BMW just closed the factories in Germany for a month, so sedan inventory will be limited plus Spartanburg’s closure might follow. I can tell you from the discussions we have had on the sales floor that if inventory starts becoming limited, we are not taking loser deals.
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Obviously not, but it wouldn’t make sense to continue making cars just to sell at steep losses. Stopping production would be less hurtful option.
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Here you have it folks…straight from the horse’s mouth, for those still convinced BMW is going to be giving cars away.
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I don’t believe that BMW will give out free cars but that’s a dealer talking, it doesn’t stop BMW or any other manufacturer from heavily discounting their cars.
No One knows what will happen. This is a slowdown due to non-economic reasons so this is different.
Just saying.
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And I’m assuring you, supply will dwindle. There will not be a need to toss out huge financial incentives for leases. Purchase WILL be king as lease penetration will drop due to the captives not wanting the risk.
Been here, done that. You are right nobody knows, but logic and common sense about supply and demand come into play here. Likewise, 2008 is a good example, and not that long ago. Leases became scarce. Purchases were the norm.
You’re right, the slowdown is for non-economic reasons, but if you think the economy isn’t in dire trouble right now, I have a bridge to sell you.
Keep hoping for those captives to throw money at you though.
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I live in MI and grew up in Upstate NY.
As long as you don’t buy an OIdsmobile Alero, you’ll be fine for 70k miles.
Ahhh the N body. I had a Grand Am GT for a minute. It was decent when I wasn’t throwing money at parts, although they were relatively cheap. The 3400 was a strong mule though, even though I had the gaskets replaced multiple times.
How I haven’t given up on the General at this point is beyond me.
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I don’t foresee BMW doing anything drastic on their end. If you look at the current incentives and rebates, the 2019 3 series leases worse than a 2020 plus 2019 support is ending this month. With that said, I am hoping that the APR and money factors are lower next month since the Fed lowered the rates. Also when the Feds lowered the rates last year, BMW FS responded with lower money factors.
A couple years before I started driving, my dad bought a new car with the intent to pass down to me once I hit college. We debated heavily between a '99 Alero and a '99 Accord Coupe.
Guess which one we bought that was running perfectly at 260k miles when I traded it in for a 2003 Accord Coupe V6 6MT…granted the '99 was a V6 with the glass 4AT, but we only replaced it once during that time with a rebuilt unit installed by an old Greek dude in his garage.
GM is a great company and they make world class powertrains, but man that generation of N body vehicles was pure cheap garbage.
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Didn’t say there isn’t an issue with the economy right now. But we do not know how it will rebound and that’s the unusual part.
I totally expect the supply to be lowered but I can’t be sure what the recovery will look like and that’s why I say no one knows. If this is more like a 30 day temporary disruption and majority of economy gets back on track then supply will have to catch up.
I’m just saying that we will have to wait and watch…
I agree that’s what will happen in short term.
My broader point was that the uncertainty with current condition is too much and we do not know what the rebound will look like and can’t be too sure what direction it will go. That’s it.
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I don’t think it’s bouncing back as quick as you might think with thousands out of work right now in the hospitality/travel/entertainment businesses. People are going to be scratching their asses to get back on track and caught up on bills. Bankruptcy will skyrocket. Some people aren’t going to come back to work as the pre-isolation demand won’t be there due to discretionary income being scarce/nonexistent. or people still being in fear. It’s going to take time to ramp back up. Las Vegas just shut down all casinos that remained open for 30 days. That’s 95% of their economy.
Hope I’m wrong, but it doesn’t look promising.
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I’m not expecting a V curve jump. I’m hoping that small businesses will get the funding and payment relief to avoid bankruptcies.
I hope you’re wrong too and pray for the best.
Question to financial experts out there - I know you can’t tell the future, but do you foresee some car manufacturers tethering on the verge of bankruptcy if this current situation spirals or continues for months? ie. from plant shutting down production, to folks out of work and hence not looking to buy a car.
Another reason I try to give basic financial advise when folks are looking for a lease eval right now.
To be clear I am talking calendar year 2021 and 2022, obviously this year is [insert preferred profanity here].
As for making cars just to sell at a steep loss, it’s not that simple. See this article that "explained automakers’ rationale for the practice and how it works:
Say fixed costs for a given factory are $100, and that the factory can make 50 cars. Consumers, however, demand only 10. Under absorption costing, if the company makes all 50 cars, its cost-per-car is $2. If it makes only up to demand, or 10 cars, the cost-per-car is $10. Although each car adds variable costs for steel and other parts, if those costs are low, the company still has an incentive to make more cars to keep the cost-per-car down."
It’s very hard to know the right answer. Short-run, using the above numbers you might be better off making 50 cars and selling them at 7 dollars each instead it making just 10 and selling them at 14 dollars each.
Long run, you can adjust production down to avoid making more cars than you can sell. Although even that could cause pain through expensive union lay off rules (especially in Europe) and decommissioning potentially expensive recently built factories.
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I’m not a financial expert, but I can tell you if there isn’t some sort of bailout, with thousands of people at least temporarily out of work, and affecting not only the US but the world, I absolutely believe some will not only teeter, but fall into BK. FCA, Mitsubishi and Nissan come to mind right away.
That said, I am also assuming this is going to go on for much longer than 2-4 weeks of current, and just beginning stages of isolation. China and S Korea are just now starting to get back to some sense of normalcy, and are still not up to 100% full speed ahead.
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More plants shutting down.
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FCA ironically is in a pretty good place corporately - they’ve got some obligations during a shutdown but they’re on solid footing w/ cash vs debt/obligations.
They’re going to lay everyone off, which will cost them half of the unemployment(which is already spent and a sunk cost) and sub pay, which is the difference between UIA and a full 40 hr check.
Sub pay is also an insurance policy - so FCA as of today, isn’t expected to bleed cash.
Ford however, has been selling credit on almost all of their models for years now. I’m sure this is going to shakeup a lot of highly levered companies.
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Yes. Which ones? For the publicly traded American ones, look at their quarterly filings, cash and equivalents, short and long term liabilities. The one at the top of the list is the only one fighting to keep their manufacturing open.
Mitsubishi is owned by MHI which is just fine, though they could stop manufacturing/sales anytime. Likewise Subaru is owned by FHI - they’re fine (and both at the top of list for a Japanese bailout if needed). I don’t think Honda/Toyota are issue
I don’t see VW going away but their debt load is WAY up from settlements and buybacks and capex to expand to chase Toyota and GM for #1. They may need to rethink their scale.
All of these companies have tariff and currency risk (discussed in closed OR threads many times) that could swing things.
You can bet analysts are modeling the respective runways now. Car sales will drop. Secondary parts suppliers will drop. Commodities cars use to be built will drop.
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