US Auto Industry Relies Heavily on Mexico to Reboot

Many suppliers in Mexico remain shut down, causing a delay in restart for Detroit automotive factories.  Approximately 40% of imported auto parts come from Mexico, and parts manufactured in the US are often exported there for vehicle production.  Some of the strain is due to the Detroit Three, that have reportedly targeted a restart for their U.S. assembly plants in mid-May.  However, Mexico remains on lockdown, and auto parts are considered a nonessential business to the country.  Mexican plants are to remain closed through May 30th.

“This is the issue, I believe, the whole industry is struggling with,” said Joe Petrillo, director of business development and advanced engineering for Meridian Lightweight Technologies, a supplier of lightweight cast metal parts mostly for the auto industry.

The automotive industry like many others is interconnected to the global supply chain. The U.S. auto industry cannot build cars if government actions in other countries or states are not in sync with one another.

General Motors, Ford Motor Co. and Fiat Chrysler Automobiles idled their assembly plants stateside in March as the pandemic swept the nation. They have not declared a restart date yet, but they have reportedly eyed May 18 as a possibility. Toyota announced it plans to postpone it’s operations until May 11th.

There is still inventory in the supply pipeline to support a U.S. restart, but there’s also a larger gap in time between the U.S. restart and the Mexican restart. Many automakers still have hope that there could be some flexibility by the Mexican government that would allow the auto industry to start back up in support of a North American start up. On April 24, the Ministry of Economy in Mexico published a news release stating they are working with the U.S. and Canadian governments on a plan for the automotive industry to safely restart activities in the region.

Reopening Automotive Supply Chains Across the United States Requires Coordination Strategy

As the American government plans to start reopening the U.S. economy in May, many companies have begun to question whether Mexico and Canada will be on the same time schedule.

Manufacturers in chemicals and electronics have suppliers across both borders. The automotive industry is not immune to the same structure. Much of the uncertainty revolves around Mexico, which has taken a stricter approach than the U.S. and Canada in regards to what they consider an essential business. The lack of coordination between countries has caused chaos in many industries. Many automakers have expressed increased concerns about lack of coordination when economic activity in only one nation resumes.

On Thursday, Trump made him plans to reopen the U.S. economy well know, releasing guidelines that could allow some states and employers to resume business and work within a month.  “A national shutdown is not a sustainable long-term solution,” the president said in a briefing. “To keep vital supply chains running, these chains have to be taken care of so delicately. We must have a working economy and we want to get it back very, very quickly.”

Some larger carmakers have indicated they plan to reopen in early May. But for the auto industry in particular to get back to producing vehicles, it’s not enough to just reopen parts of or even the entire U.S. economy. Auto supply chains across North America are intertwined, so a smooth reopening may not be possible. Even in a best-case scenario in which the nations and states cooperate on the timing and scope for a reopening, the logistics will be more complicated for individual companies and plants.

Safely reopening plans requires a sufficient supply of personal protective equipment for workers, which may be a problem given shortages of gloves and masks in the U.S.  Plants in China cycled through the virus, but didn’t restart at full production immediately. More important that reopening is reopening correctly.

How Automakers Are Trying To Boost Dropping Sales During Coronavirus COVID-19

During this economic crisis caused by the coronavirus COVID-19 pandemic, automakers are struggling to offer car payment programs to help those in need. Their marketing efforts are now focused on trying to convince people that it is a great time to buy a car.

Major car manufacturers such as Fiat Chrysler Automobiles (FCA)Ford Motor CompanyGeneral MotorsHyundai, Kia, Nissan, Toyota and Volkswagen are offering  coronavirus payments and plans.

Automakers’ COVID-19 programs and incentives to spur sales have begun quickly. These types of incentive programs have been used in the past during economic downturns and for inventory control. The good news is that history repeats itself, so car sales will recover over time, so it won’t be necessary to count on these types of programs long term.

During tough economic times, car manufacturers are anxiously waiting for things to go back to normal. Major car manufacturers in the USA are offering several incentives such as delayed payment options for people in the country affected by COVID-19.

