How Will the Auto Industry Fare in the Wake of the Pandemic?
And which of the changes will stick with us after?
Auto sales fell more than 32 percent in May compared with the same month a year earlier, and while that seems dismal, it was cause for optimism among perennially sunny car company marketing and sales people when compared with April's drop of roughly 50 percent. The trend toward a "V"-shaped recovery, for the auto biz at least, appears to be a product of low interest rates and even more favorable financing deals, as well as loan payment holidays offered by numerous brands in their advertising during the general pandemic shutdown of April and May.
Retail, Rental, and Fleet Markets
Fleet sales, which can contribute up to 25 percent for certain models, certainly won't push forward the upside of the "V", since many fewer people want to rent cars now. Assuming a second wave this autumn and winter, the question of how many people will continue to buy new cars, buy used cars, book an Uber or Lyft, or book a rental car will be as much a crapshoot as how many restaurants will still be open in your neighborhood next March.
Will new car buyers buy more of their cars online? This is the question so many analysts and auto journalists are asking these days, but I think it's a red herring, at least in the U.S., where state franchise laws assure that at some point in the purchasing process you will have to deal with a dealership, even if you never have to set foot in it to get the keys.
The broader transportation landscape faces much bigger post-pandemic questions, not the least of which is whether automakers' push toward electric-powered vehicles changes trajectory. The path toward EVs is just a bit clearer than when I wrote about whether EVs might come out on top once everything is over, back in the middle of the April pandemic shutdowns. Note that above I refer to "transportation landscape," not "automotive landscape," because that's how we should be thinking of our future, even us car guys and gals.
EVs Make Their Advance, ICEs Hang On
General Motors is not changing its trajectory, CEO Mary Barra said in an Automotive Press Association meeting in mid-June, but the automaker isn't going to phase out ICE-powered vehicles any time soon. As GM builds its EV portfolio, it will continue to develop and update ICE-powered models, which means a lot of models in the catalog, both here and in China.
This growing portfolio of ICE and EV models seems like a repeat of GM's model proliferation in the second half of the 20th Century, though Barra insists the big lineup is sustainable as the automaker transitions to its Ultium battery packs and "skateboard" platforms. GM sees the new EVs as potentially conquering the Coastal markets where the company is weakest.
"There are 250 million vehicles on the road, when will they all be EVs?" Barra told the APA. "We want to drive the growth in EVs over the years. We believe in an all-electric future…and we are looking at providing the EVs that people want."
GM intends to sell the EVs at a profit, thanks to its huge engineering and design effort in lowering the cost per kilowatt-hour from about $145 currently, to less than $100. Meanwhile, GM will have to rely on the high profit margins of its pickup trucks and large SUVs to keep the company profitable. The company even made a small profit in the first quarter of this year.
Cheap gas in the U.S. always has been the enemy of EV development, although I don't see the recent plunge in oil prices—I found regular unleaded as low as $1.19 in the Detroit area in April—as stomping on the brake pedal of EV progress. Besides GM, Volkswagen Group is making a major push, Ford is counting on its Mach-e and its deal with Rivian on trucks for the short term, and Nissan will separate its Infiniti brand with e-Power electric powertrains instead of costly rear-wheel-drive platforms, according to an Automotive News interview with new Infiniti Motor Company chairman Peyman Kargar. A boom in electric delivery vans from several major automakers, and at least a couple of newcomers may be next. If nothing else, you'll (eventually) be able to work from home in a quieter environment as FedEx, UPS, U.S. Postal Service, and Amazon electric panel vans roam your streets.
Bikes vs. Cars
On the one hand, there's reasonable fear in using mass transit during the coronavirus pandemic. On the other hand, can you imagine traffic in Manhattan if subway commuters start driving their own cars and SUVs to work? During the height of the pandemic in New York, subway ridership was reportedly 10 percent of normal levels, and the city limited hours late at night for the first time ever. Imagine the other 90 percent clogging streets with shiny new Toyota RAV4s and Chevrolet Equinoxes.
Automakers are hoping to sell as much as 14 million vehicles by the end of the year according to the most optimistic predictions, which would be about 19 percent lower than 2019 auto sales. Meanwhile, bicycle sales in the U.S. doubled this March compared to March '19, The New York Times reports, quoting market research firm N.P.D. Group.
Many urban areas are considering closing some city streets to make room for socially distanced dining al fresco. The city of Oakland closed several major streets to motorized traffic at the beginning of California's shutdown, and there has been some talk about doing the same in parts of Canada and Europe.
This is not an anti-car movement so much as it is an attempt at balancing appropriate modes of transportation for cities and suburbs, especially as government and business try to balance access with social distancing. And anything that gets newbie bicyclists to stop pedaling on sidewalks is fine with me.
A Modest Proposal: Trains, Planes, & Automobiles
At some point, air transport will return to something approaching its former volume again. But, to some, this could seem like a good time to take advantage of the cutbacks in airline routes and the grounding of much of the fleets to shift to a cleaner, potentially more convenient transit by finally building up high-speed rail.
Congress established Amtrak in 1970, from the ashes of several failing private commuter rail lines, but the whole enterprise was designed to fail from the outset. While Amtrak ridership has risen in recent years, it has still only managed to reduce its annual losses, according to Bloomberg Opinion.
Mostly what this proves is how expensive transportation is from any point of view. Automakers relied on President Eisenhower's highway system of the 1950s and cheap, low-taxed Middle-East oil to support their production of land yachts into the 1970s and '80s, and major aircraft manufacturers would not be where they are today if not for the subsidized research and development that federal defense contracting has provided.
Here's my modest proposal. If Boeing, American Airlines, United, Delta, Southwest and the others need a federal bailout following devastation from the pandemic, why not turn Amtrak over to them? Think of the public-private consortium that runs Europe's Boeing rival, Airbus. I wouldn't expect the sort of quick, efficient development Japan put into its Shinkansen in order to get it ready for the 1964 Summer Olympics, but I'd bet we'd get better train service quickly between cities as close together as, say, Chicago and Detroit, where (relatively) high-speed rail could potentially be as quick as a direct flight, especially when you factor in security procedures, requirements to arrive early, and transportation to and from the airports—and it would be cleaner for the environment.
Or nothing changes
In rural parts of the U.S., where pickup trucks often are used as pickup trucks and even short commutes can be 25 miles or longer, bicycles are not going to proliferate as quickly as in cities. In the country, you don't want to count on even a 400-mile (maximum) range rating, especially in cold weather, and you're going to find it hard to sit at a fast-charging station for 30 minutes.
Change could eventually be foisted upon rural residents, especially younger generations just now getting their driver's licenses, but ICE-powered vehicles new and used will hold out in rural regions longer than in urban and suburban areas. And that's okay, so long as it's only part of an improved, more efficient, cleaner transportation landscape.