As people have been sheltering from home for the past weeks, do you believe one of the things they were looking to do was to buy a new car? It is possible because sales in April fell 50% from the previous year according to Cox Automotive, a market researcher.
In an article by Neal E Boudette of the New York Times News Service, auto companies have called back employees to start up the manufacturing industry. While the auto companies are no longer as important as the 1950’s when a GM executive said, “as GM goes so does the American economy.” Nowdays, the auto industry is importand and according to Jim Farley, the chief operating officer of Ford, restarting the entire auto ecosystem is how we restart the economy.
The economy is not a manufacturing based one, but is a service economy – people need to shop for 2/3s of the economy is people buying stuff. The auto plants across the country employ 400,000 employees or 4% of the the economy, however it is important to see the auto plants turning out vehicles.
Production will not bounce back quickly. The revival will unfold over a week or more as dozens of auto plants and hundreds of factories owned by parts suppliers gear up, and start making and shipping products. Remember the car you buy is put together at the auto plant, all the parts are not made at the auto plant. Given the former NAFTA which became the USMCA, the parts come from Mexico, Canada and the US which does mean multiple national, state and local government regulations.
GM said it will start with a single shift, as opposed to 2 or 3 shifts it had been running before the shutdown.
Linking to dividend paying stocks, while dividend paying companies tend to track most scenarios more easily, because they can allocate resources to do so, all companies need time to be flexible. Most companies are not as nimble as they would like to be, because they deal with people and people are not as flexible as companies would like. Ideally when you buy shares in the company, you like to see nimble and flexible companies ready for the challenges ahead.
There are more questions than answers, till the next time – to raising questions.