For instance, Fiat Chrysler is providing funding for leases and new-car purchases through Chrysler Capital and Ally Financial. They’re also offering a wide variety of payment options.

Many car manufacturers are offering help to those people affected by the pandemic. If you anticipate problems making your payments, it is important to contact your auto financier as soon as possible. It is in your best interest to discuss your options this could include things such as flexible payment arrangements and extensions. Keep in mind that if you are leasing you can also negotiate to postpone lease payments as well.

Automakers are also introducing new programs to stimulate potential buyers to purchase their car.

General Motors is offering customer’s interest-free payments for 84 months and also postponed payments for up to 120 days. Ford Credit is offering to make customers first three loan payments while giving the option to delay their first payment for an additional 90 days.

It is important to understand that every car manufacturer has different needs so they are offering different programs. But all are offering flexible and creative financing relief to customers during this time.  As a consumer, you can be confident that car dealerships are open for both vehicle sales and service.

Automakers are also giving customers the option to shop online and get their car delivered. Through this initiative, consumers have the opportunity to choose a vehicle, estimate their trade-in value, agree on payment, add accessories, and schedule delivery without visiting the showroom. A great idea during social distancing and isolation.

Projections for U.S. auto sales for the rest of 2020 are not looking strong. If COVID-19  isolation is prolonged more long-term, economic slowdown will lead to fewer car sales. This scenario has forced automakers find creative ways to help people in this time of need.

Tesla Close to Debut of Longer Range Model 3 in China

Tesla has announced it plans to extend it’s lineup in China by offering a Model 3 Sedan that’s locally built with a longer driving range. They will start as early as this week. The vehicle will have a range of more than 400 miles on one charge, compared to its current basic version that holds much less.

The price will start around $45,800 before rebates, although exact pricing is yet to be determined. A longer range could help Tesla fend of competition with other brands such as Volkswagen Group and BMW who are also bringing out new electrified models in the China region.  Automakers are counting on new vehicles to spur demand in the market, which has been hit hard by the coronavirus pandemic.

The longer range Model 3 will qualify for electric- vehicle subsidies, and is exempt from China’s sales tax on cars. Registrations of Tesla vehicles have fallen for the past two months in China, showing the carmaker is also suffering from the broader auto industry decline. The slowdown has come amid Tesla’s multibillion-dollar push to expand in the world’s largest electric vehicle market.

Tesla’s factory in China has recovered from a virus-related shutdown better than most in the industry, helped by aid from local authorities. After resuming operations at its Shanghai plant, Tesla’s outside the United States have surpassed the capacity it had before shut down. It has a weekly production reaching about 3,000 cars, the company said last month.

Auto Industry Learns from 2008 Recession Lessons to Survive Virus Hardship

In Spring of 2008, Renault executives received notice from colleagues at Nissan North America about the health of the U.S. auto market. Prices for used cars fell significantly, and orders were also slow. The U.S. subprime mortgage market also began to crumble with securities losing value and adjustable rate loans began to reset with higher interest rates.

Renault’s leaders decided to cut 5,000 European positions, which later was raised to 6,000 through attrition and severance. Inventory was decreased so that cash flow and production could be closely monitored. Subcontracting costs were also lowered, and development of a sports car similar to the Nissan 350Z was halted with a postponed launch.

“The crisis started sooner for carmakers in the U.S.,” said Patrick Pelata, who was named Renault’s chief operating officer in mid-October 2008. “We looked to the U.S., and we said it was going to come to Europe.”

Much of this happened after Lehman Brothers filed for bankruptcy, setting off a global financial crisis. At the same time, Fiat decided to extend summer vacation closings of its plants after noticing a global collapse in new orders, including Ferrari’s. “The second half of this year and the first half of the next could be a true bloodbath,” Fiat and Ferrari Chairman Luca Cordero di Montezemolo told Automotive News Europe in July 2008. “By summer of 2009, we should have a clearer idea of the winners and the losers,” he said.

Through incentives and government aid the European auto industry was able to bounce back. However, the COVID-19 outbreak has temporarily shuttered factories and showrooms once again. Many executives and analysts have said that automakers learned lessons in 2008 that can help them to better navigate the current pandemic. “Since that time all car manufacturers have gotten more rigorous about capital allocation and trying not to spend more than required, and also about having sufficient cash reserves in case they face a similar crisis,” one expert said.

