Lost auto sales could cripple economy, research group says

The loss of a single week of auto sales in the U.S. as a result of the spread of the novel coronavirus could have staggering ripple effects on the broader economy, according to data from the Center for Automotive Research in Ann Arbor, Mich.

For every seven-day period that consumers stop buying new vehicles, the U.S. economy would lose roughly 94,400 jobs and $7.3 billion in overall earnings, said Kristin Dziczek, the center's vice president of industry, labor and economics. Government tax receipts would drop about $2 billion, she said.

A significant drop in demand is likely as much of the country hunkers down and practices social distancing to slow the spread of the virus, Dziczek said, because of the discretionary nature of new-vehicle purchases. Even after the crisis passes, the auto industry may be slower to recover because vehicles cost more than other purchases consumers are likely to delay.

"It's concerning," she told Automotive News. "There's been a supply disruption that's led to a demand disruption that's led to a public health crisis. If on the other side people don't want to buy cars, we have a real problem."

Forecasters already are projecting that auto sales will drop significantly.

Morgan Stanley expects the coronavirus outbreak to send U.S. sales down 9 percent this year, it said in an investor note last week. Before the outbreak, analysts had expected a modest decline of 1 percent to 2 percent in 2020.

LMC Automotive cut its U.S. forecast by nearly 300,000 vehicles to 16.5 million, a 3 percent drop from 2019.

"Whether you believe there is a public overreaction or that COVID-19 is actually a public health crisis ... there is no denying the expected negative impact it will have on the economy and auto industry," Jeff Schuster, LMC's president of global vehicle forecasts, said in a statement.

If the economy recovers rapidly from coronavirus concerns, TrueCar subsidiary ALG projects new-vehicle sales of 16.4 million in 2020, down 2.9 percent from its initial forecast and 3.8 percent from last year's total. A longer economic slowdown could result in vehicle sales of 14.5 million this year, ALG said, 14 percent below its initial 2020 predictions.

U.S. plant shutdowns soon could be another factor to consider.

Volkswagen of America closed its Chattanooga plant Monday for a deep cleaning. The Detroit 3 are attempting to keep their plants open as long as possible but are under mounting pressure to protect their factory workers. Dziczek said Monday that plant closures are "inevitable."

The coronavirus crisis could have a crushing impact on the auto industry, she said, but it's still not likely to be as bad as the 2008-09 financial crisis, which pushed General Motors and Chrysler into bankruptcy protection.

"It was a catastrophic event but it changed their way of thinking, much like the Depression changed the way of thinking for a whole generation of people," she said. "If you survived '08-'09, you're on better footing and you made different decisions in the next decade. That sets them up to weather a storm better."