The Big Three will keep up production despite coronavirus, Toyota and BMW’s factories in Europe will not, and Volkswagen might have enough cushion to survive this. All that and more in The Morning Shift for Wednesday, March 18, 2020.
1st Gear: Coronavirus
Yesterday, the president of the UAW said that the union had asked the Big Three for a two-week shutdown for the safety of its members, adding that a meeting with the Big Three was set for yesterday evening. That meeting happened, with the UAW apparently satisfied with the Big Three’s plan to keep UAW members safe, while avoiding a production shutdown.
Details are still a little scarce, but production slowdowns seem to be in the offing, along with a lot of cleaning.
Per The New York Times:
“All three companies have agreed to new measures that will increase adherence to the C.D.C. recommendations on social distancing in the workplace,” the U.A.W. president, Rory Gamble, said in a statement, referring to the Centers for Disease Control and Prevention.
He added that the three companies had agreed to partial shutdowns at certain times to allow for thorough cleaning of plants and extended periods between shifts. Shift schedules at some plants may be altered to reduce the number of workers entering each day.
G.M., Ford and Fiat Chrysler each said they would provide details this week.
“The health and safety of our work force is our top priority,” Ford said in a statement. “We’re working closely with the U.A.W. and are aiming to announce details in the next 24 hours.”
The automakers together employ about 151,000 U.A.W. workers.
This should all be somewhat alarming for UAW members, since “increasing adherence” to CDC guidelines does not mean complying with them. And the fact is that people simply shouldn’t be assembling in large groups, which even President Donald Trump acknowledged Monday when he recommended that people avoid gathering in groups of more than 10 people.
More telling for UAW members should be that the Big Three’s white-collar workers are all working from home if they can, which means GM, Ford, and Fiat Chrysler all know that it’s a bad idea for workers to work alongside each other. But it tells you all you need to know that it’s the Big Three’s white-collar employees who are getting the most protection, while the blue-collar workers have been told to stick it out.
Most baffling of all is why the UAW is agreeing to go along with this plan, though we’ll see how this unfolds, and, most importantly, how members react. There may not be a point in manufacturing new cars anyway, as Raph pointed out yesterday, as demand is expected to crater.
2nd Gear: Meanwhile, In Europe
BMW and Toyota joined other manufacturers (some more willing than others) in halting production there, both to curb the spread of coronavirus and because demand is down, according to Automotive News:
The German automaker abandoned hopes for another record vehicle sales year due to the coronavirus pandemic, predicting deliveries will be “significantly below” 2019 levels and profitability the weakest in years.
“We take our responsibility seriously, both when it comes to ensuring the protection and health of our employees and to achieving the best possible balance in terms of profitability,” CEO Oliver Zipse said in a statement on Wednesday.
For Toyota, the plants affected are:
France: the Yaris plant in Valenciennes, which suspended operations on Tuesday.
U.K.: the Corolla plant in Burnaston and an engine plant in Deeside, which close on Wednesday.
Czech Republic: Toyota’s small-car plant jointly run with PSA in Kolin from Thursday.
Turkey: C-HR assembly plant in Sakarya, which shuts down Saturday.
Poland: the e-CVT hybrid gearbox plant in Walbrzych and the hybrid engine plant in Jelcz-Laskowice from Wednesday.
Toyota said it took the decision because of a combination of government restrictions of people’s movements designed to stop the spread of the virus, supply chain disruption and falling sales.
It’s interesting to me that these companies even mention that they’re shutting the plants down because of falling demand, when they could just take the easy win and pretend like it’s all for the safety of their beloved employees. This isn’t difficult!
3rd Gear: Actually, Ford Is Shutting A U.S. Plant Down
But it isn’t because it is worried about its employees. No, it is shutting its Chicago Assembly Plant—maker of the Lincoln Aviator and Ford Explorer—because of supply chain disruptions. The plant shut down last night and is expected to go back online tonight, after an employee at a supplier tested positive for coronavirus.
From Automotive News:
A nearby Lear plant in Hammond, Ind., which supplies Chicago Assembly with seats, closed earlier Tuesday when one worker tested positive for the novel coronavirus and another was presumed to have it. A Lear spokesman said the employees, one salary and one hourly, worked on the same shift and were most recently in the facility last week. They have not returned to work since visiting their doctors.
“We continue to provide real-time health and safety guidance and take comprehensive preventative steps within our operations,” a Lear spokesman said. “We are working closely with local public health authorities, and extend our support and best wishes for a full recovery to our affected coworkers.”
The Lear spokesman did not offer a timeframe on when the plant would reopen, but noted that the cleaning and disinfecting process would not be completed by Wednesday.
This will keep happening!
4th Gear: Volkswagen Might Get Through This Better Than Other Automakers
That’s because, in spite of—or maybe because of—dieselgate it’s sitting on some big cash reserves. The Wall Street Journal crunched some of the numbers:
Mercifully, Volkswagen is starting from a position of strength, having been given a big kick in the pants more than four years ago by the diesel emission fraud. Last year, a 22% increase in operating profit, lower diesel-related fines and legal bills and a big reduction in inventories all pushed its net cash flow up to €10.8 billion ($12.04 billion), from an outflow of €0.3 billion in 2018. Even after more than €31 billion in provisions for “dieselgate” since 2015, Volkswagen ended 2019 with €21.3 of net cash or close equivalents, excluding its banking activities.
In the evolving European shutdown, that cash will be all-important. So will further dividends from Volkswagen’s Chinese joint ventures, which last year totaled roughly €3.2 billion. If China really can get its economy up and running again and doesn’t see another wave of coronavirus infections—still big ifs—Volkswagen will have some protection against the European standstill.
Lots of ifs there, for sure, and investors are still fleeing, with Volkswagen stock collapsing in recent days along with everyone else’s. But this does get at the biggest question for me, which is, how many automakers will actually survive all of this?
5th Gear: China Gave Tesla A Leg Up
The automaker opened outside Shanghai in December, and it was shuttered along with many other factories in recent weeks because of Coronavirus. But it is now back in business, thanks to some help from the Chinese government.
From Bloomberg:
China’s government helped the Palo Alto-based carmaker secure the sought-after supplies that allowed it to reopen at a time when many of its competitors were still shut down. Tesla received 10,000 masks, cases of disinfectant that require a government permit, thermometers and other materials that allowed the company to restart its factory near Shanghai the first working day after the extended Lunar New Year break, according to state-run media.
The support for Tesla — which also included providing accommodation for some employees as the outbreak snowballed — is emblematic of China’s wider embrace of Elon Musk’s car venture. The billionaire has waged a charm offensive since deciding to build his first plant outside the U.S. in China, home to the world’s biggest electric-vehicle market, and has been rewarded with the support of officials even as the trade war strained relations with the U.S.
China is all-important for Tesla as sales here and elsewhere start to reach a saturation point. China has also appeared to turn a corner with its handling of coronavirus, while the U.S. and Europe are still seemingly on the front side of it.
Reverse: This Feels Relevant
Via History:
On this day in 1933, American automaker Studebaker, then heavily in debt, goes into receivership. The company’s president, Albert Erskine, resigned and later that year committed suicide. Studebaker eventually rebounded from its financial troubles, only to shut down the assembly line and transition out of the automobile business in 1966.
Neutral: What Automakers Will Endure?
If I had to take a guess, I would say that the Big Three are in deep trouble, not just because of broader economic collapse but also because of their decision to go all-in on big trucks and SUVs, which won’t look so hot when no one can afford them anymore. You?
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