“The big advantage between the crisis now and 10 years ago is that capital markets are very liquid and interest rates are very low, so I am pretty certain we won’t see a cash crunch,” Porsche Chief Financial Officer Lutz Meschke said. For now, many automakers are looking into temporary loans that will allow them to cover fixed costs such as salaries to avoid any layoffs. This year, after imposing restrictions on movement and commerce in an effort to slow the spread of the coronavirus, Europe’s national governments pledged they would step in to help automakers again, with loans, direct payments or in a worst-case situation.

These guarantees have helped prevent automakers from cutting costs. It’s expected a similar helping hand will be extended in the wake of COVID-19, today.

Volkswagen Presents New Software to Aid in Accident Prevention

Volkswagen has announced they will launch a new software in 2020 that will make accidents less likely by 2050.  Their newest cars will be equipped with software, sensors and processors that enable vehicles to anticipate and avoid accidents, as well as to keep learning new reflexes.

The company wants to abolish accidents by 2050.  The new software operating system will be launched with Volkswagen’s ID3 electric car. The software will continually be updated with algorithm improvements.

“How quickly can data and algorithms improve? Our customers should benefit from deep learning every week, and every day. We are moving from being a device company to being a software company,” said Michael Jost, strategy chief.

Volkswagen has had some software issues with the ID3 in the past, with reports surfacing that the brand was forced to abandon a planned sales launch in the summer. Volkswagen has said the timeline hasn’t changed.

The ID3 will cost approximately $27,000, once green car tax breaks and incentives are included. The brand further expects to build 1.5 million electric cars by 2025. Volkswagen Group, whose brands also include Porsche, Audi, Skoda, Bentley and Bugatti, will launch 75 electric cars by 2029 and be capable of building 26 million vehicles.

Fiat Chrysler and Ford plan to Restart Production in April

Ford and Fiat Chrysler plan to retard their production in North American plants in April. Plants have been closed due to the COVID-19 Virus.  Ford announced that their plans to restart production could happen as soon as April 6th. They were first urged to shut down due to union pressure to contain the virus outbreak from spreading through its workforce.

The majority of plants that are closed produce Ford Pickups, SUVs, vans and commercial trucks. Ford President of North America Kumar Galhotra, in a statement, said the plants will include “additional safety measures to protect returning workers” from contracting COVID-19.

Following Ford’s announcement, Fiat Chrysler announced its plants in the United States and Canada are intended to remain closed until April 14th.  The re-openings are dependent on state stay-in-place orders and the readiness of each facility to return to work. The announcement both came after President Donald Trump announced he wants the U.S. economy to open back up by Easter Sunday.

Urged by the United Auto Workers union, Ford, Fiat Chrysler and General Motors announced plans to temporarily shutter their plants due to the coronavirus on March 18. Ford initially wanted to reopen its North American plants on March 30, however withdrew that timeline earlier this week because of various stay-at-home orders.

Shares of Ford were down by almost 5% during pre-market trading, and remained down by 2% following the announcement. Fiat Chrysler shares were trading up 1.1% following the company’s announcement. GM’s stock was up 4.4%.

Neither company has released a plant-by-plant breakdown of openings. Fiat Chrysler, according to a statement, “continues to take important steps to help flatten the curve of the spread of COVID-19, and put the health and safety of our workforce, and the communities where we live and work first.”

Coronavirus Bailouts Could Extend to Auto Industry

Plans were recently announced to provide economic assistance to U.S. businesses hit hardest by the Coronavirus pandemic. Many anticipate this will extend into the auto industry.

Groups representing major automakers and suppliers asked U.S. lawmakers to consider new tax relief and delay a new trade deal as automotive sales have declined due to the virus. The proposals are due to many automakers closing plants and cutting production, including BMW AG.

The Alliance for Automotive Innovation joined forces with the Motor and Equipment Manufacturers Association to draft a letter urging lawmakers to help ensure sufficient liquidity remains available to them.  General Motors, Volkswagen, BMW and Toyota all endorsed the proposal to create credit facilities that provide loans and loan guarantees to employers with more than 500 employees experiencing loss of revenue due to COVID-19.

