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Carmakers Gear Up to Restart Production: Can They Bounce Back?

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U.S. automakers started returning to assembly lines on May 11, finally ending two months of plant closures that brought vehicle production to a standstill. Some auto suppliers in Michigan, which have been hit hard by the coronavirus pandemic and its economic fallout, finally reopened plants ahead of resumption of vehicle production next week.

Both domestic and foreign carmakers that have been suffering due to plants closures, will finally start reopening their production lines as states start easing restrictions in a bid to restart the economy. Vehicle sales in the United States plummeted in April, hitting a three-decade low. However, with plants set to reopen, carmakers may finally heave a sigh of relief.

Carmakers Gear Up to Reopen Plants

Auto suppliers in Michigan started returning to work, a week ahead of all major carmakers who plan to resume production at their U.S. facilities. Also, skilled-trade workers and salaried employees have started returning to assembly plants to prepare for a wider restart. However, all factory workers will be issued face masks, checked for fever and required to submit health-screening questionnaires. 

All three big carmakers — Ford Motor Company (F - Free Report) , General Motors (GM - Free Report) and Fiat Chrysler Automobiles N.V. (FCAU - Free Report) — last week said that they plan to resume production at their North American plants from May 18. The target date was set after approval from United Auto Workers union, which had initially said that a May restart could be too risky.

Also, foreign carmakers Toyota Motor Corporation (TM - Free Report) and Honda Motor Co Ltd (HMC - Free Report) restarted production at some of their U.S. plants on May 11 and plan to open more next week onward. Ford has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Carmakers Trying to Fight Back

The auto sector accounts for 6% of U.S. economic output and employs more than 835,000 Americans. However, the global car industry has been witnessing a slump for the past few quarters, which was worsened due to the coronavirus outbreak. With factories closed for more than two months, carmakers have been desperately trying to get back to production. So much so, that on May 11 Elon Musk, chief executive of electric carmaker Tesla Inc (TSLA - Free Report) , defied local health officials and restarted his factory outside San Francisco.

Most major carmakers reported a sales decline in April due to the pandemic. Toyota and Honda led the declines with sales plummeting about 54% each. Also, Hyundai said that its April sales declined 39%. General Motors’ U.S. sales fell 7% in the first quarter from a year ago. Fiat too reported a 10% decline in sales in the first quarter.

That said, things might finally start changing with the restart of the plants. Earlier, J.D. Power said that for the week ending Apr 19, retail sales were down 48% from the pre-virus forecast, marking an improvement of 3 percentage points from the week ending Apr 12. Around 300,000 new vehicles were sold in the first 19 days of April.

Although sales were down 53.9% in April, Toyota said its dealers’ sales of 84,696 vehicles surpassed its forecast of about 50,000 for the month. One major reason behind this is that many carmakers, including Ford General Motors and Fiat, are offering 0% financing rates and deferring payment options for new car purchases, which is aiding this rebound in sales.

Moreover, the China car market, where U.S. automakers have a major presence, too has started rebounding following the COVID-19 outbreak. General Motors reported that its sales in China jumped over 13% in April, compared to the prior year. 

Although Ford has a smaller presence in China compared to its rival General Motors, it sold over 40,000 vehicles in China during March, which jumped to about 75% of sales during the prior year. With almost 99% of car dealerships reopening in China and U.S. factories gearing up to restart production, carmakers may finally start bouncing back.

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