Coronavirus Not Yet Hurting U.S. Autos, Bad News Likely

Editor’s note: Read the latest on how the coronavirus is rattling the markets and what investors can do to navigate it.

Before the coronavirus pandemic, we were more bearish on 2020 U.S. auto demand than most forecasts, as we explained in our Jan. 30 Auto Observer: Moats, Motors, and Markets. We forecast a decline from 2019 of up to 3.6% to as low as 16.5 million. We expected a continued off-lease surge to move consumers into used vehicles over new, and we still do. The virus' impact on U.S. auto sales is still in its early stages, and there is little data as of March 12 to gauge the impact, so we are not changing our forecast at this time. No North American plants have stopped production yet due to parts shortages, but we expect earnings headwinds from air freight charges and production will be affected if Chinese parts plants don't reopen fast enough to keep North American plants moving. We are keeping our forecast in place provided the highest fear levels from the virus subside in the next few months.

We’ve seen resumption of 0% financing from automakers, such as Chevrolet on certain Silverado pickup purchases, and lower interest rates following the Federal Reserve’s rate cut may mitigate some damage. According to Automotive News, citing J.D. Power data, sales in Seattle fell 20% last week, while New York state sales have not been affected. The Central Florida Auto Dealers Association this week said it has seen no virus impact to its members’ Orlando stores. Large abrupt declines from a health scare is not surprising to us, but we think it’s too early to extrapolate numbers nationally or for the rest of 2020. Still, we expect poor sales numbers in March and April. U.S. light-vehicle sales for the first two months of the year were doing well, albeit helped by high incentives. According to Wards, U.S. sales through February rose 4.5% year over year, with all but three automakers (Ford F, Nissan NSANY, and Tesla TSLA) showing growth. Contrary to what the stock market is doing, we do not think it’s time to panic, but uncertainty will remain for a while.

Morningstar Premium Members gain exclusive access to our full analyst reports, including fair value estimates, bull and bear breakdowns, and risk analyses. Not a Premium Member? Get this and other reports immediately when you try Morningstar Premium free for 14 days.