What happened
Shares of Goodyear Tire & Rubber (GT 0.63%), a manufacturer of tires for automobiles, trucks, and aircraft, among other vehicles, dropped more than 10% early Thursday morning as the automotive industry continues to spiral lower.
So what
To say the automotive industry has been hard hit is becoming an understatement, as you can see in the graph above. Goodyear announced this week it would suspend its Americas and Europe manufacturing through at least April 3 due to COVID-19. Broader negative automotive news continues to weigh on suppliers such as Goodyear, especially considering many major automakers are also closing factories in North America for varied lengths of time.
RBC Capital Markets estimates that COVID-19 and its negative impact could send global auto production and sales 16% and 20% lower in 2020, respectively. In addition, investors have to consider the impact of the decline in discretionary driving as more people refrain from vacations, gatherings, and even traveling back and forth to work. That will lessen the demand for replacement tires.
Image source: Getty Images.
Now what
Investing in (and making sense of) the automotive industry has never been easy, but adding economic and production uncertainty from the novel coronavirus outbreak makes everything that much more difficult in the near term. The ripple effect from social distancing, delayed or suspended vehicle production, a more cautious consumer, and lower customer foot traffic will filter through the entire automotive industry.
And while the impact will likely be significant, history has proved time and again that markets and industries will rebound, and this will likely be no different. Savvy investors would be wise to treat this as an opportunity to scoop up discounted shares of companies that boast strong balance sheets and competitive advantages.
