Royal Oak — Auto sales are “booming” for dealer Walt Tutak at Matthews-Hargreaves Chevrolet after he shut his showroom for eight weeks to help stop the spread of the coronavirus.
The dealership reopened May 18, the same week General Motors Co. progressively started to reopen its North American plants. While inventory levels are solid right now, he says, that could change in two or three months since it will take time for auto plants to get back up to their full production levels.
“It will take a while for the factories and the suppliers to get momentum going again,” Tutak said. “There could be a shortage in a couple of months. There’s definitely a strong recovery … both in new and used cars.”
The auto industry, a major economic driver and jobs machine in the Midwest, is cranking up. It took weeks of developing a restart plan to protect employees while battling potential supply chain interruptions, losing billions in revenue and profit and jumping into action to make medical supplies for the fight against the coronavirus. But Chevrolet Silverados, Rams and Ford F-150s are rolling down assembly lines once again.
Their foreign competitors also have restarted lines. Getting three-shift plants back to their normal schedule signifies the demand is returning, and it’s time to start cranking out inventory before competitors seize the chance to steal customers.
“They do not want to be in a position to give away sales to their competitors because they don’t have the inventory,” said Jessica Caldwell, executive director of insights for market researcher Edmunds. “That is the worst position to be in especially for the truck market because the margins are so high.”
Truck inventory across companies is well below 2019 levels, according to Edmunds. Days supply at the end of May for full-size pickups was at 58.3 days compared to 88.4 in 2019. For mid-size trucks, it was 33.4 days compared to 66.1.
Doug North, president of the North Brothers Ford dealership in Westland, is worried about running out of F-150s and Explorers next month, as demand for trucks and SUVs has remained steady since May: “If we have a good June and July, with regard to Ford stores in southeast Michigan, we’ll be thin on a couple of product lines.”
GM doesn’t see demand falling this year on the truck side, said Phil Kienle, vice president of GM North America manufacturing and labor relations. In the first quarter, Chevrolet Silverado sales jumped 26% to their highest level in at least the last five quarters, according to Cox Automotive. GMC Sierra sales were up 31%.
“We are running where there’s demand for sure,” he told The Detroit News. “The trucks have been strong all year and continue to be strong, so we definitely want to supply that demand.”
There have been hiccups as auto plants restarted and implemented extensive — and unprecedented — protocols to guard against COVID-19 infection. Some plants had to be shut down for cleaning when cases were caught. GM had to delay the addition of shifts at truck plants because some of its Mexico-based suppliers weren’t yet up and running.
Step one in the restart has been ensuring that workers feel safe in the plants, that they follow strict health and safety guidelines, and then making sure the supply base can accelerate production in tune with the automakers.
“Obviously, getting all of our plants back as fast soon as possible is what we want to do but not at the detriment of our employees,” Kienle said. “In a perfect world, we would be up day one all three shifts, but that’s just not our reality. I think we brought them back in a controlled fashion and safe fashion as best we could.”
Irene Santangelo’s lease expired on her Chevrolet Equinox on May 23. “But because of COVID,” she wasn’t able to look for another car until she came out to Matthews-Hargreaves Chevrolet on Friday. It felt “wonderful,” she said, to be out and about shopping again.
“I’ve been frustrated for three months that I couldn’t go out of the house,” said the Madison Heights resident, who’s weighing another Equinox or a red Blazer. “I love the new Blazer.”
Last week when showrooms opened, there was an increased level of comfort among customers, said Adam Thayer, general manager of Ralph Thayer Automotive in Livonia which owns dealerships for Volkswagen AG, Mazda Motor Corp., and Hyundai Motor Co.
“The end of the month turned out really well, so we’re really excited for June,” said Thayer, adding that May sales were about 35% of the normal level, which was up from 8% in April. He thinks business in June could be up to 90% of what is typical.
Customers seem to be coming for various reasons — not just because accidents had totaled their vehicles or their leases had expired. But inventory still remains high with a healthy mix for his dealerships, Thayer said.
Ample inventories, however, depend on the automaker, said Jim Walen, owner of dealerships for Hyundai and Chrysler, Dodge, Jeep and Ram in Seattle. He told “a tale of two franchises.”
“We were very aggressive to take inventory” with Hyundai, he said. “We’re stocked in order to sell over the next few months.”
That’s not so much the case with Fiat Chrysler vehicles. Walen estimates he only has up to a 90-day supply of vehicles with the automaker telling dealers last week that production ramp-up is facing challenges from suppliers.
