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FCA, PSA close plants in Europe; FCA likely to be slammed in US

by David Zatz on

Analysis. As the COVID-19 coronavirus spreads throughout the United States, it is likely to do what it did in China and Europe: closed down factories and slam demand. How will this affect FCA?

The number of COVID-19 cases has grown a little more slowly than in Italy, but in similar fashion; today, FCA announced it was stopping production at most of its European plants for at least two weeks, because there’s no market for the cars.

Spread of COVID-19 in the USA and Italy, using Wikipedia numbers. USA tracking is likely an underestimate due to low availability of test kits and slow processing of the results. 

In Europe and parts of the United States, restaurants have been closed (or shut down as customers stayed away); theater, tourism, sports, and other industries are being slammed. People working in these industries are unlikely to buy new cars.

What’s more, stocks and bonds have been hammered, plunging by around 10% so far today alone; people whose wealth was largely in the market may not wish to sell at a major loss to buy a car.

(There has been a great deal of disinformation regarding the COVID-19 coronavirus. It is not related to the Toyota Corona. See the CDC and WHO for correct information.)

Adding to the problems is an oil price war started by Russia and intended to shut down a great deal of American and Canadian oil exploration and drilling, bankrupting small and midsized companies alike (which would allow Russia and Saudi Arabia to buy the remains at low cost). Saudi Arabia has turned its taps full on as it tries to punish Russia, which also hurts United States and Canadian oil suppliers. This is likely to hit a key market for both luxury and commercial pickups, not to mention heavy equipment.

When the U.S. is able to test more citizens, the number of known cases will almost certainly increase. 

Fiat Chrysler is financially well positioned now; however, as Allpar’s Aldo has pointed out in our forums, during times of crisis, customers tend to flock to vehicles with reputations for high quality and value. FCA’s strategy has been to move more upmarket and to enter upscale niches, with ever-pricier Jeeps, Rams, big Dodges, Alfa Romeos, Maseratis, and such. The continuation of the inexpensive (prior series) DS series Rams will likely prove to be a superb idea in the long run; Ford will may suffer from their decision to use more-expensive aluminum bodies. This may not have been the best time to drop the Grand Caravan and Journey from the low end of the market, but they could be revived if needed.

In terms of actual virus cases, the automotive industry has been almost unscathed. FCA had one employee in one factory test positive, and immediately reacted by isolating anyone who came into contact with that person and disinfecting the plant. GM has already sent its white-collar workers home, showing it had planned ahead very well. There has been no word yet from Ford and FCA on similar steps, though the UAW, GM, FCA, and Ford have jointly announced that they are working to prevent the spread of the virus through increased cleaning, safety protocols, and greater screening. Schedules in the plants have been changed to allow people to maintain a greater physical distance (oddly now called “social distance” despite a useful and more aptly named theory with the same name).

Still, we can learn something from Chinese economic statistics; in the first two months of 2020, retail sales fell by over 20%, and industrial output dropped by 13%. There have been unconfirmed reports that new car sales in China plummeted by roughly 90%, which bodes ill for American automakers. Some of the leading names of the 1929 auto industry are barely remembered today.

The good news is that FCA and PSA are very likely to survive the crunch; and mechanics and parts sales are likely to be strong as people keep their cars on the road longer. There will also probably be some excellent deals on new cars over the upcoming weeks and months; gasoline prices will probably be quite low; and the air and water in some areas are cleaner than they have been for years.

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