U.S. automakers have a new target for when they hope to restart vehicle production, BMW is expecting financial woes, and the feds have concerns about auto safety once folks get back on the road. All that and more in The Morning Shift for May 6, 2020.
Carmakers have been keen to re-start vehicle production after over a month of plants sitting idle due to COVID-19 health concerns and associated government restrictions. The latest target date, per Automotive News and the Detroit News, is May 18.
In mid April, Jalopnik wrote “Why May 4 Could Be A Defining Day For The American Automobile Industry (But Also Maybe Not)” based on reporting by Electrek, CNBC, and Automotive News. Those outlets wrote that major supplier Magna and automakers including Ford, Fiat Chrysler, Tesla, Toyota, and Honda were hoping to re-start production on May 4.
Just a week later, on April 24, we wrote “The UAW Isn’t Ready” after the United Auto Workers union’s president Rory Gamble made it clear that he thought restarting automobile production in early May would be jumping the gun. What’s more, on the day of that article, Michigan governor Gretchen Whitmer extended the state’s strict stay-at-home order to May 15.
Now we’ve got a new target date: May 18. Apparently that’s what General Motors is gunning for, according to the Detroit News, who writes:
General Motors Co. sent out alerts Tuesday to United Auto Workers members at some factories, alerting them that it plans to begin to restart factories May 18.
The alert, obtained by The Detroit News, says: “Tomorrow, we will announce externally that GM plans to begin a limited, cadenced and site-specific approach for a return to the workplace in many of our North American manufacturing facilities. We are targeting Monday, May 18, and we are collaborating with the state government and union partners.”
Automotive News writes that Fiat Chrysler is also gunning for that May 18 date, with the site writing:
The UAW said Tuesday that it continues to talk with the Detroit 3 automakers about protecting workers even as Fiat Chrysler Automobiles announced plans to resume production at most U.S. plants the week of May 18.
The decision, announced as part of FCA’s first-quarter earnings report, comes after the automaker pushed back initial plans to reopen plants early this month.
Per the story, FCA’s announcement on Tuesday mentioned restarting production in plants in North America “with the exception of the Jeep Cherokee factory in Belvidere, Ill., the week of May 18.” Belvidere’s should open by June 1, the story continues.
The key takeaway from the article isn’t just that FCA has a new target restart date, but that the UAW doesn’t seem to oppose the timeframe, which is a big deal. That said, the story doesn’t say the UAW outright supports the target date. From the article:
The union opposed an early May return to work, but a UAW statement Tuesday did not renew its previous opposition.
“As for the start date, the companies contractually make that decision and we all knew this day would come,” UAW President Rory Gamble said in a statement. “Our UAW focus and role is and will continue to be, on health and safety protocols to protect our members.”
As for Ford, the Automotive News story goes on to mention that, though it hasn’t announced it, The Blue Oval may also be gunning for May 18, which wouldn’t be a surprise given that the Big Three are all connected through their affiliation with the UAW and their copious operations in the state of Michigan. From the article:
Ford Motor Co., in a statement, said it had not yet determined when it will resume production at its North American plants, although some local union leaders have told workers that Ford is also targeting May 18.
The Detroit News wrote last week that Ford’s restart plans would hinge upon the lifting of Michigan’s stay-at-home order, and that Ford production would restart all at once, rather than in a staggered fashion:
Ford’s U.S. facilities will all come back online at once, rather than bringing some plants back before others, Farley said on a conference call: “The reality of our industrial system in the U.S. is it’s completely intertwined. In the U.S., we’ve looked at it as a complete ecosystem, and we have to bring up the system all at once.”
2nd Gear: U.S. Traffic Deaths Are Down But The Feds Have Concerns About What Happens After The Shutdown
Preliminary 2019 U.S. traffic data released on Tuesday shows that traffic deaths dropped for the third year in a row despite higher road use, Automotive News reports. From the publication:
NHTSA reported an estimated 36,120 people died in motor vehicle traffic crashes last year, down 1.2 percent from 36,560 in 2018, even as travel rose 0.9 percent to 3.23 trillion miles.
While the story doesn’t provide an outright explanation for the drop, administrator for the federal auto safety agency NHTSA gave some hints:
“We’ve continued focusing on the behaviors that we all know are unsafe: failing to wear a seat belt, speeding, driving while impaired, driving while distracted,” Acting NHTSA Administrator James Owens said in an interview.
Perhaps more interesting is the fact that, as stay-at-home orders lift, and people begin commuting to work again after rarely driving their cars, NHTSA has some concerns about car safety:
U.S. traffic safety officials are concerned about what happens when tens of millions of commuters return to work after spending an extended period at home because of the coronavirus pandemic.
Owens said the agency is gearing up to remind motorists to drive safely. “When you get back on the road — now is the time to remember all the safe driving practices that you had,” Owens said.
Governors Highway Safety Association Executive Director Jonathan Adkins said Tuesday that “as states begin to reopen businesses and drivers resume their normal patterns, pent up demand could lead to an increase in crashes.”
