New cars lined up at a parking lot on Sept. 6, 2017 in Shenyang, Liaoning Province of China.
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The coronavirus has landed on the U.S. auto industry’s doorstep as Michigan officials late Tuesday night confirmed the state’s first two cases of the disease.
While America’s largest auto plants have not yet been impacted by the COVID-19 pandemic, supply chain shortages and the increase in domestic cases, including Michigan, which represents at least 17% of America’s automotive output, add to concerns that it’s not a matter of if, but when, U.S. auto operations will be impacted.
“I don’t see anybody coming out unscathed,” Kristin Dziczek, vice president of industry, labor and economics at the Center for Automotive Research, told CNBC. “Everybody’s going to be impacted. It’s to what degree and how much they’ve been able to mitigate the risks since we’ve known about this over the last months.”
Automakers – from General Motors and Fiat Chrysler to Toyota Motor and Tesla –have been scrambling for weeks, if not months, to secure parts for manufacturing operations in North America and elsewhere following disruptions from Chinese suppliers due to the coronavirus.
Many companies continue to reopen and ramp up production in China, however the impact of the virus has now spread to Europe and North America, including a growing number of cases in the U.S.
The coronavirus’ impact already is being felt on Wall Street as the Dow dropped 1,400 points Wednesday after the World Health Organization declaring the coronavirus a global pandemic. U.S. automaker stocks have been hit harder than others. GM, Ford and Tesla as of Wednesday afternoon had dropped between 17% and 18% since the beginning of the month.
The emerging problems for the U.S. auto industry, according to Dziczek, are expected to be disruptions of U.S. sources as well as a larger evolution for the industry “from a supply crisis to a demand crisis” that could have wide-ranging economic consequences.
“Right now, we’re in the very early stages, but there are certain pockets in the U.S. that are heavily impacted, and manufacturing will come to a halt if that spreads,” she said, citing potential impacts to consumer confidence and domestic vehicle sales. “New vehicles are a large discretionary purchase that most people can put off if they’re feeling uncertain about the economy, their income and health.”
Specifically, while Michigan is best known as being home to the Detroit automakers, many major automakers and auto suppliers operate in the state. Michigan’s manufacturing industry represented 4.3% of the country’s manufacturing GDP in 2018, the latest data available from the U.S. Bureau of Economic Analysis.
As of 2017, the state was home to 1,600 automotive-related manufacturing operations, including auto suppliers, according to MichAuto, a Detroit chamber economic development group.
Lower auto forecasts
Research firm LMC Automotive cut its 2020 global light-duty vehicle sales forecast by 4%, or 3.7 million units, as the “rippling impact of the COVID-19 outbreak creates significant uncertainty.”
“The impact of COVID-19 on the auto industry has gone well beyond the initial focal point of China, resulting in downward forecast revisions across most major markets,” said Jonathon Poskitt, director of Global Sales Forecasts at LMC, in a release. “We are still in the early stages of understanding the full impact but expect it to get worse before it gets better.”
Moody’s Investor Service cut its global vehicle sales forecast earlier this month due to the coronavirus to a decline of 2.5% in 2020 instead of a 0.9% drop.
As of Wednesday, there were more than 121,564 confirmed cases, including at least 4,373 deaths, according to data compiled by Johns Hopkins University. That includes more than 1,000 domestic cases involving at least 32 deaths.
Automakers are preparing to combat the spread of the virus in the U.S. by providing office employees tools to work from home, increasing supplies and availability of sanitation supplies and implementing travel bans or restrictions, among other initiatives.
Some such as GM, Ford and Fiat Chrysler also have implemented new visitor protocols or restrictions in an attempt to limit exposure of employees to the disease.