Coronavirus darkens already bleak North America auto market outlook

New strategies are essential for automakers and suppliers facing factory closures, falling demand and falling stock market value, writes Martin Kahl

In homes and hospitals around the world, novel coronavirus has become a serious public health issue; at the time of writing, over 7,150 people have died worldwide, and there are almost 182,500 confirmed cases. School closures in most major markets, coupled with curfews in some and severe restrictions in others are creating uncertainty and panic, fuelled by varying national strategies, mixed messages, rumour and inexpert opinion.

North America's new vehicle market: prospects to 2024

For business and industry, however, concern about a serious global public health crisis is evolving into fear of a full-blown recession, the coronavirus targeting the vulnerabilities and fragilities of a complacent global economy dependent on highly sensitive supply chains.

In the automotive industry, valid concern was raised in the first few weeks of the year about the potential impact that China’s extended manufacturing shutdown might have on the global automotive industry; now, a week after automaker stocks took the first blows of a sustained hammering on Wall Street, factories in Europe are closing as a result of falling demand, supply chain issues and employee absences.

To tackle the spread of coronavirus, the UAW and the three Detroit automakers have announced the formation of a COVID-19/Coronavirus Task Force

Fiat Chrysler, PSA, Renault, Ford, Nissan and Volkswagen have announced production halts in factories across Europe. At the time of writing, FCA, Ford and GM factories in North America remain open; however, with a growing number of public venues closing around them, and white collar staff being advised or instructed to work from home where possible, assembly line workers are left wondering how much longer they can be expected to exercise social distancing whilst also clocking in alongside their colleagues. Chrysler workers in Canada and Daimler workers in Spain have already shown they are prepared to down tools when cases of COVID-19 are confirmed within the workforce.

To tackle the spread of coronavirus, the UAW and the three Detroit automakers have announced the formation of a COVID-19/Coronavirus Task Force; led by UAW President Rory Gamble, GM’s Mary Barra, Ford Executive Chairman Bill Ford, Ford President and Chief Executive Jim Hackett and FCA Chief Executive Michael Manley will seek to implement enhanced protections for the three automakers’ manufacturing and warehouse employees.

In response, traders—operating in a market already in the mood for selling—made clear their lack of confidence in the economy as news of the pandemic continues to worsen. Monday 16 March 2020 was the S&P 500’s worst day since 1987; despite—or perhaps because of—the Fed’s surprise weekend interest rate cut, Wall Street dropped 8% on the same day straight after the open, triggering a first market trading circuit breaker almost immediately; Nasdaq suffered its worst day ever, down over 12%; and automaker stocks slumped, with FCA falling 22%, Tesla down 15%, GM down 13% and Ford down 9%. European automaker stocks also took a beating in the face of factory closures.

Even before the COVID-19 outbreak, we had expected a further downturn in 2020 and the epidemic has caused a further reduction in our forecast for the year

In unremarkable times, automakers’ operational activities may be distant from day to day stock market performance; in times of crisis, however, a company’s market strength or weakness can impact its ability to take on debt, potentially even triggering a need to repay existing debt. Just like the virus, falling demand and idled production lines will not be exclusive to Asia and Europe—a similar situation is inevitable in North America, presenting automakers and suppliers with increasingly difficult choices in the coming weeks and months. Add to this a looming recession—which President Trump seemingly inadvertently acknowledged in a press conference, causing stocks to plummet further—and the outlook for the North American automotive industry and economy is bleak.

Coronavirus aside, however, the outlook for the North American new vehicle market this year and over the next five years was already bleak. “Even before the COVID-19 outbreak, we had expected a further downturn in 2020 and the epidemic has caused a further reduction in our forecast for the year,” writes Jonathan Storey in a new Automotive World report on the prospects for the North American market over the next five years and beyond.

With no-one knowing how bad the coronavirus crisis will be, or how long it will last, Storey urges caution. “The central message is that if the impact of the COVID-19 epidemic is largely played out in 2020, then demand over the forecast period is expected to remain at an historically high level,” he notes.

Add to this a looming recession, which President Trump—perhaps inadvertently—acknowledged in a press conference, and the outlook for the North American automotive industry and economy is bleak

“Apart from the risk that the impact of the COVID-19 epidemic will be significantly worse than currently predicted, other downside risks include a fresh escalation of trade tensions,” cautions Storey. “While such events could result in a significantly steeper downturn than our base forecast assumes, we see no realistic scenario in which further strong growth in light vehicle demand occurs in North America.”

The two-part Automotive World report, North America’s new vehicle market: prospects to 2024 presents a five-year outlook for the US, Canadian and Mexican new vehicle markets through to 2024; the report also addresses a number of long-term future mobility topics including autonomous vehicle testing, US connected car leadership, Mobility as a Service, ride-hailing, the potential for electric heavy duty trucks and the impact of electrification on the region’s love of the pick-up truck.

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