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Auto sales are in a freefall. Heavy-duty truck manufacturing looks to fall by more than half. Few people are flying, renting cars or commuting to work. The COVID-19 pandemic is rapidly changing the face of work and the economy.
Adam Jonas, the transportation industry analyst at Morgan Stanley Research, has stepped back and come up with a compelling list of 10 ways the transportation industry is changing before our eyes. Will people work at home in far higher numbers? What types of vehicles will businesses and consumer purchase? How reluctant will people be to get into an Uber?
Here are Jonas’s thoughts on these questions.
Low oil and gasoline prices bolster existing sales patterns trend of trucks and vans making a greater share of the national fleet.
“An environment of lower-for-longer fuel prices could, all else equal, supports larger vehicle footprints,” Jonas wrote in his report to investors.
The potential for a $2 trillion U.S. infrastructure bill would push this trend. Trucks and vans are needed for “large scale construction projects related to refurbishing and enhancing the nation’s surface transport network, communications infrastructure, high-speed rail, healthcare systems, etc.,” Jonas said.
Much of America is depending on online retailers, digital logistics operations and e-commerce purveyors such as Amazon, Instacart and Fresh Direct for food and household goods. That is a massive shift that could spark the need for even more regional, local and last-mile services. Jonas asks if this the time to push forward with drone delivery.
Already there was pressure for the auto and truck industry to shrink. Look at the bid by Volkswagen’s Traton truck subsidiary for Navistar. Fiat Chrysler Automobiles and Peugeot are merging. Nissan and Renault have danced around converting their alliance into a single company.
“It has been our working assumption even before the current health and economic crisis that OEM consolidation was potentially on the verge of entering a phase of unusually high levels. We believe the economic shock, as well as subsequent changes to consumer behavior and government policies, could accelerate consolidation,” Jonas said.
Jonas was mainly looking at auto dealers, but many of the same issues will also confront sellers of big trucks. ACT Research forecasts that Class 8 sales will plunge this year and that production will fall by more than half to 162,000 trucks.
“The environment coming out of the near term crisis will remain challenging for many players in the dealer network, exacerbating the gap between larger and better-capitalized dealer groups that can continue to invest in the latest servicing technologies with access to more stable sources of capital vs. many ‘mom and pop’ dealers that lack sufficient resources to thrive in an environment of potentially structurally lower levels of U.S. auto sales,” Jonas said.
Dealers will depend even more on online/digital marketing and transactions. Tesla is ahead of the industry in figuring out how to deliver and service vehicles with minimal human interaction, Jonas said. Dealers also will have fewer employees to conduct sales. AutoNation laid off 7,000 workers this month because its sales fell 50 percent.
“The global ‘work from home’ experiment at unprecedented duration and on a massive scale is already challenging conventional thinking on commuting patterns and behavior that used to be seen as normal,” Jonas said. This may be the end of “face time” office culture, he said.
Such a change could permanently shift auto sales down. Citing federal data, Jonas said private vehicle ownership accounts for an 86 percent market share of commutes to work.
One way to stimulate vehicle sales is by launching a scrappage plan like the cash for clunkers stimulus of the last recession, Jonas said.
Such a program would “encourage utilization of auto plants, the purchase of safer and more efficient new vehicles in the lower and middle-income population, and to address emissions from the country’s dirtiest vehicles in the fleet,” Jonas said.
One question Jonas did not address is whether the trucking industry would push for the same. It would have outsized environmental benefits. Trucks account for a large segment of vehicle pollution because of their high annual mileage and low fuel economy – 6 to 7 mpg.
“Roughly 60 percent of U.S. car rental transactions days are originated at airport locations. Combined with the potential concerns of sharing a vehicle that is used by the general public multiple times per week, we would be prepared for the potential of lingering aftershocks related to changes in the corporate and leisure segment,” Jonas said.
Getting into an Uber was an act of faith in the driver’s safety even before the pandemic. Jonas asks if the coronavirus will lower “the public’s willingness to rely on the behavior of the passenger that occupied the vehicle on the previous trip, or during a shared trip?”
That affects all forms of public transport, including ride-hailing services, mass transit and airplanes. That might encourage fence-sitters to purchase a vehicle for their private use.
Look for vehicle manufacturers “to reassess vulnerable spots in their supply chain from the perspective of leverage, working capital, logistics and geographic risk,” Jonas said.