Auto Industry Collides With Coronavirus

The Detroit Three automakers agreed Wednesday afternoon to a temporary shutdown of all U.S. facilities following pressure from UAW officials to clean the facilities thoroughly and take other measures to protect workers. Ford and GM have said that plants will be closed for 11 days. FCA has not commented.

The European Automobile Manufacturers Association (ACEA) reported that new registrations (a proxy for sales) in February fell by 7.4% year over year. The January decline was 7.5%, and neither month really takes into account the coronavirus pandemic.

To say that the auto industry is about to take a beating is perhaps an understatement. On Tuesday, General Motors Co. (NYSE: GM), Ford Motor Co. (NYSE: F) and Fiat Chrysler Automobiles N.V. (NYSE: FCAU) reached an agreement with the United Auto Workers Union to limit the number of workers on the job at any one time. The automakers and the union are aiming to stop the spread of COVID-19 among some 150,000 employees.

Tesla Inc. (NASDAQ: TSLA) was ordered to stop its operations in Fremont, California, after the county ruled that the electric vehicle maker was not an essential business. The shutdown is temporary and Tesla will be able to maintain minimum operations, but the company cannot build cars. Coming during the final two weeks of the quarter, the order likely dashes the company’s prospects of breaking a delivery record set last quarter.

Honda Motor Co. Ltd. (NYSE: HMC) announced Wednesday morning that its North American auto plants in Ohio, Indiana, Alabama, Canada and Mexico will suspend production for six days beginning Monday, March 23, and returning to production on March 31. Approximately 40,000 vehicles will not be built during the shutdown. Honda said it would continue to pay some 27,600 workers the full wage during the shutdown.

BMW is suspending production at its plants in South Africa and Europe until April 19 in response to lower demand for new cars and to help slow the spread of the coronavirus.

Daimler, makers of Mercedes-Benz, began a two-week shutdown on Tuesday, and Renault already has closed 12 facilities in France and its factories in Spain. The company attributed the closures to a wobbly supply chain.

Other European automakers are also halting production. Fiat Chrysler and Peugeot have essentially halted all production in Europe, and Volkswagen has closed its plants in Spain and Italy. The closures, as with the U.S. Honda shutdown, are part of carmakers’ efforts to slow the spread of COVID-19.

Ferrari N.V. (NYSE: RACE) halted production at its two Italian plants on March 14 and plans to restart on March 27. The company cited the coronavirus outbreak and supply chain issues as reasons for the closure.

Nissan halted production at its Sunderland, U.K., plant on Tuesday and said Wednesday it will cease production at all its European plants.

Volvo, which is owned by China’s Geely, has stopped production indefinitely at its Belgium-based plant.

Toyota Motor Corp. (NYSE: TM) announced Wednesday morning that it will suspend vehicle, engine and transmission production in Europe until further notice. The closures include the Yaris plant in Valenciennes, France, that closed Tuesday, two U.K. plants and two Poland-based plants closing Wednesday, a Czech plant closing Thursday and a Turkey-based plant closing Saturday.

In its announcement, Toyota commented:

With the acceleration of the coronavirus in various European countries or regions and the associated “lock-down” measures taken by various national and regional authorities, an uncertain short-term sales outlook and difficulties in logistics and supply chains are being felt and will increase in the next weeks.

While European sales have been poor in the first two months of the year, it may be fairly said that the coronavirus pandemic is the final straw. The worse news may be that these relatively brief closures likely are not the only shutdowns that automakers and their workers will have to endure before the coronavirus pandemic is controlled.

General Motors stock traded down about 20% Wednesday morning at $16.22, after posting a new 52-week low of $16.05 earlier. The 52-week high is $41.90, and the consensus 12-month price target on the stock is $46.94.

Ford stock traded down about 10% at $4.50, in a 52-week range of $4.50 to $10.56. The stock’s price target is $9.29, and the dividend yield at the current price is nearly 12%. That dividend is in serious danger.

Fiat Chrysler traded down more than 11% and also set a new 52-week low of $6.69 this morning. The 52-week high is $16.69, and the price target is $16.42.

Tesla shares traded down more than 11%, at $381.02 in a 52-week range of $176.99 to $968.99. The price target is $503.67.

Honda traded down about 1.2%, at $21.02 in a 52-week range of $19.97 to $29.44. The price target on the stock is $30.86.

Toyota traded at $116.90, down about 1.7%, in a 52-week range of $108.01 to $145.41. The price target is $163.16.

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