What's Next For The Big 3 Automakers?

Despite exhaustive negotiations with the United Auto Workers union where they discussed how to contain the spread of Coronavirus across the U.S., Detroit's Big 3 temporarily closed their North American factories earlier this week, conceding that factory shutdowns were the only reasonable thing to do in order to protect workers' health.

The same day the news was announced, shares of Ford Motor Company (NYSE:F), General Motors Company (NYSE:GM) and Fiat Chrysler Automobiles N.V. (NYSE:FCAU) fell 10%, 17% and 9% respectively, increasing their year to date losses to 51%, 54%, and 53%.

COVID-19 hit the U.S. automotive industry the same way it did to European and Chinese car producers. And it won the first round. But the war has just begun and there are more rounds to fight ahead.

What Can We Expect?

COVID-19 is a new virus for mankind. It's dangerous with high mortality rates, 4% or higher in some areas of the world. Eventually, we will win, but the idea is to pay the smallest possible price until then. The price will be measured by human lives and jobs lost. We should do everything to reduce those losses to the lowest possible level. Social distancing and factory shutdowns are smart weapons against the coronavirus and U.S. carmakers decided to use that weapon.

Short-Term Negative Impact

Of course, this is something that will in the short run negatively affect the U.S. automotive industry. The industry directly employs approximately 1 million people and an additional 2 million indirectly via car dealerships. The pause in production will probably empty cash reserves. That's why Ford already suspended its dividend payouts to preserve cash. If the crisis lasts longer, some form of short-term help will probably be needed, just to bridge the gap and avoid even bigger losses.

Profits Will Go Back Up Eventually To Counter These Losses

At some point, production and sales numbers will start to increase again. And during those times, extra profits will appear the same way extra losses are appearing now. All those people that wanted but couldn't buy a car, or decided to postpone the purchase, will eventually buy a new car. Not just because they like cars and can afford them, but because they will need them. There are approximately 270 million registered motor vehicles in the U.S. This number will not change significantly in the short and mid-term. Some of those vehicles will have to be replaced by new ones since they will become too old and will no longer serve their purpose. The longer the crisis lasts, the more the number of old cars will increase. But at some point, all those cars will be replaced by new ones. Eventually, people will have to buy cars again as they cannot delay purchases indefinitely. So, at some point, numbers will start to recover and reach previous levels. It's just a matter of time.

This article is not a press release and is contributed by Ivana Popovic who is a verified independent journalist for IAMNewswire. It should not be construed as investment advice at any time please read the full disclosure. Ivana Popovic does not hold any position in the mentioned companies. Press Releases – If you are looking for full Press release distribution contact: press@iamnewswire.com Contributors – IAM Newswire accepts pitches. If you're interested in becoming an IAM journalist contact: contributors@iamnewswire.com Questions about this release can be sent to ivana@iamnewswire.com

The post first appeared first on IAM Newswire.

Photo by Elishia Jayye on Unsplash