were still selling cars [in 2008 and 2009] even though demand fell. The factories were still running and we didn’t have the complete weight of the fixed costs burden with virtually no production.
Ford CEO Jim Hackett and Wall Street analysts discuss how the pandemic will change the car industry.
00:00 / 21:12
SUBSCRIBE
On a mega cash for clunkers program:
We don’t think the [car makers] are going to fail the way some did back in 2008 and 2009. But the industry is going to need support. We expect a cash for clunkers program to be much larger in scope and longer in duration than what we saw. In 2008 and 2009, we saw a $3 billion package that stimulated about $14 billion of purchases. This time around we’re expecting about $10 billion of stimulus that drives $50 billion of purchases and adds about four million of SAAR [seasonally adjusted annualized rate, a measure of car purchases] over a six-month period beginning in the fall and then into early 2021.
We think that’s going to happen because without the stimulus, our best guess is that the consumer is only going to support an 11 million to 12 million SAAR, or 25% to 30% below where the industry was producing before the crisis. We’re reminding investors of the importance of the U.S. auto industry to manufacturing and jobs, particularly in Michigan, Ohio, Indiana, Illinois, Texas, Kentucky, Tennessee, Mississippi and Alabama. These are really important swing states, certainly this year. The idea is to keep factories moving and support three or four million jobs, and indirectly, 15 million jobs.
Read more: How the Pandemic Will Change the Car Business
On how the program might work:
These are numbers more for discussion: a $5,000 coupon to scrap a car subject to a variety of criteria, including U.S. local content percentages, call it 60% U.S. content. So there’s an American domestic angle that will of course include Japanese and Korean cars produced in the U.S. There may be some household income limitations and then limitations on the kind of vehicle you can scrap, and then how much you can buy. It might have a $60,000 maximum price limitation. It’s going to be designed, we think, to support lower and middle income classes to get bipartisan support.
Also, there will be a fuel economy and a sustainability angle to it. The fuel economy of the car bought, we suspect, will be 50% better than the fuel economy of the car scrapped. By getting rid of those old clunkers, you’re getting rid of the least efficient cars on the road, too. And then there’s a safety element to it—some level of minimum driving assistance technology—so the car you’re scrapping versus the car you’re buying has a lifesaving element to it, which would get some support.
When we run the math on that, you get some interesting paybacks because you’re stimulating factories. You’re creating sales tax for states that are in pretty dire straits. You’re creating registration fees while saving fuel and lives and insurance. That’s kind of how the pitch will be.
On electric vehicles, including Tesla:
Before the crisis, we were underweight Tesla (ticker: TSLA). Then we went to equal weight. We think that Tesla’s relative lead on electric vehicles might actually be improved coming out of the downturn, as other companies pare back on what they see as nonessential spending. Though longer-term, we’ll look back on the crisis as a blip in electric vehicle adoption. Tesla over time will face a lot more competition.
On changes to the car business after the pandemic:
We came up with a list: less commuting, less car rental, younger cars, fewer dealers, more digital and touchless service. Restructured supply chains to reduce geographic dependence. Possibly less ride-sharing. You know, the whole concept of hygiene and who the prior rider was in a ride-sharing or pooling operation, or in a car rental operation, or even in the used car business, might take on an elevated importance for some time to come.
When you think about car dealers, there are so many unpleasantries about the experience from the consumer side. That’s even if you feel that you were getting a fair price. It’s just got to change. It might be wishful thinking, but I’m kind of hopeful that one of the silver linings here is that this could accelerate a better experience. The things that a well-capitalized, publicly traded car dealer can do, the average mom and pop car dealer may not be able to or willing to do. So it’s possible that you might have fewer dealers over time, but also a better experience for car buyers.
Read more: Ford’s CEO Says Its Cars Will Be Built to Kill Viruses
