Automotive Industry Borrows $132 Billion Through Pandemic

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The automotive industry has borrowed an estimated $132 billion since the world started taking the coronavirus more seriously, according to a recent analysis by Bloomberg.

Despite migrating around the planet months before anyone thought to close down a single airport or suggest masks were necessary, March is broadly viewed as the start of the pandemic in the Western World, as that’s when most governments started taking direct action and businesses started looking for handouts. Still, it’s exceptionally difficult to follow the money if you didn’t devote yourself entirely to the task of tracking payments while under shelter-in-place orders.

We do know that a lot of money was being thrown around, however. Car dealerships were among the largest recipients of Paycheck Protection Program (PPP) funds in the United States, garnering anywhere from $7.5 billion to $12 billion in government aid to maintain staff. Plenty of criticism over exactly where that money went arose as the press questioned which businesses were more deserving and who was just taking advantage of the system.

But it’s only the tip of the iceberg. PPP funds don’t need to repaid unless they weren’t earmarked entirely for payroll purposes; the government also used the program to send over $600 billion to support banks in extending low-interest loans to companies during the pandemic. The automotive industry was one of the largest beneficiaries of that arrangement.

The dismal financial reports coming from most manufacturers this month would suggest they were in desperate need of the cash. Government lockdowns effectively ended the industry’s ability to do business as production facilities and sales centers closed, forcing major players to dip into their (often sizable) cash reserves. But with the promise of easier terms from lenders, many figured borrowing wasn’t a half-bad idea.

According to the study, the total amount consists of $79 billion in new loans and another $53 billion in drawdowns from existing credit lines. Facilities linked to the pandemic were said to account for almost 80 percent of overall loan borrowings by the auto sector in the year to date.

From Bloomberg:

Loans for virus relief, which peaked during the March-to-June period, eased this month to less than $100 million as some companies began paying down their loans.

Ford Motor is the latest company to repay part of revolving facility drawn previously, according to an Bloomberg News report earlier this week.

The automaker said Thursday its second-quarter operating loss was less than half the $5 billion deficit it had predicted, due mainly to strong demand for its SUVs and trucks.

French parts supplier Faurecia sold a bond this week to repay its 800 million euro ($949 million) club loan from April.

Fiat Chrysler Automobiles also paid down drawdown portions of its 3.5 billion euro revolver with a bond early this month.

However, plenty of companies, usually smaller parts suppliers with less cash reserves, have asked for clemency on loan agreements as the pandemic continues ripping them to shreds. Bloomberg cited Samvardhana Motherson Automotive Systems and turbocharger supplier Garrett Motion as examples  both of which have a large pool of employees but smaller cash reserves to endure a financial crisis.

That’s important to remember in this. While the $132 billion sum sounds insane on the surface, it’s spread out across a vast industry that employs large portions of several countries. That makes it seem substantially less troublesome overall, albeit still a huge amount of money. It would still be nice to know exactly how favorable some of the terms were, since governments around the globe took direct action to help banks make more loans possible. Deciding exactly how much was necessary and who was actually in need will be a tall order, though  especially since that has to be done after the fact.

[Image: Minerva Studio/Shutterstock]





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