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MarketScreener Homepage  >  Equities  >  Korea Stock Exchange  >  Hyundai Motor Company    A005380   KR7005380001

HYUNDAI MOTOR COMPANY

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Discounts may help cure U.S. auto market's coronavirus hangover

05/04/2020 | 08:02am EST
FILE PHOTO: New cars are seen lined up next to the dock as the global outbreak of the coronavirus disease (COVID-19) continues, at the Port of Los Angeles

By Nick Carey

Texas auto dealer Hayden Elder says March was his worst month in 42 years selling cars thanks to the coronavirus, but April brought days that were "almost normal" and he expects bigger customer discounts to help him sell more Dodge Ram pickup trucks this month.

The virus outbreak and resulting stay-at-home orders have clobbered the U.S. vehicle market.

But from his corner of Texas, which pushed ahead on Friday with a phased relaxation of restrictions put in place to curb the virus, Elder sees enhanced incentives from Fiat Chrysler Automobiles playing a big part in boosting sales.

"I think that will open the door for a ton of orders for the factory," said Elder, who owns two Dodge, Jeep and Ram dealerships in a rural eastern region of the populous state. His businesses have remained open as they are considered essential.

With levels of unemployment not seen since the Great Depression - 30.3 million Americans filed jobless claims from March 21 to April 25 - it is difficult to predict the level of demand for new vehicles.

Jeff Schuster, president of the Americas for consultancy LMC Automotive, said the market should rebound in the second half of the year, but 2020 sales could be up to 25% lower than 2019.

"Until we get plants up and running and the economy restarted, we're in uncertain territory," he said.

That uncertainty is even greater if America experiences a second wave of COVID-19 infections.

Automakers have been burning through money while their plants are shuttered. Many industry experts agree that larger discounts could generate demand and cash flow when they reopen, even if they erode carmakers' profit margins.

Used cars have been piling up at auction lots since the coronavirus crisis began. New imported vehicles now clog major ports. Dealerships across much of the country are closed.

On Friday, Toyota Motor Corp said its sales plummeted 54% in April, while Hyundai Motor Co and Mazda Motor Corp reported drops of 39% and 45% respectively.

As states begin to reopen, the next months will be turbulent and the pace of recovery will vary by state, industry officials, analysts and dealers said.

Some automakers have already taken advantage of cheap money to offer no-interest loans for up to seven years.

Auto retailer Sonic Automotive Inc's Chief Executive David Smith said this week that automakers' current discounts were already unprecedented. They pushed sales higher in late April and will hopefully boost them further in the second and third quarters, he said.

"I've never seen that level of incentives," Smith said.

Automakers in the United States can look to China for some inspiration. Sales there have rebounded since virus lockdowns lifted.

"My belief is that demand will come back fairly well," Ford Motor Co Chief Executive Jim Hackett said on Friday during an online interview with the Washington Post.

Industry officials have also talked about the need for Washington to help.

"Certainly we believe that some level of government stimulus post crisis to help customers and the auto industry to recover would be appropriate," Ford's U.S. sales chief Mark LaNeve told Reuters last month.

One wild card for the new vehicle market is the way the coronavirus has disrupted the used U.S. vehicle market, where about 40 million cars and trucks change hands a year.

More than 4 million low-mileage, nearly-new lease vehicles are due to return to the market this year, at a rate of around 340,000 per month. That could push used vehicle prices down in the near term, hurting new vehicle pricing and demand, industry officials said.

Scott Cooke, chief financial officer of Toyota's U.S. captive finance arm, said the Japanese automaker does not have excess inventory on dealer lots, but is seeing a build-up of customers in lockdown states unable to return vehicles that have reached the end of their lease.

Cox Automotive economist Charlie Smoke said late last month that "competition for these off-lease customers will be fierce," with automakers dangling discounts for their business.

Some automakers have extended consumers' leases to keep their cars out of the used vehicle market logjam. As of late April, used-car auction house Manheim, a unit of Cox, was holding about 40% more off-lease inventory for corporate customers versus a year earlier, rather than flood the market and undercut resale prices.

George Augustaitis, director of automotive industry analytics at CarGurus Inc, an online marketplace for new and used cars, said automakers' captive finance arms have many tools to manage the used car glut - from discounts, to financing deals and attractive lease programs.

"That can draw people back to the new market," Augustaitis said.

The risk for automakers that offer aggressive discounts is that customers will demand them for the long term, hurting margins, said Mark Wakefield, a managing director at consultancy AlixPartners.

"Those things are hard to walk back," he said.

But back in Texas, Elder said that with the right attitude and well-placed discounts, the U.S. economy will come roaring back.

"It's going to be fun around here again," he said.

Graphic: In tough times, Americans preferred used cars - https://graphics.reuters.com/HEALTH-CORONAVIRUS/AUTOS-DEMAND/jznpneknwvl/autos-demand.jpg

(Additional reporting by Tina Bellon in New York; Editing by Tom Brown)


© Reuters 2020
Stocks mentioned in the article
ChangeLast1st jan.
BYD COMPANY LIMITED -1.45% 189.9 End-of-day quote.388.80%
CARGURUS, INC. -1.16% 24.68 Delayed Quote.-29.85%
CHANGE INC. 0.50% 8120 End-of-day quote.458.46%
FIAT CHRYSLER AUTOMOBILES N.V. 1.05% 13.226 Delayed Quote.0.24%
HYUNDAI MOTOR COMPANY -0.28% 179000 End-of-day quote.48.55%
LINE CORPORATION 0.19% 5380 End-of-day quote.0.56%
MAZDA MOTOR CORPORATION 0.15% 670 End-of-day quote.-28.57%
THE EASTERN COMPANY 0.13% 22.5 Delayed Quote.-26.30%
TOYOTA MOTOR CORPORATION -0.67% 7301 End-of-day quote.-5.35%
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Financials
Sales 2020 104 088 B 94,2 B 94,2 B
Net income 2020 1 874 B 1,70 B 1,70 B
Net Debt 2020 57 035 B 51,6 B 51,6 B
P/E ratio 2020 24,5x
Yield 2020 2,08%
Capitalization 38 176 B 34 567 M 34 549 M
EV / Sales 2020 367x
EV / Sales 2021 331x
Nbr of Employees -
Free-Float 71,0%
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Mean consensus BUY
Number of Analysts 26
Average target price 225 615,38 KRW
Last Close Price 181 000,00 KRW
Spread / Highest target 43,6%
Spread / Average Target 24,6%
Spread / Lowest Target -22,7%
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Managers
NameTitle
Mong-Koo Chung Co-Chief Executive Officer & Honorary Chairman
Won-Hui Lee Co-President, Co-CEO & Director
Eui-Sun Chung Chairman
José Munoz Global Chief Operating Officer
Byeong-Cheol Choi Chief Financial Officer
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