Dealers dive into stimulus details as industry takes cautious rescue route

The auto sector stands to benefit from the $2 trillion economic stimulus package, but in its effort to get relief, the industry has taken a more cautious route by not seeking an auto-specific bailout and instead focusing on liquidity and supporting the economy broadly.

The Senate unanimously passed the bill late Wednesday, March 25, after days of intensive negotiations. It passed in the House on Friday, and President Donald Trump signed it into law later that day.

The 880-page measure is the largest of its kind in U.S. history.

Unlike during the Great Recession, when the Detroit 3 initially requested $50 billion, automakers avoided direct pleas for a rescue despite global production shutdowns that could lead to significant revenue losses. The UAW and Detroit 3 discussed sending a letter to Congress this month on why the industry needed access to liquidity, but GM ultimately declined and it was never sent, a person familiar with the matter told Automotive News.

Instead, a coalition of groups representing automakers, dealers and suppliers sought broader relief as the industry navigates a public health crisis.

"The most important thing is that the auto sector did not ask for specific relief," Cody Lusk, CEO of the American International Automobile Dealers Association, told Automotive News. "It was unified in wanting liquidity in the market and wanting to take steps to get this economy going as a whole."

The association was still combing through the final text, Lusk said, but the package includes $350 billion for small-business loans that could benefit dealerships with 500 employees or fewer — and large dealership groups.

"The important caveat there is they will allow large dealer groups — who combined as a whole may have 2,500 employees — they'll let them aggregate that by dealership or by tax ID," Lusk said.

Dealerships such as Martin Chevrolet-Buick-GMC in Cleveland, Texas, are eager to get back to normal and view those small-business loans as a lifeline to keep their staff employed.

"Business has come to a crawl," said Janet Martin-Clark, dealer principal. "We've sold one vehicle in seven days, and our service is down about 70 percent."

Dealer Larry Winter of South Hills Kia in McMurray, Pa., was still processing the legislation but hoped it would help with bills and payroll because "cash flow in our business is everything," he said.

The South Hills sales department is closed because the state mandated shutdown of nonessential businesses, but the service department is open.

"Our business has never been designed to be able to shut down and restart," Winter said. "It's a cash-flow business. It's a matter of selling cars, so you've got money coming in and you can pay your bills."

In a letter sent to Congress last week, the Alliance for Automotive Innovation, National Automobile Dealers Association and Motor & Equipment Manufacturers Association also urged the White House to provide loans and loan guarantees to all sizes of businesses; and extend tax deductions or credits to businesses with more than 500 employees that are providing paid leave due to COVID-19, among other actions.

"This is an impossible scenario for the auto industry over a long period of time," John Bozzella, CEO of the Alliance for Automotive Innovation, said last week during a webinar with the Center for Automotive Research.

Bozzella said access to liquidity is an important lesson learned from the 2008-09 crisis, and it's "critically important" during the COVID-19 crisis.

The $2 trillion economic rescue package is nearly three times the $700 billion Troubled Asset Relief Program used to rescue banks, General Motors and Chrysler more than 10 years ago, CAR's Kristin Dziczek told Automotive News. "It's just enormous," the vice president of industry, labor and economics said.

Though not all of it is going to the auto industry, some aid will reach small businesses, suppliers and the biggest automakers, she said.

Unlike the 2008-09 government bailout, the auto industry has been in better financial health this time, but the effects of the coronavirus outbreak are hitting every sector of the economy, Dziczek added.

"They don't have an overcapacity issue. They don't have looming liabilities on their balance sheets," she said.

"They've had 10 years of profitable operation and a decent amount of cash, but no one has done stress testing at 0 percent utilization and this sharp drop in sales activity."