Everyone is worried about the financial impact the COVID-19 crisis will have. It literally caused the global economy to come to a screeching halt. And while every sector of the economy will need help, the auto industry is particularly vulnerable. If the U.S. wants a vibrant auto industry, Uncle Sam needs to pitch in and help now.
Automakers and suppliers are capital-intensive companies and they have high fixed costs. So even though they’ve completely stopped production, furloughed almost all their hourly workers and cut the pay of their salaried staffs, they’re still burning through piles of cash.
GM and Ford each accumulated $30 billion war chests to get them through the crisis. But it’s not enough. In normal times, each one spends over $2 billion a week, meaning they’ll run out of money before the year is out unless they can resume production.
Even with cost cutting, Ford said it would run out of cash by the end of the third quarter this year. It subsequently raised another $8 billion in debt, but even that won’t get it to the end of the year.
Even worse, once this crisis is over, they’ll have burned through their entire cash cushion. There’s not going to be much money for developing electric vehicles, fuel cells or autonomous cars. Most of those programs will have to be delayed.
Car dealers also need help. They borrow the money to buy the cars from the factory that they then turn around and sell to consumers. But because sales have evaporated, they’re getting crushed by the floor planning costs of the unsold inventory parked on their lots.
Car buyers need help, too. While buying a new or used car is considered discretionary spending, for many consumers it’s a necessity. Millions of cars are coming off lease and need to be replaced. And millions of other people need to replace their worn-out cars. For them, getting a new set of wheels isn’t about instant gratification, it’s about whether they can get to their job.
Even when production resumes and people go back to work, problems will persist. Assembly lines will start slowly because it will take time to get every piece of the supply chain jigsaw puzzle back in place.
You can’t build a car until every single part is laid out along the assembly line. Missing just one critical component means nothing gets started, or quickly grinds to a stop.
Unless Congress and the Trump Admin. step up with financial help for automakers, suppliers, dealers and consumers, it will take years for the industry to recover, if it ever does. Remember, every job in the auto industry supports about seven other jobs in the economy. The longer it takes for the auto industry to recover, the longer it takes the U.S. economy to recover.
No doubt there will be naysayers criticizing any aid. They’ll raise a big stink that GM and Chrysler were bailed out a decade ago and don’t deserve any help again. Ignore them. Or better yet, point out to them how the car companies and suppliers immediately volunteered to start making ventilators, respirators, masks and gowns. It’s been breathtaking to watch how quickly and eagerly they responded. Arsenal of Democracy stuff. Mass production at its finest.
And that’s what makes this industry so different from all the others that will need financial help. The auto industry is a critical component of national security. It forms the industrial backbone that would be needed in a wartime crisis. And if we let that capacity crumble, there will come a day when we wish we had done something when we had the chance to do it.
John McElroy is editorial director of Blue Sky Productions and producer of “Autoline Detroit” for WTVS-Channel 56, Detroit.