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Why Shares of BorgWarner Are Down Sharply Today

By John Rosevear - Updated Mar 18, 2020 at 2:51PM

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Auto factory closures in North America will hit the company hard.

What happened

Shares of auto parts supplier BorgWarner (BWA 2.10%) were down sharply in trading on Wednesday afternoon, after several major automakers said that they will temporarily shut down their North America factories because of falling sales and workers' concerns about the COVID-19 virus.

As of 3 p.m. EDT, BorgWarner's shares were down about 21% from Tuesday's closing price.

So what

The story here is pretty simple: Several of BorgWarner's biggest customers suddenly won't be needing any parts for at least the next couple of weeks.

Honda Motor (HMC 0.25%) said this morning that it will shut down all of its vehicle assembly plants in North America, as well as several factories that make engines and transmissions, at least from March 23 through March 30. Honda said that it decided to shut down to adjust to an expected drop in demand as consumers stay home in the next few weeks.

BorgWarner's technical center in Warren, Michigan.

Image source: BorgWarner.

Health authorities in the U.S. and Canada have strongly encouraged (and, in some areas, ordered) citizens to stay at home, to slow the spread of the COVID-19 virus.

Honda's announcement was followed by news that General Motors (GM 1.35%) and Ford (F 1.71%) have also decided to shut down after meeting with representatives of the United Auto Workers labor union, which has been pushing for such a move. Ford and GM both plan to shut their North America factories over the next couple of days, with the aim as of now to reopen on March 30.

Fiat Chrysler Automobiles (FCAU) is also expected to shut down its factories in North America, but the company had not yet confirmed its plans as of midafternoon on Wednesday.

Now what

For auto investors, this is a tough one; nothing quite like this has happened before. It's clear that the automakers, and suppliers like BorgWarner, won't be generating much of any revenue in North America for the duration of the factory closures. 

But what happens after? Will the economy bounce back, or will the U.S. find itself in a deep recession for an extended period? It's far too early to tell, and that uncertainty could weigh on the stocks for a while.

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Stocks Mentioned

BorgWarner Inc. Stock Quote
BorgWarner Inc.
$34.07 (2.10%) $0.70
Ford Motor Company Stock Quote
Ford Motor Company
$11.32 (1.71%) $0.19
General Motors Company Stock Quote
General Motors Company
$32.19 (1.35%) $0.43
Honda Motor Co., Ltd. Stock Quote
Honda Motor Co., Ltd.
$24.21 (0.25%) $0.06
Fiat Chrysler Automobiles N.V. Stock Quote
Fiat Chrysler Automobiles N.V.

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