Please ensure Javascript is enabled for purposes of website accessibility

Labor Leaders: U.S. Auto Factories Will Stay Open -- for Now

By John Rosevear - Updated Mar 18, 2020 at 4:07PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

But costly shutdowns are still possible.

The United Auto Workers (UAW) labor union says that it has reached a deal with the Detroit automakers that will keep U.S. auto factories open and running, at least for now.

The statement came after UAW leaders met with executives from General Motors (GM -1.59%), Ford Motor Company (F -2.46%), and Fiat Chrysler Automobiles (FCAU) on Tuesday night. That meeting followed a tense two-day standoff as the UAW demanded a two-week factory shutdown to help protect workers from the COVID-19 virus. 

What the UAW said about auto factory shutdowns

In a statement, the UAW said that Ford, GM, and Fiat Chrysler (FCA) have agreed to new measures that are aligned with current recommendations from the U.S. Centers for Disease Control and Prevention (CDC), which call for social distancing to slow the spread of the virus.

"All three companies have agreed to review and implement the rotating partial shutdown of facilities, extensive deep cleaning of facility and equipment between shifts, extended periods between shifts, and extensive plans to avoid member contact," the union said.

The automakers have also agreed to work with the union's representatives to lobby Congress for relief measures as needed, the union said.

A worker tends to a partially-assembled Ford Explorer SUV on the assembly line at Ford's Chicago Assembly Plant.

Ford's Chicago assembly plant stopped work for several hours Tuesday, after a worker at a supplier's factory was diagnosed with COVID-19. Image source: Ford Motor Company.

Auto factories are already shutting down in Europe

Several automakers, including Ford and FCA, have already announced that they will idle their factories in Europe for at least a couple of weeks in order to keep workers healthy and match vehicle supplies to rapidly falling demand. 

Suppliers are also shutting down, which could force automakers in Europe and North America to suspend production for lack of parts, whether they want to or not. At least one has already done so: Supercar maker Ferrari (RACE -0.15%) had intended to continue production at a reduced pace through the pandemic, but it had to shut down its Italian factories over the weekend after it ran short of key parts. 

Ferrari's move may have been forced by brake supplier Brembo's decision last Friday to idle its four factories for the time being. 

What it means for investors

This is a crucial moment for the automakers. Social-distancing measures are expected to cause a sharp decline in new-vehicle sales for the time being, putting additional pressure on the automakers to idle their factories. 

The Center for Automotive Research estimates that for each seven-day period that consumers stop buying new vehicles in the U.S., the country's economy would lose roughly 94,400 jobs and $7.3 billion in overall earnings. Not all of that will hit Ford, GM, and FCA, but it gives an idea of the scale of the potential losses. 

If the Detroit automakers' U.S. factories shut down for an extended period, the net effect is likely to be similar. As auto investors know, automakers record revenue when vehicles are shipped to dealers; if there are no shipments, there's no revenue.

For investors, a widespread factory shutdown will almost certainly mean dividend cuts and steep drops in stock prices, at the very least. 

History teaches us that things will get better at some point. Auto production will return to normal levels, and the automakers will return to comfortable profitability. But the road from here to there is likely to be a rough one. Auto investors should be ready to hold on tight for the next few months.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Ford Motor Company Stock Quote
Ford Motor Company
$11.52 (-2.46%) $0.29
General Motors Company Stock Quote
General Motors Company
$33.45 (-1.59%) $0.54
Fiat Chrysler Automobiles N.V. Stock Quote
Fiat Chrysler Automobiles N.V.
Ferrari N.V. Stock Quote
Ferrari N.V.
$184.80 (-0.15%) $0.27

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 06/29/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.