Auto industry faces a long, rough road back from crisis

Mark Glover’s AutoGlo car reviews also can be seen in the Northern & Central California Cruisin’ News magazine published monthly out of Folsom, California.

Sacramento, California -- You can tell a lot about the state of the automotive world just taking an hour-long test drive.

Heading east to the Sierra Nevada or north/south into the rich California farm regions used to be an experience in dodging heavy traffic and sometimes dropping onto congested surface streets to avoid the inevitable gridlock caused by a highway crash.

That was one month ago.

Today, my test drives are like motoring through the Twilight Zone, the planet suddenly devoid of transportation and motorists.

I worked in daily newspaper newsrooms for 42 years covering everything from bake sales to earthquakes to wildfires, but I can tell in all truth: I've never seen anything like the past several weeks.  The COVID-19 crisis has brought the world to a virtual halt.

Former journalism colleagues, auto industry sources and friends who know my interests have been in contact with me, asking me what I think will happen to the U.S. auto industry amid this crisis.  Here's my best guess:

The industry is going to take a hard tumble.  Frankly, it already has.  J.D. Power reports that new-vehicle sales in the United States plunged around 40 percent in March.  Anyone who knows anything about the auto industry knows that such a sales drop has a monstrous ripple effect.

Sales collapses bring assembly lines to a halt.  Motionless assembly lines mean worker layoffs.  On the financial side, paychecks cease and automaker profits turn into substantial losses.

Ordinarily, dealers might step up efforts to sell existing stock.  But the unique nature of the COVID-19 crisis negates that.  In a few states -- Pennsylvania and Michigan among them -- stay-at-home orders have shut off vehicle sales.

During the Great Recession -- remember "Cash for Clunkers" -- some auto stores compensated by ramping up their service operations.  The revenue they received from service departments helped offset slumping sales, enabling some dealerships to scrape by and survive the financial downturn.

But again, stay-at-home orders issued amid the COVID-19 crisis have cut deeply into that strategy now.

Know this:  Things will get worse.  J.D. Power estimates an 80 percent downturn in U.S. new vehicle sales in April, compared with April 2019.

Automakers are saying and doing the right things, offering extended or delayed payment plans for those who do want to invest in a new motor vehicle.  Those only go so far.

Will the industry survive?  I believe it will, just as it survived the pain of the Great Recession.  But I also believe that we will see some car dealerships go out of business, just as we saw in the recent, sledgehammer recession.

If the virus proves seasonal and time is bought for researchers to develop a medical weapon to battle COVID-19 safely, one can hope for a gradual return to "normal," perhaps later this year.  But returning to normal will not be an overnight thing.  It will take time for automakers to return production/inventory to pre-COVID-19 levels.  Likewise, household budgets will likely need to be nursed back to health over a period of months.

But once those things occur, I believe the U.S. auto industry will rally.  As was the case in the aftermath of the Great Recession, I believe "pent-up demand" will shift into overdrive; those who delayed making a vehicle purchase during the crisis will be looking to spend when the alarm bells stop ringing.

How long will it take for that to happen?  I have no idea.

But I hope it's sooner rather than later.