Big German automakers trying hard to stop the bleeding as coronavirus depletes their funds, another FCA employee has died from the virus, the White House is looking carefully at GM’s ventilator pricing, and an update on the PSA-FCA merger. All that and more in The Morning Shift for March 27, 2020.
1st Gear: VW And Daimler Are Desperately Trying To Stop The Bleeding
Things are bad for the auto industry right now, as assembly plants around the world have paused production to prevent the spread of the coronavirus. We already reported earlier this week that Fiat Chrysler had slashed ~2,000 jobs, and that General Motors has cut salaries with intentions to repay workers later.
Things are also rough across the pond for Germany’s auto-dominated economy. The country’s biggest car company, Volkswagen—who, according to Reuters, employs 671,000 people around the world—is, per its CEO Herbert Diess, burning through tons of cash every week as it deals with fixed costs without being able to sell cars anywhere but in China. From Reuters:
“We are not making sales or revenues outside of China,” Diess, adding that Volkswagen still had to cover a high level of fixed costs of “around 2 billion euros a week”, he told ZDF late on Thursday.
Reuters writes that VW has 124 factories worldwide, with 28 of those in Germany. Diess wants production to start back up, but says Germany isn’t ready yet, and mentions the possibility of job cuts. From the story:
“We need to rethink production. The discipline which we had in China we do not yet have at our German locations,” he said.
“Only if we, like China, Korea or other Asian states, get the problem under control then we have a chance to come through the crisis without job losses. It requires a very sharp intervention,” Diess said.
Demand in China is picking up again but production is only at half the level prior to the crisis, he said.
Meanwhile, roughly 300 miles southwest of VW’s Wolfsburg headquarters is the HQ of Daimler (owner of Mercedes and Smart, among others), which is going through similar struggles. The company is now looking to borrow piles of money to get itself through this crisis. From Bloomberg:
Daimler (DAIGn.DE) is in talks with lenders for a credit facility of at least 10 billion euros ($11.03 billion) to help the car company cope with the coronavirus outbreak, Bloomberg reported on Thursday.
2nd Gear: Another FCA Employee Announced Dead Due To Coronavirus: Report
On Wednesday, we quoted Automotive News’ story about how two FCA employees had died from Coronavirus: One who worked at a Ram facility in Sterling Heights, Michigan, and the other who worked in Kokomo, Indiana, where FCA has a transmission plant. Per the news site WXYZ, union president Rory Gamble announced Wednesday that another employee, who worked at the Warren Truck Assembly plant, had died as a result of the coronavirus.
This was in addition to reports from the Detroit News and the Detroit Free Press that a non-union employee at the Chrysler Technical Center in Auburn Hills had died from virus.
Now Automotive News reports that yet another employee, a transport worker based out of Sterling Heights, Michigan, has died from COVID-19. From the news site:
The death of a man employed at FCA Transport in Sterling Heights, Mich., marks the fourth of an FCA union worker linked to the new coronavirus.
“As this crisis continues, each day we get news of another brother or sister who has fallen to this terrible virus,” UAW President Rory Gamble said in a statement.
[...]
News of the latest death comes hours after FCA said plants across the U.S. and Canada, as well as its Detroit area headquarters operations and construction projects, will stay closed until April 14, “dependent upon the various state stay-in-place orders and the readiness of each facility to return to production.”
3rd Gear: The White House Is Assessing Pricing of GM Ventilators
The U.S. is facing a significant shortage of ventilators, which are needed to treat patients who have been severely affected and hospitalized by COVID-19. A number of automakers have announced that they plan to use their manufacturing expertise to bring more ventilators to hospitals around the country. Among them is GM, who is working with ventilator-maker Ventec Life Systems to help increase production, we wrote on Saturday.
According to the New York Times, the White House was preparing to announce the partnership, and its potential to produce 80,000 ventilators, on Wednesday. But that didn’t happen, according to the article, in part, due to budgetary concerns. From the Times:
The decision to cancel the announcement, government officials say, came after the Federal Emergency Management Agency said it needed more time to assess whether the estimated cost was prohibitive. That price tag was more than $1 billion, with several hundred million dollars to be paid upfront to General Motors to retool a car parts plant in Kokomo, Ind., where the ventilators would be made with Ventec’s technology.
Government officials said that the deal might still happen but that they are examining at least a dozen other proposals. And they contend that an initial promise that the joint venture could turn out 20,000 ventilators in short order had shrunk to 7,500, with even that number in doubt. Longtime emergency managers at FEMA are working with military officials to sort through the competing offers and federal procurement rules while under pressure to give President Trump something to announce.
The story goes on to quote both GM and Ventec as saying that the project is moving quickly. The New York Times says the government hasn’t been clear about who would get paid to build the ventilators, or how many ventilators are needed.
