By Ben Foldy and Nora Naughton 

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (March 19, 2020).

Detroit's car companies have agreed to temporarily shut down factories in the U.S., Mexico and Canada to limit the spread of the new coronavirus, an unprecedented work stoppage that will affect hundreds of thousands of factory employees.

Executives from General Motors Co., Ford Motor Co. and Fiat Chrysler Automobiles NV came to the decision Wednesday following discussions with union leaders and as concerns among workers were growing that the virus would spread rapidly in the plants, where thousands of employees work side-by-side each day.

The companies said they would soon start suspending factory operations until at least March 30 to clean facilities and develop other preventive measures to limit the virus's spread. GM said it is also making the move in part to respond to "market conditions," as vehicle sales nationally fall off.

The companies have agreed to treat the virus-related shutdown like other routine work stoppages, when workers are temporarily laid off. In these cases, the company is required to provide affected employees with extra pay to supplement unemployment benefits.

Honda Motor Co. and Toyota Motor Corp. also on Wednesday said they would temporarily close their North American factories next week to respond to virus concerns and falling consumer demand. The companies' plants will close for six and two days, respectively.

The virus-related disruptions that halted factories and tanked sales in China and Europe are now hitting hard in the U.S., which for years has been the world's most lucrative car market and the source of most profit for the Detroit companies. The shutdowns also likely will spill over to U.S. parts suppliers and other firms dependent on car factories for business.

The outbreak has begun denting sales and store traffic at U.S. dealerships. With many Americans staying at home, car dealers say their showrooms are quiet, and likely will remain so for a while.

Several analysts have cut their sales forecasts for 2020, upending previous predictions for another solid year in the U.S. car business. Car companies this week began rolling out promotions to soothe rattled customers, including interest-free loans and delayed monthly payments.

For many U.S. dealers, the recent drop-off in buyer traffic was sharp and sudden, just as the industry was gearing up for the busy spring-selling season.

"It feels like there is a dark cloud over the dealership," said Andre Woods, a 40-year-old sales associate at Village Ford in Dearborn, Mich. "It's got me unnerved, and I don't shake easily."

Sales decelerated steeply over last week, according to transaction data collected by analytics firm J.D. Power. Between Monday and Thursday, sales were off 8% from their pre-virus forecast. By Sunday, they were down 36%.

The Detroit car companies were already battling a number of challenges even before the outbreak hit, including falling sales in China and tougher auto-emissions requirements in Europe.

GM began the year in recovery mode following a 40-day strike last fall that hit its operating profit by $3.6 billion. The company was looking to restock relatively low levels of the large pickup trucks and sport-utility vehicles that account for nearly all of its global profit.

Ford entered 2020 looking to accelerate a turnaround plan that so far had failed to jump-start profit growth, following three consecutive years of declining pretax earnings despite a robust U.S. market. Like GM, Ford counts on sales of large pickup trucks and SUVs in the U.S. market for nearly all of its global profit.

Fiat Chrysler relies heavily on the U.S. market to feed its bottom line and offset weaknesses in Europe and Asia. The company, which is trying to execute a merger with France's PSA Group, had already halted production in Europe, one of its biggest markets, due to the pandemic.

The production halt could take time to affect dealers, who typically keep two or three months worth of vehicles on their lots.

Ford dealers have enough new-vehicle inventory to last more than three months, while Fiat Chrysler retailers have about a 2 1/2 months' supply of stock, according to data from Wards Intelligence. GM dealers, still recovering the strike last fall, have closer to two months-worth of inventory, that data show.

Analysts warn that this year could mark the first significant drop in U.S. vehicle sales since 2009, potentially spelling an end to an unprecedented streak of good times for an industry accustomed to boom-and-bust cycles.

José Muñoz, chief executive of Hyundai's North American division, said he expects the auto maker's U.S. sales to drop in March by 15% to 20% over the same month last year and then further slide in April by as much as 50%.

"I see the situation getting worse for the next few weeks," Mr. Muñoz said, adding that he didn't expect a slow recovery until summer at the earliest.

RBC Capital Markets this week said auto sales could fall to 13.5 million vehicles this year, which would mark a 20% decline from last year and the lowest level since 2010. The bank also doesn't see a quick snapback in car sales.

Matthew Welch, who owns Auburn Volkswagen in the Seattle area, the site of the country's worst outbreak so far, said sales are down around 30%. He worries about what would happen if his store were forced to temporarily close.

"If we have to pay people to not come in, financially we can't do that for long," he said.

Some dealerships, including Auburn Volkswagen, are trying to lure wary buyers by putting a bigger emphasis on their online-sales services, including those that allow shoppers to skip the showroom and take delivery of their new vehicle at home.

While such services have been slow to catch on -- the overwhelming majority of car buyers still prefer to make the purchase in person -- the virus outbreak has sparked more interest lately, said Rick Case, who heads a chain of 16 auto dealerships in Ohio, Florida and Georgia. "People are afraid to go out," Mr. Case said.

Car companies also are scrambling to offer ways to quell the financial uncertainty for customers. GM is offering buyers with good credit no-interest loans stretched over seven years. Ford on Monday said its in-house lender would allow customers experiencing virus-related disruptions to delay payments in some situations.

Hyundai Motor Co. has dusted off a version of a deal it first rolled out in the throes of the recession in the late 2000s: it will cover six months of payments for any new-car buyer who loses their job after their purchase.

--Mike Colias contributed to this article.

Write to Ben Foldy at Ben.Foldy@wsj.com

Corrections & Amplifications Toyota Motor Corp. was incorrectly referred to as Toyota Motor Co. in an earlier version of this article. (March 18, 2020)

 

(END) Dow Jones Newswires

March 19, 2020 02:47 ET (06:47 GMT)

Copyright (c) 2020 Dow Jones & Company, Inc.
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