A tornado that damaged a BorgWarner (BWA +0.82%) factory in South Carolina has thrown a wrench into Ford Motor's (F +6.56%) plans to reopen its U.S. factories.
The BorgWarner factory in Seneca, South Carolina, suffered severe damage from a tornado strike on April 13. No workers were injured, as the factory was shut down at the time, but a security guard who had been stationed outside suffered fatal injuries.
The problem for Ford -- and for other automakers, including Fiat Chrysler Automobiles (FCAU +0.00%) and Toyota (TM +1.93%) -- is that the factory was the sole source of an essential part used in some versions of the companies' trucks and truck-based SUVs. As of right now, it's not clear whether BorgWarner (or anyone else) will be able to resume production of the part before the automakers are ready to resume production.
Why this factory is so important to Ford
Here's why this could become a big deal.
BorgWarner's Seneca factory produces a part called a transfer case. It's essentially a gearbox that transfers power from a four-wheel-drive vehicle's transmission to its front and rear axles. The transfer cases made at this factory are used in four-wheel-drive versions of Ford's F-150 and Super Duty pickups, as well as its Ford Explorer and Expedition SUVs, the Ford Transit commercial vans, and the upscale Lincoln Navigator SUV.
(The factory also makes transfer cases for the four-wheel-drive versions of FCA's Ram 1500 and Toyota's Tundra pickups.)
For Ford, this could become a big problem. All of the Fords affected are extremely profitable products, and they're all vehicles that Ford would like to get back into production as soon as it can. If the BorgWarner factory is still out of commission when Ford is preparing to restart production, Ford will likely try to recover the tooling for its transfer cases so that it can set up a temporary production line elsewhere.
Without transfer cases from the damaged BorgWarner plant, Ford will struggle to reopen its pickup-truck assembly lines. Image source: Ford Motor.
Ford is under pressure to get its factories reopened
If BorgWarner -- or somebody -- can't begin production of these transfer cases before Ford opens its own plants, Ford will be in a bind. With most of its factories around the world closed amid the coronavirus pandemic, it's burning a lot of cash -- around $165 million a day.
Ford has enough cash to hold out for months. But it would, understandably, like to get back to making cars and trucks as soon as it's safe to do so.
Ford and the other Detroit automakers have been working with the United Auto Workers (UAW) labor union on a plan to reopen U.S. auto factories, with new safety measures to help keep workers safe from the COVID-19 virus.
Ford has said that it will reopen in steps. But it's a safe bet that Ford's plan will prioritize the factories making its most profitable products -- namely, those pickups, SUVs, and commercial vans.
Where do things stand?
Officially, the companies involved aren't saying much. A BorgWarner spokesperson said that it's working on contingency plans in case it can't reopen the transfer-case plant before its clients need the parts but that it can't yet estimate how long it'll take to get the factory up and running.
Ford would only say that it's working closely with BorgWarner to manage the situation and determine next steps.
As of now, it appears that auto investors will have to wait until the companies' upcoming earnings calls for more complete updates. Ford will report its earnings after the market closes on April 28; BorgWarner will report in the morning on May 6.
