Toyota, Honda, and the Big Three have shut down manufacturing plants. Mercedes is keeping its Alabama factory open, but it will probably run out of parts. Tesla may or may not be contradicting a legal order not to produce cars, and Ford doesn’t want to sit on a mountain of repossessed vehicles. All that and more in The Morning Shift for March 19, 2020.
We talked about this a bit yesterday, but it’s worth mentioning again that Toyota, Honda, Ford, General Motors, and Fiat Chrysler have all shut down their manufacturing facilities across the U.S. So far, at least BMW, Mercedes, and Volvo appear to be keeping theirs open.
But that’s only for now. While corporations, by their very nature, want to at least maintain the appearance that they are invincible and strong. Global pandemics, however, have a way of making hubris utterly disintegrate. Without a means to stop the spread of the COVID-19 Coronavirus plague, automotive manufacturers will run out of either healthy workers, or parts and supplies, eventually.
Take the Mercedes plant outside Vance, Alabama, for instance. It makes a couple of SUVs, like the Mercedes-Benz GLE and GLS, and it assembles the C-class sedan. While this is a patently absurd thing to say because there’s such an extreme shortage of tests in the U.S. thanks to the Trump administration’s hesitation, no Mercedes plant worker in Alabama has yet tested positive for Coronavirus.
But as I said just before, that doesn’t mean things can keep running. Car factories don’t make everything in house, the parts come from suppliers. And Mercedes can’t control those suppliers, Bloomberg reports:
Daimler AG’s U.S. sport utility vehicle factory is at risk of shutting down because of a shortage of parts coming from Europe, according to a notice sent to workers. The Mercedes-Benz maker ceased overtime at one part of the Alabama assembly plant and moved to a six-hour shift at another,
said Michael Goebel, the president and chief executive officer of the operation. He wrote employees after Daimler announced Tuesday it would halt most of its output in Europe for at least two weeks due to the coronavirus pandemic.
Major supplier Bosch is also shutting down European production.
If Mercedes gets a lot of its parts from Germany, and the German plants shut down, then it should be obvious that Mercedes specifically might not be able to keep its American plants open. But in a globalized economy, it can be hard to make a whole car if you need even one part that’s missing because of a global pandemic.
Kia is learning that lesson, too. Kia has a factory in West Point, Georgia, that pumps out a whole bunch of cars across its lineup. Or rather, it did pump out a whole bunch of cars, but now all the lines have been stopped, as local television station WTVM reports that the plant will “temporarily close” due to a “supply chain issue.”
Kia is hoping that the shutdown will only last two days, and then everything will be all peachy and running smoothly again, but this may just be the first hiccup among many more.
BMW, for what it’s worth, says that it’s keeping its plant in Spartanburg, South Carolina running for now, but that it can shut it down quickly should the need arise. BMW has also helpfully removed all tables and chairs from the facility. Seriously.
But Honda’s plant in Wuhan, China, right near where the outbreak began, is back up and running! For now! At least until we find out if there will be multiple pulses of epidemic! But that’s only speaking for China, which seems to have a much better grip on the situation at this point than a lot of other countries! Including the United States!
Tesla’s factory in Fremont, California, lies within a zone of Northern California that has been ordered to shut down all non-essential activities in an effort to stop the spread of the virus.
Tesla, seeing the words “non-essential,” quickly declared that producing cars was “essential” (to whom?) and that it would keep churning out electric vehicles. And then the local sheriff stepped in.
Ryan Mac over at Buzzfeed has done some excellent reporting on the whole issue, but even then, there are plenty of unanswered questions:
While Alameda County deemed Tesla’s factory as “not an essential business” on Tuesday afternoon, its ability to “maintain minimum basic operations” as defined by authorities will allow it to perform activities that “maintain the value of the business’s inventory, ensure security, process payroll and employee benefits,” and other related functions. A spokesperson with the Alameda County Public Health Services office declined to say whether manufacturing cars fit into one of those categories.
In a follow-up call on Wednesday afternoon, Kelly told BuzzFeed News that “producing cars” is not considered essential. If the company is found to be manufacturing automobiles, the county would take action to bring them under compliance with the law, he said.
“[Manufacturing cars] violates our health order and we’re asking them to go to basic minimum functions,” he said.
Tesla CEO Elon Musk seems to have made it his mission to be a Coronavirus Truther, however, Bloomberg notes:
Tesla’s CEO Musk has said he believes widespread concern
about the coronavirus was overblown. “My frank opinion remains
that the harm from the coronavirus panic far exceeds that of the virus itself,” he wrote in an email to staff on Monday.
So either Official Car Man Elon Musk is right, and the global economy takes an entirely unnecessary, albeit temporary, hit, or he’s wrong, and the Centers for Disease Control is right, and millions will die.
I dunno, I gotta think about this one.
Whether or not Musk is right, the global economy is already taking a hit. Jobless claims are “surging,” as CNBC notes. Pretty soon, thousands, if not millions of people, won’t be able to afford basic necessities like their homes and transportation.
This is a problem for car companies, both because they won’t be able to sell new cars, but also because the logic of the automotive financing system breaks down in times of worldwide catastrophe.
Take the whole idea of repossession, for instance. A lot of people borrow money to buy cars. A lot of those people borrow money directly from the car company to borrow those very same vehicles. A lot of car companies have subsidiaries, like Ford’s Ford Motor Credit Company, to help people buy those cars and also to make some more money off of not just the vehicle sale, but also the interest payments.
Don’t make your payments, and there’s a cudgel of a solution—repossession. Taking transportation away from the needy is a kind of horrific solution for society to begin with and don’t get me started on predatory loans, but it works for car companies in normal times. They repossess a few cars here and there, sell them off as used vehicles, and it’s all fine. “Fine.”
But what happens in said global catastrophe, when millions are losing their jobs, and millions can’t make car payments? Do you just start repossessing millions of vehicles? And then who will buy them?
It’s a mess.
So Ford, either in act of benevolence towards its customers, or in an act to prevent itself from exacerbating things depending on how cynical you’re feeling today, is helping its recent car buyers out:
No word yet on whether or not that applies to the Ford GT.
Where do we go from here? Or rather, where do we go in a few months? Once this epidemic is beaten, does everything just come back? Does it all just go right where it was?
No one really knows, as we’re in uncharted territory, but the Wall Street Journal has an interesting read based on chicken and artificial intelligence. No, not robo-chickens, but markets:
At a very, very deep level, modeling macroeconomic behavior is modeling human behavior,” Ms. Menker said. “And in times of crisis, food is a very basic starting point.”
The wholesale price of chicken in China fell more than 50% between mid-December and mid-February as the government placed portions of the country in lockdown. Prices have slowly risen in recent weeks as the reported growth rate of new infections has slowed, according to Gro Intelligence, suggesting that demand for agricultural products is starting to bounce back.
The upshot, Ms. Menker said in a note to clients on Monday, is that “China is showing signs of recovery just as large swathes of the U.S. enter lockdown.”
Projecting the effects of the pandemic on global supply chains will prove crucial as policy makers, businesses and investors decide how to respond to the shock. China, where the virus originated, also could serve as a blueprint for countries in Europe, Africa and elsewhere that are trying to slow the virus’s spread.
If you want a glimpse into what could be, read the whole article here.
Reverse: 1952 – And Then They Made A Few More
The 1,000,000th Jeep was produced. In 1939, the American Bantam Car Company submitted its original design for an all-terrain troop transport vehicle—featuring four-wheel drive, masked fender-mount headlights, and a rifle rack under the dash—to the U.S.
And if you were thinking about it, but now have decided not to make a purchase, what were you thinking of getting?