By Ben Foldy and Nora Naughton
This article is being republished as part of our daily
reproduction of WSJ.com articles that also appeared in the U.S.
print edition of The Wall Street Journal (March 19, 2020).
Detroit's car companies have agreed to temporarily shut down
factories in the U.S., Mexico and Canada to limit the spread of the
new coronavirus, an unprecedented work stoppage that will affect
hundreds of thousands of factory employees.
Executives from General Motors Co., Ford Motor Co. and Fiat
Chrysler Automobiles NV came to the decision Wednesday following
discussions with union leaders and as concerns among workers were
growing that the virus would spread rapidly in the plants, where
thousands of employees work side-by-side each day.
The companies said they would soon start suspending factory
operations until at least March 30 to clean facilities and develop
other preventive measures to limit the virus's spread. GM said it
is also making the move in part to respond to "market conditions,"
as vehicle sales nationally fall off.
The companies have agreed to treat the virus-related shutdown
like other routine work stoppages, when workers are temporarily
laid off. In these cases, the company is required to provide
affected employees with extra pay to supplement unemployment
benefits.
Honda Motor Co. and Toyota Motor Corp. also on Wednesday said
they would temporarily close their North American factories next
week to respond to virus concerns and falling consumer demand. The
companies' plants will close for six and two days,
respectively.
The virus-related disruptions that halted factories and tanked
sales in China and Europe are now hitting hard in the U.S., which
for years has been the world's most lucrative car market and the
source of most profit for the Detroit companies. The shutdowns also
likely will spill over to U.S. parts suppliers and other firms
dependent on car factories for business.
The outbreak has begun denting sales and store traffic at U.S.
dealerships. With many Americans staying at home, car dealers say
their showrooms are quiet, and likely will remain so for a
while.
Several analysts have cut their sales forecasts for 2020,
upending previous predictions for another solid year in the U.S.
car business. Car companies this week began rolling out promotions
to soothe rattled customers, including interest-free loans and
delayed monthly payments.
For many U.S. dealers, the recent drop-off in buyer traffic was
sharp and sudden, just as the industry was gearing up for the busy
spring-selling season.
"It feels like there is a dark cloud over the dealership," said
Andre Woods, a 40-year-old sales associate at Village Ford in
Dearborn, Mich. "It's got me unnerved, and I don't shake
easily."
Sales decelerated steeply over last week, according to
transaction data collected by analytics firm J.D. Power. Between
Monday and Thursday, sales were off 8% from their pre-virus
forecast. By Sunday, they were down 36%.
The Detroit car companies were already battling a number of
challenges even before the outbreak hit, including falling sales in
China and tougher auto-emissions requirements in Europe.
GM began the year in recovery mode following a 40-day strike
last fall that hit its operating profit by $3.6 billion. The
company was looking to restock relatively low levels of the large
pickup trucks and sport-utility vehicles that account for nearly
all of its global profit.
Ford entered 2020 looking to accelerate a turnaround plan that
so far had failed to jump-start profit growth, following three
consecutive years of declining pretax earnings despite a robust
U.S. market. Like GM, Ford counts on sales of large pickup trucks
and SUVs in the U.S. market for nearly all of its global
profit.
Fiat Chrysler relies heavily on the U.S. market to feed its
bottom line and offset weaknesses in Europe and Asia. The company,
which is trying to execute a merger with France's PSA Group, had
already halted production in Europe, one of its biggest markets,
due to the pandemic.
The production halt could take time to affect dealers, who
typically keep two or three months worth of vehicles on their
lots.
Ford dealers have enough new-vehicle inventory to last more than
three months, while Fiat Chrysler retailers have about a 2 1/2
months' supply of stock, according to data from Wards Intelligence.
GM dealers, still recovering the strike last fall, have closer to
two months-worth of inventory, that data show.
Analysts warn that this year could mark the first significant
drop in U.S. vehicle sales since 2009, potentially spelling an end
to an unprecedented streak of good times for an industry accustomed
to boom-and-bust cycles.
José Muñoz, chief executive of Hyundai's North American
division, said he expects the auto maker's U.S. sales to drop in
March by 15% to 20% over the same month last year and then further
slide in April by as much as 50%.
"I see the situation getting worse for the next few weeks," Mr.
Muñoz said, adding that he didn't expect a slow recovery until
summer at the earliest.
RBC Capital Markets this week said auto sales could fall to 13.5
million vehicles this year, which would mark a 20% decline from
last year and the lowest level since 2010. The bank also doesn't
see a quick snapback in car sales.
Matthew Welch, who owns Auburn Volkswagen in the Seattle area,
the site of the country's worst outbreak so far, said sales are
down around 30%. He worries about what would happen if his store
were forced to temporarily close.
"If we have to pay people to not come in, financially we can't
do that for long," he said.
Some dealerships, including Auburn Volkswagen, are trying to
lure wary buyers by putting a bigger emphasis on their online-sales
services, including those that allow shoppers to skip the showroom
and take delivery of their new vehicle at home.
While such services have been slow to catch on -- the
overwhelming majority of car buyers still prefer to make the
purchase in person -- the virus outbreak has sparked more interest
lately, said Rick Case, who heads a chain of 16 auto dealerships in
Ohio, Florida and Georgia. "People are afraid to go out," Mr. Case
said.
Car companies also are scrambling to offer ways to quell the
financial uncertainty for customers. GM is offering buyers with
good credit no-interest loans stretched over seven years. Ford on
Monday said its in-house lender would allow customers experiencing
virus-related disruptions to delay payments in some situations.
Hyundai Motor Co. has dusted off a version of a deal it first
rolled out in the throes of the recession in the late 2000s: it
will cover six months of payments for any new-car buyer who loses
their job after their purchase.
--Mike Colias contributed to this article.
Write to Ben Foldy at Ben.Foldy@wsj.com
Corrections & Amplifications Toyota Motor Corp. was
incorrectly referred to as Toyota Motor Co. in an earlier version
of this article. (March 18, 2020)
(END) Dow Jones Newswires
March 19, 2020 02:47 ET (06:47 GMT)
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