4th Gear: PSA-FCA Merger Is Not In Jeopardy According to PSA
With the coronavirus pandemic causing worldwide uncertainty, many plans made just a few months ago have had to change. But the FCA-PSA merger, which we learned about in October, is apparently not one of them, according to Automotive News’ story “PSA denies FCA merger at risk from virus fallout.” That said, terms of the dealings may be a bit more complicated now. From the article:
The coronavirus fallout has called into question the financial terms of the merger, sources who are working on the transaction told the Paris-based Agence France-Presse news agency. The terms of the deal, which has been described as a merger of equals by both companies, might need to be reviewed, the French financial daily Les Echos said.
[...]
PSA said in a statement that in the context of the coronavirus crisis, it would be “inappropriate to be speculating about modifications of the deal conditions. We are completely focused on protecting our employees and our company.”
PSA added: “We are taking the necessary decisions to ensure group sustainability. More than ever, this merger makes sense. Our teams continue to work with the same commitment.”
The story notes the share price changes for each company, writing:
FCA’s share price has fallen from around 15 euros at the end of last October, when the proposed merger was announced, to less than 7 euros on Thursday, for a market capitalization of about 10.5 billion euros.
PSA shares have fallen from around 23 euros at the end of October to around 12 euros on Thursday, for a market capitalization of 11.2 billion euros. Faurecia’s market capitalization has shrunk by a third.
So, while PSA may still be committed to the merger, it will be interesting to see how the actual details are affected by all of this.
5th Gear: UAW Offers To Meet With The Feds To Prevent A Government Takeover Of The Union
The United Auto Workers Union has been the subject of a federal investigation for quite a while now, with officials charged with embezzlement and outed as participants corrupt schemes that involved using membership dues to buy lavish, over-the-top luxury goods.
Amid this, there’s been quite a bit of talk about the government taking over this union to whip it into shape, but UAW president Rory Gamble is trying to avoid this, announcing on Wednesday plans to meet with the feds to talk about UAW ethics changes. The Detroit News describes what’s going on:
The Detroit News has learned the UAW has hired a prominent New York law firm, Cleary Gottlieb Steen & Hamilton, to provide what the UAW described in a statement as “technical assistance with our ethics and compliance reform efforts” to root out corruption within one of the nation’s most prominent unions.
The offer is the first time a sitting UAW president has agreed to meet with the head of the Detroit-based U.S. Attorney’s Office to discuss potential reforms amid an investigation that has led to criminal charges against Gamble’s predecessor, former President Gary Jones, implicated past President Dennis Williams and convicted two former vice presidents.
Legal experts view Gamble’s offer, and the hiring of the New York law firm, as a belated attempt to reform the UAW and to avert a possible Justice Department move to seize control of the union through a civil racketeering lawsuit. Gamble’s agreement to meet with investigators carries risks considering federal agents are probing ties between Gamble and one of the union’s highest-paid vendors as well as whether labor leaders received bribes.
The DN says this meeting is a reply to criticism by Attorney Matthew Schneider, who has some reforms he wants the UAW to put into place. From the Detroit News:
“What this shows is the UAW thinks that their best shot of surviving without being taken over is to cooperate and not stonewall,” said Erik Gordon, a University of Michigan business professor.
The purpose of the meeting would be to address long-standing corruption within the UAW, Schneider said. One possible reform: amending the UAW constitution to enable members to directly elect leaders, a system imposed during the government takeover of the International Brotherhood of Teamsters.
Reverse: 1939: NASCAR Legend Cale Yarborough Is Born
From Encyclopedia Britannica:
Cale Yarborough, byname of William Caleb Yarborough, (born March 27, 1939, Timmonsville, South Carolina, U.S.), American stock-car racing driver who was the first to win the National Association for Stock Car Auto Racing (NASCAR) championship three consecutive years.
Yarborough began driving stock cars in the early 1960s, and in 1968 he won four NASCAR races, including the Daytona 500 and the Atlanta 500, the former of which he also won in 1977, 1983, and 1984 and the latter of which he also won in 1967, 1974, and 1981. After unsuccessfully driving United States Automobile Club (USAC) championship cars (1971–72), he won his first NASCAR championship in 1976, repeating in 1977 and 1978. In 1977 he was the first NASCAR driver to start and finish 30 of 30 races. Yarborough retired in 1988. His autobiography, Cale: The Hazardous Life and Times of America’s Greatest Stock Car Driver (cowritten with William Neely), appeared in 1986. Yarborough was inducted into the International Motorsports Hall of Fame in 1993 and the NASCAR Hall of Fame in 2012.
Neutral: What’s The Best Way For Automakers To Handle This Mess?
We’ve got FCA laying off contract workers, GM doing a 20 percent pay deferment for salaried employees, Ford also doing salary deferments, Daimler (and, let’s be honest, everyone) trying to borrow billions—what’s the best way for the auto industry to deal with the coronavirus and the financial strain associated with production stoppages?