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Auto Stock Roundup: Coronavirus-Related Updates Spell Shakeout for the Sector

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The coronavirus outbreak has dealt a severe blow to the Auto sector, resulting in the closure of factories, lower footfall at dealerships and disruptions in global supply chains. Last to last week, various automakers announced suspension of operations and 2020 guidance amid the COVID-19 carnage. The shutdown of operations continues, with many auto firms either announcing the closure of factories or delaying the resumption of operations. Additionally, various other companies were prompted to scrap their 2020 view in the past week. Let’s take a look at the various coronavirus-induced updates announced by automakers in the week ended Mar 27.

Recap of the Week’s Most Important Stories

1. More Firms Put Brakes on Operations

Early last week, Superior Industries announced that it anticipates production at all its facilities to be halted soon; however, the firm did not specify the tenure of the suspension. BorgWarner also suspended its manufacturing operations, particularly in North America and Europe, without stating the resumption dates. Meritor also temporarily halted production at most of its global commercial truck manufacturing facilities across North and South America, Europe and India. Cooper Tire & Rubber announced that its tire manufacturing facilities in Europe will temporarily shut down for at least three weeks.

While many of Magna International’s facilities have reduced or halted production, the firm announced that it has started ramping up operations in China. Winnebago has temporarily suspended most production activities at its facilities including Grand Design RV, Newmar and Chris-Craft till Apr 12. Westport Fuel closed operations at its facilities in Cherasco and Albinea, Italy till Apr 3. Oshkosh Corporation intends to shut down Access Equipment production in North America today, with plans to resume production on Apr 13. Allison Transmission also intends to temporarily shutter operations at select manufacturing facilities starting today.  

Trucking giant PACCAR (PCAR - Free Report) has halted truck and engine production at its factories worldwide, effective Mar 24 till Apr 6. Its rival, Navistar International (NAV - Free Report) suspended production at its truck assembly plant in Springfield, OH, on Mar 23, for two weeks.

Meanwhile, top U.S. carmaker, General Motors (GM - Free Report) intends to extend the shutdown of North America plants beyond Mar 30 and has not updated about the restart of operations. Ford (F - Free Report) will not be restarting operations in the United States, Canada and Mexico on Mar 30, as originally planned. The firm’s Hermosillo facility in Mexico is likely to resume production on Apr 6, while certain plants in Michigan, Missouri and Kentucky could restart on Apr 14. Last week, Ford shut down manufacturing sites in India, Vietnam, Thailand and South Africa for several weeks depending on the pandemic situation, national restrictions, supplier constraints and dealer-stock requirements.

Japan-based auto bigwig Toyota (TM - Free Report) will suspend assembly lines at five plants in its home market in a couple of days till at least Apr 15. The firm has also pushed back plant restart dates in North America till Apr 17.

2. 2020 Guidance Withdrawal Continues

General Motors announced the suspension of its full-year guidance, citing the uncertainty caused by the COVID-19 pandemic. PACCAR has warned that first-quarter and full-year 2020 results will be bear the brunt of  lower production schedules due to changes in customer demand and the impact of government regulations or mandates. Navistar also pulled back its 2020 guidance in response to disruptions in the company’s supply chain due to the pandemic-led crisis. BorgWarner warned investors that it expects material impact on its 2020 performance amid the coronavirus-induced uncertainty. The maker of clean and efficient engine solutions expects sales to decline, as many of its customers have suspended operations. Oshkosh, Allison Transmission, Superior Industries, Lear Corp., Magna International, Meritor and American Axle also pulled their 2020 outlook last week.

3. Firms Cut Costs & Tap Credit Lines to Maintain Liquidity

As coronavirus concerns have dimmed earnings and sales prospects, carmakers are resorting to cost-containment initiatives and are drawing down their credit lines to preserve cash.  

General Motors intends to slash pay of 69,000 salaried workers by 20%. In a bid to boost cash reserve, General Motors intends to draw down about $16 billion from its existing credit lines. The borrowed funds will be in addition to the company’s current cash reserve, which it estimates in the range of $15-$16 billion as of the end of March.Ford also announced that its top 300 executives will defer 20-50% of their salaries for at least five months.

Meritor has also suspended the share-repurchase program to bolster cash reserve. It would also be slashing the base salary of each of its named executive officers by 50-60%, and all employees in the United States and Canada by 40-50%.

Group 1 Automotive has reduced corporate compensation until further notice to combat the crisis. While the firm’s CEO’s salary has been reduced by 50%, the president of U.S. and Brazilian Operations will receive a pay cut of 35%. Salary of the senior vice president and the corporate vice president will be slashed by 20% and 15%, respectively. Other corporate and field support personnel will receive a pay cut of around 10%. The company is also putting efforts to trim U.S. marketing costs by more than 75%.

Lear is resorting to temporary cost-reduction measures to shore up the company’s balance sheet, as it braces for a period of revenue slump amid the virus mayhem. The auto parts supplier has suspended quarterly dividend and stock buybacks in an attempt to shore up the balance sheet, as it braces for a period of revenue slump amid the virus mayhem. Further, the company is drawing $1 billion from the $1.75-billion revolving credit facility.

Superior Industries has fully drawn down its $160-million U.S. revolving credit line and €48 million on its €60-million European revolver. CarMax is drawing down $510 million under a revolving credit facility to enhance financial flexibility. Cooper Standard boosted its liquidity with the renewal of revolving credit and European factoring facilities.

4. Auto Giants Racing to Make Ventilators

As ventilator makers scramble to meet demand, auto biggies are lending a hand in the fight against COVID-19. Ford is collaborating with 3M and GE Healthcare to jointly combat the coronavirus pandemic. General Motors is teaming up with Ventec Life Systems to boost the production of respiratory care products to fight against the COVID-19 pandemic. EV maker Tesla (TSLA - Free Report) has joined forces with medical device maker Medtronic to make ventilators in a bid to battle the health hazard. German auto mammoths Volkswagen, BMW AG and Daimler AG are also exploring options to use 3D printers to produce ventilators. Italy-based automakers Ferrari and Fiat Chrysler are in talks with the country’s biggest ventilator manufacturer, Siare Engineering, to help boost the production of ventilators and other equipment for treating the fast-spreading virus.

Price Performance

Company

Last Week

Last 6 Months

GM

21.5%

-40.8%

F

29.5%

-41.7%

TSLA

18.4%

110.2%

TM

14.5%

-4.5%

HMC

16.3%

-11.7%

HOG

16%

-52.3%

AAP

21.8%

-42.9%

AZO

17.8%

-21.4%

 

The following table shows the price movement of some of the major auto players over the past week and six-month period.

In the past week, all the stocks have rallied, with Ford being the maximum gainer. However, in the past six months, all stocks apart from Tesla have witnessed a decline.

What’s Next in the Auto Space?

Watch out for further impact of the pandemic on the auto sector. All eyes will remain glued to how automakers tackle the coronavirus scare and make resultant changes in business operations. Car enthusiasts will be keeping a close watch on March U.S. car sales — anticipated to release this week — that are expected to have fallen drastically. Investors await fourth-quarter fiscal 2020 results of CarMax (KMX - Free Report) , which is set to report on Apr 2. CarMax currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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