Automakers Put Brakes On US Production Amid Coronavirus Scare

The coronavirus pandemic has crippled the U.S. auto industry, with closure of factories, dealerships witnessing lower footfall and disruptions in global supply chains. Notably, the number of confirmed coronavirus cases in the United States has crossed 8,700. Acknowledging the gravity of the crisis, President Trump has issued new guidelines to contain the spread of the pandemic. The pandemic is likely to take a severe toll on sales and earnings of automakers in the days to come.

U.S. Automakers Take Precautionary Measures

Various auto companies having operations in the United States have temporarily suspended production, while the others plan to change manufacturing processes and cut production levels in their plants, in line with the nation-wide campaign addressing the crisis. The companies have implemented more stringent cleaning regimens, imposed restrictions on access to the plants and taken other steps to keep workplaces safe for employees. Other measures to contain the spread of the virus include allowing some employees to work from home and controlling numbers at company cafeterias.

The coronavirus outbreak is posing concerns for auto biggies, including General Motors (NYSE:GM) , Ford (NYSE:F) , Fiat Chrysler (NYSE:F) , Tesla (NASDAQ:TSLA) , Honda Motor (NYSE:HMC) , Toyota Motor (NYSE:TM) , Volkswagen (DE:VOWG_p) AG (OTC:VWAGY) , Goodyear Tire, Nissan, Harley-Davidson and Hyundai Motor, all of which have large manufacturing plants in the United States.

General Motors and Fiat Chrysler have temporarily shut all U.S. factories at least until Mar 30 to contain the spread of coronavirus and will evaluate the situation on a weekly basis after that.

Ford has also temporarily halted production at its Chicago assembly plant due to shortage of parts. The plant will be idled for at least two shifts. The closure is related to the COVID-19 cases that caused suspension of work at Lear Corporation’s plant in Hammond, which supplies seats for the Ford Explorer sport utility vehicle and other vehicles manufactured at Ford’s Chicago Plant.

All three automakers have bowed to pressure from the United Auto Workers (UAW) union that has called for protection from the pandemic in order to safeguard its members, families and communities.

Meanwhile, Honda North America will be closing four U.S.-based plants from Mar 23, due to an anticipated decline in market demand. The company will suspend production for six days, with plans to return by the end of March. The hiatus is likely to reduce production by approximately 40,000 vehicles. The affected plants include vehicle production plants in Ohio, Illinois, Alabama and Indiana. Transmission and engines plants are also part of the production suspension.

Per BBC News, Tesla's main factory in California has commenced a three-week lockdown to curb the spread of the virus. This will affect production ramp-up plans of the Model Y electric vehicle, for which the company had been projecting high demand. Tesla currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Notably, Nissan has stopped production across all U.S. plants effective Mar 20, until a few days to over two weeks. Harley-Davidson has also temporarily suspended majority of production at its U.S. manufacturing facilities, beginning Mar 18, through Mar 29. The affected facilities are York Vehicle Operations in Pennsylvania, and Wisconsin facilities Tomahawk Operations and Pilgrim Road Powertrain Operations.

Further, Toyota will suspend operations at all of its automobile and components plants in Huntsville until Mar 25. Hyundai has also suspended production at its Alabama plant after a worker tested positive for coronavirus. Production will resume once its health and safety team determines that the plant has been sanitized sufficiently. Moreover, Volkswagen has closed its offices in Auburn Hills and will remain shut, while it undergoes a deep cleaning by COVID-19-certified cleaners. Goodyear Tire has also suspended manufacturing across its tire, retread and chemical plants in the United States until Apr 3.

Final Thoughts

Carmakers have to resort to cost containment and other strategies to overcome the resultant challenges. Many companies have started offering coronavirus-induced incentives. For instance, Hyundai is offering payment relief for buyers who are being laid off. General Motors, through its GM Financial arm, is offering 0% financing for seven years –– two years more than recent programs and four months deferred payments for those with A+ credit. Ford, through its financing division, has announced a program giving customers who buy new vehicles the option to delay their first payment for 90 days. Nonetheless, until normalcy resumes, it is unclear if the incentives policies will provide respite to the dwindling car sales. Automakers should brace themselves for a tougher ride ahead until at least the first half of the year.

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