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US car market crash possible

The situation in America’s vehicle markets is devastating. After countless oil tankers are already anchored off the coasts of the USA – mainly in California and the Texas Gulf – with their bellies filled to the brim with crude oil, more and more container ships are now filling up with unsaleable vehicles stored on their decks. A snapshot.

US car market crash
US Car market threatens to crash

At the end of April, a cargo ship with a cargo of two thousand new Nissan SUVs was ordered by the Port Authority of Los Angeles to drop anchor off the coast with its cargo to wait there. The reason? There is no more unloading capacity at the Los Angeles seaport. This alone shows the brutal way in which demand for vehicles in the United States has collapsed in recent weeks. In a recent report by Bloomberg, reference was made to sources in the shipping industry who reported that US car dealers in many places would no longer accept new vehicles.

A massive slump in demand for vehicles and a lack of storage capacity. Similar reports are currently being received increasingly from vehicle rental companies, which are now fighting for their very survival. While the Nissan freight was finally unloaded with a week’s delay, the Marine Exchange of Southern California said that from the point of view of container ship freight it was absolutely unusual not to be able to unload immediately.

Of course, every day that container freighters drop anchor about a mile off the coast costs a whole lot of money. If you have to wait a week, it can run into millions. At present, attempts are being made under American seaports to significantly increase stowage and storage space in order to be able to unload incoming freight more quickly.

Meanwhile, the Japanese car manufacturer Toyota has itself rented additional storage capacity from a sports arena in Los Angeles in order to be able to unload container ships more quickly after their arrival. The same applies to the car manufacturer Hyundai, which is expanding its parking areas by renting new space on America’s west coast.

Current analyst forecasts predict a 27 percent slump in American vehicle sales (trucks and private vehicles) to 12.5 million units this year, according to another recent Bloomberg report. Looking at the month of April, this will be the biggest slump in car sales (forecast: -52.5 percent compared to the same month last year) in US history.
Analysts at Edmunds point out that these incredibly gloomy figures are not only due to private car buyers holding back in the USA. Rather, there was also a massive slump in vehicle fleet sales to companies and car rental firms. The car rental business in particular has recently come to a virtual standstill.

Car manufacturers and their dealers are currently losing tens of billions of US dollars due to cancelled vehicle fleet sales. After all, these vehicle fleet sales account for 1.7 million vehicles of annual car sales in the USA – and thus a little more than ten percent – on their own. This is compounded by the fact that many car rental companies no longer know where to park their vehicles. From this point of view, it is hardly surprising that the parking areas of shopping malls and shopping centers are now filled with these vehicles.

Car rental companies have recently even started to rent additional parking spaces from sports stadiums and other arenas. In many places, car dealers all over the country can hardly escape the overcapacity of vehicles. In order to eventually sell these cars, dealers will probably have to offer potential customers such massive incentives and discounts as never before in the history of the country.

It is unlikely to be an easy task, as it will have a hugely negative impact on dealers’ margins. After all, prices for used vehicles in the USA are now in a downward spiral. The Americans are known for buying mostly used vehicles instead of new ones in times of recession.

This may also be due to the fact that car banks and other lenders are now taking a closer look at the creditworthiness of potential buyers. For two to three years now, the number of so-called subprime vehicle loans that are in default or delinquent has been growing from one high to the next. In the meantime, more and more quality borrowers are also affected by this development.

Recent data and developments indicate that the situation in America’s automotive industry is getting worse. The car rental company Hertz, which could find itself facing the prospect of filing for insolvency, has in fact cancelled 90 percent of all planned purchases of new vehicles for the calendar year 2020.

This decision will in turn have consequences for major car manufacturers such as General Motors, Ford and Fiat. General Motors is currently looking at a 21 percent share of all vehicle sales to Hertz, while Ford has 12 percent and Fiat 18 percent. Similar to many other companies, no one at Hertz expects a V-shaped economic recovery – unlike those financial markets flooded with liquidity.

Hertz CEO Marinello announced during a conference call with analysts that the coronavirus pandemic has led to massive declines in global travel markets. From the current perspective, the market for used vehicles is de facto dead. Since a wave of secondary infections from autumn of this year cannot be ruled out at all, more realistic forecasts of a supposed economic recovery must be made. For this reason, Hertz has no choice but to conserve liquidity to a large extent.

Car rental company sales in the USA slumped by 77 percent in April. The car manufacturer Fiat, which did not sell a single vehicle in this sector during the period under review, was one of the hardest hit, with reference to Cox Automotive.

By 22 May, Hertz must reach an agreement with its lenders to repay maturing debt. In the absence of such an agreement, Hertz will probably have no choice but to file for insolvency. The US car market stands before a possible crash.

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