| 5:58 PM EST

U.S. Economy Shrinks at 4.8% Rate

Glum financial news, but we’ve been here before
#Volkswagen #Ford #Daimler


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As if we needed charts and graphs to prove the obvious.

The American economy contracted by an annualized 4.8% in January-March, reversing 2.1% growth in the previous quarter, according to an initial estimate by the U.S. Bureau of Economic Analysis.

12-Year Low

BEA says it isn’t possible to calculate how much of the skid was due to the spread of COVID-19. But maybe it doesn’t matter.

 Getty Images

The bottom line is that the U.S. economy’s nosedive is the steepest since the end of 2008. That’s when the Great Recession squeezed gross domestic product into an 8.4% decline.

The current quarter will shrink even more, thereby ending 10 years of growth and sliding the country into a recession. At least the U.S. will be in good company: Virtually every other major economy is headed for the same fate.

The Wretched Details

Stats that quantify just how hard the automotive sector has been hit—and how much worse it will get—are coming in now. No surprise that it’s a grim picture. Here’s enough to paint the picture:

Ford figures the $632 million operating loss it has suffered in the first quarter will balloon to more than $5 billion in the current three-month period. Still, the company says its $35 billion in available cash will get it through 2020 even with zero new wholesales and no further borrowing.

Daimler says its adjusted pretax earnings fell 69% to $780 million in January-March. The company anticipates a “significant” decline in global economic output through 2020.

Volkswagen Group says its first-quarter operating profit dropped 81% to $977 million as global retail sales fell 23%. The company is bracing for a “severe” drop for the full year but believes it can keep its operating results in positive territory.

Nissan says it probably lost $890 million in the fiscal year ended March 31. Earlier, it thought it could deliver a $609 million profit in spite of its sales and financial woes.

Bosch, whose pretax earnings skidded 38% in the first quarter, warns that global auto production will drop at least 20% in 2020 because of the COVID-19 pandemic. Bosch predicted in pre-pandemic January that global vehicle output, which began to sag three years ago, won’t revive until at least 2025.

Can-Do, Will-Do

Such dire news is not surprising, given the gigantic impact of the continuing COVID-19 pandemic. Will the auto industry survive? Of course it will.

The business also will change. Besides the usual belt-tightening and streamlining, there sadly will be inevitable losses.

But if the industry is resourceful—as it has been in every previous crisis—it will emerge leaner, smarter and, most of all, faster on its feet. You can bet on it.

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