Owens told the news site that NHTSA will crank up its public awareness campaigns over the coming weeks, especially in the states where stay-at-home orders are lifting.
This sub-heading is probably pretty obvious. Car production is all but halted and vehicle demand has slowed to a crawl, so pretty much all automakers are feeling the burn. Nonetheless, let’s stick our magnifying glass up to BMW, since Reuters has in its story “BMW cuts outlook, sees coronavirus pain lasting all year.”
That’s a bleak headline accompanied by bleak text, including this bit about how the coronavirus fallout is expected to last all year:
The firm forecast a margin on automotive earnings before interest and taxes (EBIT) of 0% to 3% this year, versus the 2-4% seen before demand was crippled by worldwide restrictions on movement to tackle the virus.
“The BMW Group still expects the spread of the coronavirus and the necessary containment measures to seriously dampen demand across all major markets over the entire year,” the Munich-based company said on Wednesday.
Yes, that’s zero percent. BMW plans to fight these financial struggles by making strategic cuts:
“In light of the current situation, we will be delaying a number of projects, like the plant in Hungary. Other projects will be carefully reconsidered,” Chief Financial Officer Nicolas Peter said, adding the Hungary plant would be delayed by a year.
In addition to coronavirus, the article mentions the cost associated with stricter CO2 regulations and competition from Tesla as other factors putting the squeeze on the Bavarian automaker.
4th Gear: Volkswagen Is Seeing A Remarkable ‘V-Shaped Curve’ Recovery In China, But Don’t Expect A Trend
Lots of people are wondering what the auto industry’s recovery will look like after government restrictions are lifted and folks get back to work. Right now, a tempting place to look is China, where the economy is returning back towards normal, and where car sales are, remarkably, doing OK again. In fact, the Financial Times writes that VW’s April sales were only 2 percent down on the year prior, and that the automaker expects May sales to equal those of 2019. We learned last week that Nissan seems to be recovering in China, as well.
Will a similar industry recovery happen elsewhere? VW isn’t sure. From the Financial Times:
“China is quickly closing the gap,” Jürgen Stackmann, VW brand’s board member for sales, told reporters, after the group’s boss in the country Stephan Wöllenstein predicted the carmaker could see a “yearly result that is not so far away from our original plan,” if the region’s “outstanding economic comeback” continued.
However, Mr Stackmann warned that the so-called V-shaped recovery in China was unlikely to be replicated in Europe, where the economy would be slower to improve.
Although VW’s market share grew in every region around the world in 2020, “China is quite unique as it has such a stunningly strong underlying demand still of first-time buyers,” the executive said.
“That doesn’t exist in Europe. We all have cars. So it’s like a repeat purchase for a majority of Europeans.”
Another German automaker, BMW, agrees, with chairman Oliver Zipse saying that China is “only of limited use as a blueprint for development in other markets,” and that in the important European market, “the picture is extremely mixed.”
As mentioned in the previous gear, BMW is expecting tough times for the rest of the year.
Automakers are taking a number of measures to stay afloat during times when the car market is waning and vehicle production has all but ceased. In addition to cutbacks, they’re borrowing quite a bit of money. Bloomberg specifically mentions that GM is “is in discussions with banks to raise a new $2 billion loan to increase liquidity” per “people familiar with the matter.” The story goes into it a bit further, writing:
The loan is structured as a 364-day revolving credit facility and is a precautionary measure to increase the company’s liquidity, the people said, asking not to be named discussing a private transaction.
“During these times of uncertainty, we continue to evaluate various options to enhance liquidity and will act prudently,” a spokesperson for General Motors said in an emailed statement.
Separately, GM also was somehow profitable in the first quarter, per Automotive News.
The $294 million profit made GM the only one of the Detroit 3 to avoid a first-quarter loss after the companies closed all of their U.S. plants in mid-March. GM said the crisis reduced its adjusted earnings by $1.4 billion before interest and taxes.
Fiat Chrysler Automobiles posted a first-quarter net loss of $1.8 billion, and Ford Motor Co. lost $2 billion. Ford warned that its operating loss would exceed $5 billion in the second quarter.
The airship Hindenburg, the largest dirigible ever built and the pride of Nazi Germany, bursts into flames upon touching its mooring mast in Lakehurst, New Jersey, killing 36 passengers and crewmembers, on May 6, 1937.
On May 3, 1937, the Hindenburg left Frankfurt, Germany, for a journey across the Atlantic to Lakehurst’s Navy Air Base. Stretching 804 feet from stern to bow, it carried 36 passengers and crew of 61. While attempting to moor at Lakehurst, the airship suddenly burst into flames, probably after a spark ignited its hydrogen core. Rapidly falling 200 feet to the ground, the hull of the airship incinerated within seconds. Thirteen passengers, 21 crewmen, and 1 civilian member of the ground crew lost their lives, and most of the survivors suffered substantial injuries.
Describe how you think the car sales curve will look for the rest of the year in the U.S. after COVID-19 restrictions are eased.