May Marks A "Make It Or Break It" Month For US Auto Suppliers

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by Tyler Durden
Monday, Apr 13, 2020 - 06:30 AM

As we have highlighted over the past month, the U.S. auto industry is at a standstill as a result of the coronavirus pandemic and ensuing global lockdowns.

With the industry shut down, it is becoming a race against time for many auto suppliers. And May looks like crunch time, according to Reuters.

Kevin Clay, president and third-generation owner of Grand Rapids, Michigan-based Pridgeon & Clay, which supplies stamped steel and stainless steel parts to automakers and which has annual revenue of close to $350 million joked: “I had the audacity or stupidity to say in January ‘I can’t imagine what could happen this year that could slow us down.’”

Now, one of his company's two plants is idled and the other has a bare bones staff. Clay is in the process of restructuring his business and doing everything he can to stay afloat. He continued: “If we weren’t working on special deals with our suppliers, with our customers and with our banks, then the music would stop for us some time in mid-May, as it will for virtually everybody.”

Bob Roth, CEO of RoMan Manufacturing/Reuters

May is when the "cash backlog runs out unless automakers are able to restart assembly lines," according to executives in the industry. Fiat and Honda said this week they are looking to restart by May. Tesla also said it is targeting May 4 to resume production.

Steve Wybo, a senior managing director at consultant Conway MacKenzie said: “If the auto industry starts back up in early May, most suppliers should be able to turn the lights back on. But the longer the shutdown lasts, the harder it will be for them to get the lights on.”

One tailwind has been that automakers are going into 2020 with slightly better financials than the 2008 crash. Laurie Harbour, CEO of Harbour Results Inc, a manufacturing consulting firm, said: “If you weren’t strong going into 2020, your challenges are going to be significant for the balance of the year to get yourself back up to speed.”

Bob Roth, co-owner and CEO of RoMan Manufacturing, said keeping his automotive transformer business open was a challenge. He said he had to raise pay to keep his workers by $7 per hour to compete against unemployment benefits. Thanks, government!

Roth commented: “We’re willing to take the margin hit now to keep the business moving forward. But at some point in time, we won’t be able to support higher wages or healthcare benefits for people who aren’t working.”

Recall, about a week ago, we highlighted a dramatic dropoff in U.S. auto sales.

Numbers out of major automakers last week confirmed a worst case scenario: that the global pandemic is doing severe (and potentially irreversible) damage to an industry that was in ugly shape even before the coronavirus outbreak began.

GM saw sales plunge 7.1% and Fiat saw sales drop 10% for the first quarter of 2020, both larger than expected declines. 

Toyota's sales fell 37% in March, with even its best-selling RAV4 dropping 25%. Nissan had the weakest quarterly results, posting a 30% drop in sales for the first three months of the year. More than 25% of Nissan's dealers are being negatively affected by state ordinances limiting sales.