Southern states' fondness for pickups could save carmakers from a slump — but not if COVID-19 cases continue to spike there

"Almost half the shoppers delaying their purchase described this as a ‘scary’ time to buy a vehicle,” said one industry expert.
Image: Mexico auto plant
A worker resumes activities at a truck part factory after it was closed for several weeks to prevent the spread of coronavirus in San Luis Potosi, Mexico on May 27, 2020.Mauricio Palos / AFP via Getty Images file

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By Paul A. Eisenstein

After plunging to levels not seen since the depths of the Great Recessions, U.S. auto sales rebounded in June — but that recovery may be short lived, industry experts warn, as the worsening coronavirus pandemic slams the Southern states that had been propping up the new car market.

At least two automakers, Nissan and General Motors, already are trimming production, and others are looking at the possibility that they also may have to cut back. Factories are already struggling due to the pandemic. Outbreaks of COVID-19 have led to absentee issues and other problems resulting in shortages of engines and other supplies, manufacturers are reporting.

Car manufacturers are concerned that the upbeat sales trend in June — following declines of as much as 50 percent in March, April and May — will be short-lived.

“The surge in COVID-19 cases across the country is negatively impacting consumers and dealers. Almost half of the shoppers delaying their purchase described this as a ‘scary’ time to buy a vehicle,” Cox Automotive analysts said in their Consumer and Dealer Sentiment Study released this week.

“We do see cases rising. We do see consumers becoming more anxious. And the problem is more serious in the South,” Michelle Krebs, lead analyst at Cox, told NBC News.

Even before the latest outbreaks, the auto industry was expected to have a tough year. Globally, new vehicle demand is predicted to fall by 20 percent, to around 70 million, for all of 2020. And the fast-rising numbers in the U.S., Brazil and several other countries are taking a toll on production plans.

Nissan will cut worldwide vehicle production by 30 percent through December, Reuters reported this week. General Motors, meanwhile, announced that it will drop a shift at the Missouri plant producing a mix of midsize pickups and full-size vans, due to slackening demand.

All told, J.D. Power estimates inventories stand about 1.3 million units below normal for this time of year, and auto manufacturers are openly worrying about whether the upbeat sales trend in June — following declines of as much as 50 percent in March, April and May — will be short-lived.

“We’re definitely concerned,” Cynthia Tenhouse, U.S. vice president of marketing at Toyota, said during a media webinar this week. “The numbers are not going the right way….(and) we’re monitoring it closely.”

“There’s a whole mix of factors” impacting industry production plans, said analyst Krebs. Manufacturers are likely to keep pressing to deliver as many pickups and large SUVs as possible to refill the inventory pipeline.

However, if demand keeps dropping — especially in strong markets such as those Southern states currently seeing an uptick in coronavirus cases — that could lead to new production cuts for less popular products, especially sedans and other passenger car models.

Further complicating matters, the pandemic is playing havoc at the factory level.

Coming out of their spring lockdowns in late May and June, manufacturers announced extensive plans to prevent infections on the factory floor. Ford, for example, requires workers to check in on an app before reporting to work, then takes their temperatures before allowing them to enter a plant. Extensive changes have been made to common areas such as lunch and restrooms, as well as assembly lines.

Nonetheless, officials expect to find some workers suffering from the illness, especially at plants operating in regions of the country where COVID-19 outbreaks are mushrooming. Despite the best efforts to prevent workers from infecting one another in the factory, there’s little a company can do when they’re off work, Gary Johnson, Ford’s head of manufacturing said.

Automakers are struggling with higher levels of absenteeism than normal, Krebs said, as well as the disruptions caused when an employee already on the line shows symptoms, forcing a temporary shutdown and clean-up.

Some of the biggest problems have occurred within the supplier community, since not all parts manufacturers meet the same levels of safety standards as auto assemblers. The situation has become particularly serious in parts of Mexico.

“Due to COVID-19, the State of Chihuahua in Mexico has limited employee attendance to 50 percent, a region in which we have several suppliers,” Kumar Galhotra, Ford president, Americas and International Markets Group, said in a statement this week.

That is leading to a shortage of engines and other parts that, in turn, affect production rates at U.S. assembly plants, creating a situation “that is not sustainable,” Galhotra said.