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Why Shares of the Detroit Automakers Are Getting Hammered Today

By John Rosevear - Mar 16, 2020 at 12:17PM

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Investors hate uncertainty, and things are very uncertain right now.

What happened

Shares of the three Detroit automakers were all sharply lower on Monday morning, as investors scrambled to come to terms with the likelihood of extended factory shutdowns in North America and Europe.

As of 10:30 a.m. EDT today, shares of General Motors (GM -1.59%) were down about 12.8%, the stock of Ford (F -2.46%) was down about 8.7%, and shares of Fiat Chrysler Automobiles (FCAU) were down about 22% from Friday's closing prices.

The factory's entrance.

Fiat Chrysler's factory in Mirafiori, Italy, is one of eight European plants that are now shut down due to the coronavirus. Image source: Fiat Chrysler Automobiles.

So what

Here's where things stood as of 10:30 a.m. EDT Monday:

  • Fiat Chrysler Automoblies (FCA) said that it has halted production at most of its European factories in a bid to manage supplies at dealers. It said that by freezing production now, it expects to be able to restart promptly as soon as health and market conditions allow.
  • Eight FCA factories are affected: six in Italy, and one each in Serbia and Poland.
  • Parts shortages are a growing factor for all of the automakers. Brembo, an Italian maker of high-performance brakes, said on Friday that it is shutting down its four factories in Italy. Many other suppliers in Europe are expected to follow this week. 
  • Ford, GM, and FCA, together with leaders of the United Auto Workers, said on Sunday that they have formed a task force to coordinate measures to limit the spread of the novel coronavirus at sites in the United States. 
  • Local union leaders are calling on Ford to shut down a factory in Louisville, Kentucky, after a worker self-quarantined with virus symptoms. The factory makes the popular Escape and Lincoln Corsair SUVs.
  • Ford and GM last week instructed most of their white-collar employees to work from home until further notice.

Now what

It's still early to try to predict with any accuracy the effects of likely plant shutdowns on the Detroit automakers. Clearly, all three are in for a very tough first half of 2020, at minimum. But it will take some time for analysts, and the companies themselves, to be able to estimate the costs of responding to the COVID-19 pandemic. 

That said, all three companies have hefty cash reserves, and all should be able to ride out this crisis. For long-term investors, watching and waiting is probably the best strategy for now.

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Stocks Mentioned

Ford Motor Company Stock Quote
Ford Motor Company
F
$11.52 (-2.46%) $0.29
General Motors Company Stock Quote
General Motors Company
GM
$33.45 (-1.59%) $0.54
Fiat Chrysler Automobiles N.V. Stock Quote
Fiat Chrysler Automobiles N.V.
FCAU

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