US carmakers branch out to combat coronavirus

The industry has been co-opted to help combat Covid-19 by producing ventilators while its core business collapses.

The sector has screeched to a halt © Getty

After being advised by his critics to “stop whining and tweeting and start acting”, says the Financial Times, President Trump has invoked the Defense Production Act to compel General Motors (GM) to make ventilators needed to treat coronavirus patients.

For its part, GM has denied that it was “dragging its feet”, claiming that it was already working “around the clock” with Ventec Life Systems on a plan to produce up to 200,000 ventilators. However, the US government has argued that negotiations between GM and the federal government had broken down over GM’s demand that it be paid “top dollar” for the medical equipment.

GM may be the most high-profile car company involved in ventilator production, but its rivals are also helping out as well, say Sean O’Kane in The Verge.

Subscribe to MoneyWeek

Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE

Get 6 issues free

Sign up to Money Morning

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Sign up

Ford, which has also suspended most normal production during the crisis, has announced that it will be building specially designed ventilators “around the clock”, with the aim of building 1,500 by the end of April and eventually producing 30,000 a month. Even Tesla is “examining how to help manufacture ventilators” for a company called Medtronic, and has even bought some from China to send to hospitals in the meantime.

Car sales have cratered

The big American car companies may be making a contribution to the relief effort, but their core business has collapsed says Nathan Bomey in USA Today. Despite the fact that most car dealerships are still open, and car companies are offering, “aggressive incentives to try to keep sales humming”, industry analysts expect US car sales to fall by over a third in March alone.

Even if there is a recovery after the restrictions are removed, this is likely to translate into a 15% overall decline in 2020, which would bring the US car industry’s streak of strong sales “screeching to a halt”.

Indeed, if the experience of China is anything to go by, the big car companies could be in for a bumpy ride. As Jacky Wong points out in The Wall Street Journal, not only did car sales in what was the “biggest auto market in the world” fall by 80% in February, but even after a “return to normalcy”, the sector is set to keep struggling. Carmakers will now worry about sourcing components from abroad if shutdowns elsewhere endure or recur; moreover, a gloomy economic backdrop may deter consumers from spending money on cars.

Still, while this crisis has dealt a huge blow to Ford and GM, they are unlikely to go under, says Antony Currie for Breakingviews. While their cash reserves only cover three months of current expenditures, only half their costs are fixed.

This means that by “deferring or reducing salaried workers’ pay”, slashing marketing budgets and stopping purchases of raw materials, they could extend this to six months. By then US and European lockdowns should be lifted.

Dr Matthew Partridge

Matthew graduated from the University of Durham in 2004; he then gained an MSc, followed by a PhD at the London School of Economics.

He has previously written for a wide range of publications, including the Guardian and the Economist, and also helped to run a newsletter on terrorism. He has spent time at Lehman Brothers, Citigroup and the consultancy Lombard Street Research.

Matthew is the author of Superinvestors: Lessons from the greatest investors in history, published by Harriman House, which has been translated into several languages. His second book, Investing Explained: The Accessible Guide to Building an Investment Portfolio, is published by Kogan Page.

As senior writer, he writes the shares and politics & economics pages, as well as weekly Blowing It and Great Frauds in History columns He also writes a fortnightly reviews page and trading tips, as well as regular cover stories and multi-page investment focus features.

Follow Matthew on Twitter: @DrMatthewPartri