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Automotive COVID-19 Recovery Series

25 June 2020

COVID-19 Recovery Series

Executive Summary and Introduction

We live in unprecedented times. The spring of 2020 in the United States has been likened to 1918, when 675,000 US citizens succumbed to the Spanish flu, or the fall of 1932, when US unemployment reached 25%, or 1968, when rebellion permeated the US culture and universities nationwide went on strike. But the difficult-to-absorb fact is that, for the first time in recorded history, we are experiencing the turbulence and uncertainty of all three catastrophes simultaneously.

The coronavirus disease 2019 (COVID-19) pandemic has not discriminated in rendering unparalleled economic distress around the world. With global real GDP, as projected by IHS Markit, expected to contract by 6% in 2020, this downturn is poised to be much worse than the Global Financial Crisis of 2008/2009. The automotive industry is not immune and is currently facing one of the most significant disruptions in history. IHS Markit's forecast of a 22.8% contraction in US light vehicle sales in 2020 rivals, or exceeds, the most severe single-year sales contraction since before World War II.

Our data suggest that the mix of households returning to market this past March contrasted sharply with the pre-COVID mix. Specifically, US households that returned to market this year, when compared with their counterparts a year ago, were:

  • More likely to own a light truck than a car
  • More likely to own a domestic vehicle than an import-branded vehicle
  • More likely to own a pickup than any other body style
  • More likely to live in a smaller designated market areas (DMAs) and a rural state
  • More likely to be older and Western European
  • More likely to purchase than lease.

US new vehicle sales in the first half of June were up 18% compared with the same period in May, with luxury vehicle deliveries jumping 45%, mainstream utility vehicles up 25%, and mainstream cars up 14%. Pickup deliveries declined 7% as depleted inventories restrained sales during the timeframe. Light truck inventories nationally at the end of May were only half of their levels a month earlier as production was slow to ramp up across the United States.

Looking at new vehicle registrations at the state level, the three states with the greatest improvements in retail deliveries mid-June (over the first half of May) were:

  • New Jersey (up 69%)
  • Michigan (up 66%)
  • New York (up 60%)

These states were among the hardest hit by COVID-19, and therefore have the greatest opportunity for revival. These factors, independently and combined, create significant opportunity for original equipment manufacturers (OEMs) and marketers as they make plans for recovery. But even with recent gains, uncertainty abounds.

Introducing the COVID-19 Recovery Series
With the goal of mitigating this uncertainty, IHS Markit is announcing a thought leadership series focused on COVID-19 and its aftermath. With over 180 in-country senior automotive analysts covering every major market around the world, IHS Markit is well-positioned to offer COVID-19-related insights to the industry. Our analyses are relied upon by every major automaker, 95% of the leading automotive suppliers and a diverse group of financial institutions and other interested stakeholders.

Specifically, IHS Markit will publish three unique insight pieces providing research and perspectives into how the US new and used vehicle ecosystems have already evolved from their pre-COVID-19 days, and, more importantly, what the more settled post-COVID-19 world, when it does arrive, will look like. These papers will be valuable resources with which to navigate a path to a "new normal" in such unique times.

COVID-19 Recovery Series Schedule

  • August 2020: The OEM Landscape - Focus on US
    This issue will address brands and how they have evolved, changes in product plans due to the virus (including AV and EV programs), the use of incentives, the relationships between brands and their captive finance sources, and manufacturers' strategies for retaining current owners and conquesting new households.

  • October 2020: Supplier Strategy Reset
    This edition will look at the supplier community in both the short term, including restarting production lines and addressing liquidity issues (no production for two months), and the longer term, re-evaluating future research and development as well as capital expenditure decisions in an environment more fluid than that found pre-COVID-19. For example, suppliers will need to alter their focus of precious resources towards electrification innovation. IHS Markit forecasts a greater focus on hybrid technology (all electrification less battery electric offerings), rising to 18.9% of NA production volume by 2025 - up one point from pre-COVID-19 forecasts. This reflects an expected focus on hybrid technologies (away from battery electric vehicle [BEV]) and forces suppliers to align their plans in a fluid environment.

  • October 2020: Automotive Retail
    This installment addresses the impact of the pandemic on consumer behavior and how mobility shifts have influenced dealer standards and capacity, dealer profitability models, OEM changing views on legislation, and the role of dealers in the future. Research and insights into these accelerating trends will highlight the alterations automotive manufacturers and dealers must make in the short term to survive these trying times, as well as the longer-term strategies to enact to ensure prosperity going forward.

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