Automakers down, suppliers next: the impact of coronavirus
Detroit — With domestic and foreign automakers closing down facilities across North America amid the spreading coronavirus, auto suppliers are reviewing how to react —and when to shut down.
Honda Motor Co., Toyota Motor Corp., Volkswagen AG, Subaru, Nissan Motor Co., Hyundai Motor Co. and Tesla Inc. have all announced temporary suspension of production. The Detroit Three said Wednesday they would temporarily shut down production at North American plants through March 30 and then re-evaluate how to move forward.
The Detroit Three's move was driven by the United Auto Workers and their members, who increasingly worried about contracting the virus as cases were confirmed at various facilities.
"I’m a little disappointed they haven't taken action to shut down sooner, but it's good news that they are going ahead with the quarantine," said Daniel Rider, a 47-year-old machinist at General Motors Co.'s Romulus Engine Plant, adding he was told his last shift starts Friday. "A lot of people are concerned that they could have sick kids or sick parents. There's been a lot of stress at the job lately. It'll be a relief."
But not all UAW members employed by Detroit's automakers are currently preparing for a shutdown: GM, Ford Motor Co. and Fiat Chrysler Automobiles NV are still running their parts warehousing centers to keep dealers and customers supplied with parts.
"I want to be safe," said Bill Bagwell, shop chairman at the GM's customer care and after-sales plant in Ypsilanti, a part of UAW Local 174. "I want my members to be safe. My workforce is scared like I am. We are scared of getting infected and we can't control that if we are going back and forth to work. Are bumpers and grilles that necessary?"
UAW members affected by the production shutdowns will be eligible to receive up to 88% of their current pay, thanks to a combination of "SUB" — supplemental unemployment benefits — and state unemployment benefits, according to the union.
But that won't be the case for non-UAW employees at supplier plants. On Wednesday, The Detroit News reported Michigan Unemployment Insurance Agency is currently experiencing an average 550% increase in claims compared to normally anticipated activity this time of year.
Unemployment requests in this state will likely continue to increase as suppliers connected to plants across Michigan shut down. And while large tier-one suppliers will take a hit, it's the second- and third-tier suppliers where this situation can become "absolutely disruptive," said Matteo Fini, executive director of supplier solutions for IHS Markit.
So much so that they could succumb to the lost business, which is what happened during the financial crisis when hundreds were lost, Fini said: "If this lasts a couple of months, perhaps the impact is not as bad."
But if continues to last, "for some of those smaller suppliers, this will mean cash flow problems because all of the sudden you don’t have orders to fulfill." But they will still have the costs associated with maintaining factories and paying employees.
"There are of course concerns among the smaller suppliers," Fini said. "The bigger ones — it's not a walk in the park, but it’s not as bad."
Suburban Bolt and Supply of Roseville distributes industrial products to auto suppliers, making it a tier-three supplier. Right now, Suburban Bolt President Eric Peterson is hoping he can keep his 75 employees employed and the doors open at his three locations. He thinks it's "pretty obvious there’s going to be crescendo effect" on suppliers.
"If all of our customers shut down there’s not really going to be a need for us," he said. "We are dedicated to being open for as long as we can with as full of a staff as we can."
The family-owned company opened its doors in 1971 and has been through tough times before. Peterson started working there in September 2007, amid the beginnings of the Great Recession. He said: "It was terrible. That was the first time we had to lay people off."
Peterson is hoping he doesn't have to do that now and he's looking already towards the future when Michigan is rebounding from the virus' impact: "How I look at it is Michigan is ground zero for cutting-edge manufacturing and as long as we are still in that then we are OK. I think we might come roaring back. This is a blip in the road as I am looking at it."
Real gross domestic product, "is the most common measure of the dollar-value of goods and services produced in the country," Michigan State University Economics Professor Charlie Ballard said. "If we are producing less, then GDP is going down."
During the Great Recession, from the second quarter of 2008 to the second quarter of 2009, GDP declined 4%. University of Michigan economists predict that in a prolonged coronavirus fallout scenario, Real GDP will decline 12% this quarter.
"This is unprecedented," Ballard said. "There’s nobody alive who’s ever experienced anything this."
Staff writer Breana Noble contributed