Automakers and suppliers have backed a series of actions to help the industry, and warn the fast approaching date for the new USMCA North American trade deal puts compliance pressures on them.  The letter notes support to lawmakers giving tax deductions or credit to maintain workforce and delay quarterly federal tax payments.

Honda Motor Co has sent their own letters to Congress in support of tax proposals. “The auto industry, like so many industries is going to be severely harmed by the dramatic economic downturn over the coming months,” Honda executive vice president Rick Schostek wrote, adding that companies based outside the United States but with significant American operations should not be “arbitrarily barred from any federal assistance or regulatory relief.”

Automotive Associations Urge Vehicle Supply and Repair Businesses to Stay Open

As the coronavirus continues to impact businesses, many automotive associations are urging dealerships and repair shops to consider the importance of motor vehicle supply and repair facilities.

The actions began with John Bozzella, president and chief executive officer of the Alliance for Automotive Innovation and National Automobile Dealers Association president and chief executive officer Peter Welch sending a joint letter to President Trump.

“As our nation continues to confront the coronavirus’s challenges, we want to underscore the importance of ensuring that consumers have access to a safe and well-functioning motor vehicle fleet,” Bozzella and Welch wrote in their letter. The federal government includes manufacturing as a critical infrastructure when it comes to economic continuity of the United States. Safe transportation remains an important aspect, and vehicles must remain properly maintained.

Cody Lusk, president and chief executive officer of the American International Automobile Dealers Association (AIADA) shared a similar message. In a separate statement, Lusk emphasized that dealerships and their service shops are essential to the communities they serve.

“These are uncharted waters for all of us. As Americans determine the best way to move forward and protect each other, AIADA asks that lawmakers keep in mind the tremendous value dealerships offer their cities and towns, and the many important services they perform — from brake repairs to addressing critical recalls to providing vehicles to essential workers who can no longer rely on public transportation,” Lusk said.

Many dealers are working overtime to ensure compliance with CDC guidelines and to further establish safe conditions for both employees and customers. Six other trade associations representing the transportation industry have called on local governments to take preventative action.

In addition to the Auto Care Association, the letter was signed by the U.S. Tire Manufacturers, American Trucking Association, Motor Equipment Manufacturers Association, Tire Industry Association and Automotive Oil Change Association.

Auto Industry Faces Uncertain Threat from Coronavirus in Europe

The cancelation of the Geneva Auto Show didn’t stop European automotive leaders from meeting.  They stayed home and met online instead. Chairman of Mercedes parent Daimler, Ola Kaellenius mentioned the possible ramifications of the coronavirus in live-stream speeches.  BMW and Volkswagen didn’t address the issue.

It’s typical that major brands express their views on the state of the world and economy at these large trade shows, but most of those companies were among those who pulled out this year weeks before the show was canceled. No-shows included Cadillac, Jaguar, Lamborghini, Land Rover, Mitsubishi, Subaru and Tesla.  “We are monitoring the situation (with the coronavirus) of course, with day to day management of the situation. Production is back up and running in China, it’s too early to say how this will work out,” Kaellenius said via an online link from the company’s Stuttgart headquarters.

Mercedes had originally planned to launch the new E-class sedan at the Geneva show, but did some online instead. Reuters recently reported that Daimler’s car production in China was stable and supply chains secure, according to Mercedes sales chief Britta Seeger. It was too early to forecast the impact of coronavirus on Mercedes’ sales, according to Seeger.

Germany’s Center for Automotive Research (CAR) has said that German auto companies have annual China business worth about $170 billion, close to 35% of its annual global sales.  They also noted that China’s  business earns high margins, and roughly 40% of German annual auto profits are in danger.

At the online show, BMW unveiled a new electric sedan, the i4, claiming it could travel 400 miles on one charge.  According to GlobalData, “Live-streaming new product presentations may well be seen as a better way forward for manufacturers concerned over the costs and diminishing effectiveness of exhibiting at trade shows.”