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Why Shares of the Detroit Automakers Are Down Sharply Again Today

By John Rosevear - Updated Mar 18, 2020 at 10:56AM

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Concerns about crashing sales and potential factory closures are weighing heavily on these stocks.

What happened

Shares of the Detroit automakers were sharply lower on Wednesday morning, as investors began to focus on concerns about plummeting auto sales and the growing list of factory shutdowns in Europe and elsewhere. 

As of 11 a.m. EDT today, shares of Ford Motor Company (F 1.71%), Fiat Chrysler Automobiles (FCAU), and General Motors (GM 1.35%) were down about 10.7%, 12%, and 20.5%, respectively, from Tuesday's closing prices.

Pickup trucks move down the assembly line at Ford's Dearborn Truck Plant in Dearborn, Michigan.

A decision to close U.S. auto factories would be devastating for the automakers, their suppliers, and employees. Image source: Ford Motor Company.

So what

Here are the latest developments that are weighing on auto investors' minds on Wednesday:

  • Following late-night discussions on Tuesday, Ford, GM, Fiat Chrysler (FCA), and the United Auto Workers (UAW) have agreed that U.S. auto factories will stay open for the time being. The automakers will work with UAW union leaders to implement cleaning measures and shift adjustments to help keep workers safe from the COVID-19 virus.
  • Ford said on Tuesday that it will idle several factories in Europe in response to health concerns and to match supply to demand. FCA made a similar announcement on Monday. 
  • Concerns are mounting about General Motors' heavy exposure to the Chinese market. The Chinese government said on Tuesday that it will expel a number of U.S. journalists, the latest in a series of tit-for-tat moves that have created a growing rift between the U.S. and China. GM has by far the largest China operation of the three Detroit automakers.
  • Ford's financing subsidiary, Ford Credit, is offering payment relief to financially strapped customers via a special telephone hotline and website. Ford Credit is also offering customers who buy new Ford vehicles the option of delaying their first payments for 90 days.

Now what

Auto investors are right to be concerned. Remember that automakers book revenue when vehicles are shipped from their factories, not when dealers record sales. Factories that are shut down are incurring costs without generating revenue. 

A decision to shut down U.S. factories would be a heavy blow for all three companies. At minimum, their dividends would almost certainly be cut, and their already-hammered stock prices would take a severe beating.

This will pass, of course. But right now, all we can do is watch and wait. 

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Stocks Mentioned

Ford Motor Company Stock Quote
Ford Motor Company
F
$11.32 (1.71%) $0.19
General Motors Company Stock Quote
General Motors Company
GM
$32.19 (1.35%) $0.43
Fiat Chrysler Automobiles N.V. Stock Quote
Fiat Chrysler Automobiles N.V.
FCAU

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