Carmakers' losses were less severe in the second quarter than analysts had feared, but the impact of the coronavirus pandemic has weakened smaller manufacturers' ability to keep up with their larger rivals' defensive pursuit of scale and efficiency.
Tesla Inc. confounded expectations by reporting a non-GAAP $451 million profit, an achievement that keeps it on track for possible entry into the S&P 500 index, while Toyota Motor Corp. and French automaker Peugeot SA also avoided losses. Ford's loss was less than half the $5 billion the company itself had warned of.
"We were near full production by the end of the quarter and with greater cost reductions and cash reductions than we had anticipated initially as well ... based on that keen focus on cost and cash," departing CEO Jim Hackett said on an earnings call. "At the end of the day, it's strong execution."
While there is cautious optimism for the second half of the year underpinned by encouraging July sales figures, vehicle production is still set to fall some 20% in 2020, according to consultancy LMC Automotive, and many companies are still refraining from offering financial guidance.
"While the U.S. auto market has seen clear improvement from the depths of April, we would argue we've passed the more certain phase of recovery … now comes the harder part," said Credit Suisse analyst Dan Levy in a July auto sales update. Levy said tight U.S. inventories due to the knock-on effect of production shutdowns could restrict supplies in some product segments, and employment trends in the second half will be one of the key factors in how the remainder of the year shapes up.
Automakers' fortunes in 2020 have hinged heavily on their geographic exposure. Sales in China have recovered strongly so far, and the U.S. market has also proven relatively robust. European sales are picking up after an initially weak resumption post-lockdown, helped by government stimulus measures, while Latin America could be set for a lengthy downturn as the virus continues to spread through the region.
"The data that we're seeing is similar to ... 2008-09, where China largely led the rest of the world out of recession," said Garrett Nelson, senior equity research analyst at CFRA Research.
As is often the case in economic downturns, higher-priced and luxury models have fared better than mass-market products where affordability becomes a greater concern. Bayerische Motoren Werke AG nonetheless was one of three major carmakers to report a worse-than-expected loss. Its MINI and Rolls Royce sales were hit harder than its namesake models.
China's relative strength helped German carmakers in particular avoid deeper damage. Volkswagen AG, for one, makes 40% of its total sales in the country. Such large automakers are likely to emerge from the ardors of the pandemic with an advantage over smaller rivals, said Tom Narayan, senior analyst at RBC Capital Markets.
Narayan said the challenges the pandemic has posed automakers would accelerate a push for efficiency and cost-cutting, much of which has come through increased platform and parts sharing. It has also bolstered the case for the planned merger between Peugeot and Fiat Chrysler Automobiles NV.
"I do think you are seeing some winners and losers. I don't think this is good for the smaller guys who do mass market. I do worry about whether they will survive," Narayan said.
"I think the big takeaway from this will be consolidation, which was going to happen anyway. There are going to be a lot fewer cars on the road in 50 years," he added, pointing to aggressive investments in autonomous vehicles, robo-taxis and car-sharing. "VW and the large ones stand to benefit from this. Either the [smaller carmakers] try to push consolidation or some of these brands may go away."
One of the automakers with the biggest fight on its hands is France's Renault SA, which along with Japanese partner Nissan Motor Co., Ltd. entered the pandemic with the fallout of former leader Carlos Ghosn's departure still looming. The furor left it for close to a year without a full-time CEO and, by its own admission, in need of a radical change of direction. Underscoring the intense pressures in the industry, new CEO Luca de Meo said he was already delving into the minutiae of Renault's operations in search of "any penny that's available."
Renault may be heartened by the success of is rival Peugeot, which underwent painful cuts in the prior decade, enabling it to lower its break-even threshold to about 50% of its 3.5 million car output.
Morningstar analyst David Whiston pointed to the automotive retail market as evidence of how quickly an external shock such as the coronavirus pandemic can force the industry to adapt. Widespread lockdowns led to dealers scrambling to move much of the car purchase process to online platforms.
"COVID-19 for dealers in our view is accelerating digital changes and related expense reductions that would have taken place over several years into just a few months," he said.