Weekly Brief: Virus ‘Rationalizing’ Could Repeat Auto Brand Extinction
US stocks delivered a blistering rally last week, as the S&P 500 and the Dow Jones Industrial Average rose more than 25% into a full-blown bull market.
Automakers shared in the surge. Tesla stocks, for instance, soared 19% from last Monday to Friday; Ford shares rose 9.2% on Thursday alone. True, Easter Monday trading saw a sharp about turn, yet the market is still a couple of hundred points up on its worst virus showing.
For those of us sheltering-in-place, which is now more than a third of the human population, watching the stock market rally was akin to popping our heads into a pleasantly parallel universe where a pandemic wasn’t raging. Where people weren’t dying, where our jobs or those of our friends hadn’t been lost, where our faces weren’t covered in masks and where our lives weren’t suspended in a limbo so disorienting it called into question everything we had ever known or assumed to be safe and reliable.
Indeed, the market rally belies the gaping wound that the coronavirus has opened up in the heart of the global economy and which, despite some short-term trader optimism, isn’t going anywhere anytime soon. One-in-10 workers in the US have lost their jobs in the past month alone. More than six million people applied for unemployment benefits last week. Those are the most dire numbers that the US workforce has suffered since the Great Depression and they’re wreaking havoc across the auto industry.
The word of choice last week was “furlough,” as automakers across the US furloughed their employees. If you’re not familiar with the term, furlough is a euphemism for ceasing to pay your workers for weeks or months at a time, or perhaps indefinitely, depending on how things turn out in the future. As its stock value soared, Tesla announced that it was furloughing all of its non-essential workers as of April 13 and cutting salary by 30% for vice-presidents, 20% for directors, and 10% for all other workers. Non-essential workers include those at showrooms and on factory floors, which all are shuttered and will remain so until at least May. The company will continue to cover healthcare benefits for furloughed employees.
Tesla was not alone. BMW had hoped to reopen its South Carolina factory this week. Instead, it pushed back the re-open target date three weeks and furloughed its 11,000 employees. General Motors furloughed 6,500 employees. Nissan furloughed more than 10,000. The list goes on. As for all the people who drive for Uber and Lyft, they can’t get furloughed because they’re not full-time employees. The US federal government included gig workers in its $2.2 trillion stimulus package but last week gig drivers began complaining that they’re spending day after day on hold at state unemployment offices, with no understanding of when or if they will receive their unemployment benefits.
As with seemingly everything else right now, a veil of uncertainty surrounds the long-term ramifications of these job losses and suspensions. Last week I discussed how the crisis could reshape the future of self-driving cars, as carmakers may have to make the difficult decision to stop investing millions of dollars in a technology that holds no guarantee of delivering a positive revenue stream. As the scale of cutbacks and losses grows, it’s also possible that carmakers will have to abandon plans for new cars that were in the pipeline, or new technologies that once were feasible but no longer remain so. This could impact on everything from infotainment and advanced driver assistance systems to electric vehicles.
In the wake of the 1930s’ Great Depression, around half of the then recognized vehicle brands succumbed to the downturn and never saw the light of day again. If factories remain closed and car sales continue to nose dive into the summer, the coronavirus pandemic may repeat that history.