“We can’t be super picky on the vehicles and how we want them configured,” he said. “It’s ‘take-what-we-can-get’ kind of thing. Hot sellers are going to be in short supply.”
In Washington, Walen’s dealerships were able to open May 5 with limits. Business was down only about 20% for the month from the typical 275 vehicles he sells. Fully online sales represented about 20% of those sales.
Yet he still thinks the virus outbreak, protests continuing in the city and companies laying off and furloughing workers is affecting business even as he sees the results of pent-up demand.
“There’s a lot of buyers that just aren’t out there,” he said. “They’re not working, so they’re not changing into a different car. That’s a good chunk of people who don’t qualify for loans because they’re unemployed and are collecting unemployment checks.”
The companies had rolled out generous incentives to attract customers. They are starting to roll those back, dealers say.
“This is my opinion: Manufacturers had a knee-jerk reaction and tried to move as much as possible,” Walen said. “Hyundai and Chrysler were offering 0% for 84 months. Now it’s 0% for 72. Personally, I think that works. Eighty-four months is too long to pay off a car, but incentives are staying and staying competitive.”
Restarting the Blue Oval has not been without some hiccups. Ford Motor Co. has temporarily stopped production at a handful of plants and assembly lines because employees tested positive for the virus. Ford took that approach in part because the employees worked in areas where they had contact with other workers, said Gary Johnson, Ford’s chief manufacturing and labor affairs officer.
And, as Bloomberg reported last week, the automaker is facing criticism from local unions in Dearborn and Kansas City that the company isn’t doing enough to protect workers.
The automaker also ran into some supply-chain issues due to COVID-19 cases at two component suppliers, Johnson said, “briefly” affecting production at plants in Dearborn and Chicago.
All four of Ford’s complexes in Mexico are now online. Within the coming weeks, those plants are expected to ramp up to full capacity.
Capacity is being added at U.S. plants, too, including at those building profit-rich products such as pickups. The Louisville Assembly Plant, where the Ford Escape and Lincoln Corsair SUVs are produced, now is running on two shifts. The automaker’s operations in Kansas City are back to two shifts, too.
“Over the next few weeks as we stabilize and see the demand and see what comes out of Mexico, we’ll add third shifts or additional overtime if it’s a two-plant operation,” Johnson said. “As we look at our schedule, we want to make sure the Mexico supply base is stable.”
Scott Garberding, Fiat Chrysler Automobiles NV’s global chief manufacturing officer, has been in the auto industry for 27 years. He was working for Chrysler during the 2009 bankruptcy as the head of purchasing, and he remembers “a lot of work” was required to put the supply base back together.
“But we didn’t have to then think through how to build cars in a totally different environment,” he said. “In this new environment, there’s been a tremendous amount of interaction with medical professionals, with the government and a lot of interaction with” the United Auto Workers.
All of the communication is centered on one goal: putting measures in place to keep people in the plants safe, to prevent any spread and to continue production without compromising the health and safety of hourly and salaried employees alike.
“For all of us, it’s completely unprecedented,” Garberding said. “I was in one of the plants recently and I said: ‘Look three months ago none of us would have ever imagined we would be here wearing surgical masks.'”
All three of Detroit’s automakers have implemented stringent health and safety protocols, which they developed with one another and the UAW. There have been numerous reports of the protocols catching employees who may have been exposed to the virus or who are experiencing symptoms, and either preventing them from coming into plants or sending them home.
The incidents, in some cases, have led to temporary line shutdowns so the automakers can disinfect work areas. GM, Ford and FCA all have systems in place to refer employees who may be infected for testing but do not have the capacity to test everyone.
“Ultimately, the UAW would like to see robust increased testing as it becomes available and a medical antidote to this deadly disease,” UAW spokesman Brian Rothenberg said in a statement. “Until then, we continue to push for enhancements and adherence to the best protocols that are available in real time.”
John Barbosa, a 49-year-old block machining line team leader at Fiat Chrysler’s Dundee Engine plant, says plant managers responded to some workers’ safety concerns when they came back during a pandemic. For example, the workers now receive their masks before entering the plant foyer where there is less ventilation to turn in a screening questionnaire.
“They are affording ample time to clean their stations, for handwashing and sanitizing,” Barbosa said.
But the masks can make the job more difficult, he said: “They hinder your performance a little on the job. Your (safety) glasses fog up, then you can’t see. The warmer it gets in the plant, the worse it is going to get.”
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