May 26, 2020 (IAM Newswire via COMTEX) -- Tesla's /zigman2/quotes/203558040/composite TSLA +0.20% CEO sued Alameda County for further pursuing the lockdown as it threatened to move its headquarter plant to another state and ended up restarting its California plant regardless. European carmakers were the first to go back into action with German /zigman2/quotes/204431732/delayed VWAGY +2.49% , Mercedes Benz and Bayerische Motoren Werke Aktiengesellschaft /zigman2/quotes/200850296/delayed BMWYY -0.21% capitalizing on Germany's ability to contain the spread of COVID-19. They were soon followed by their US peers General Motors /zigman2/quotes/205226835/composite GM +0.58% , Ford Motor /zigman2/quotes/208911460/composite F -0.09% and Fiat Chrysler Automobiles N.V. who already have the 2008 crisis behind them. GM surely knew better this time as it now has a strong balance sheet to rely on and even managed to deliver a stronger than anticipated quarter profit as opposed to its Detroit peers which delivered losses.
Moreover, despite speculations that some terms of the deal might be renegotiated due to the pandemic, both parties remained committed to creating the world's fourth largest automaker under a 50-50 merger deal that has been set in stone. But despite restarting, things are far from normal.
A heavy blow
The pandemic has hit the automotive industry hard. From 2.62 million units in February, US car production in March dropped to 1.7 million with European output down by at least 1.2 million vehicles by late April. The WTO estimated that US auto sales were almost 40% off the pace in March. In China, vehicle sales fell as much as 80% in February. And most importantly, projections for the remainder of the year are just as grim. For the year, Meticulous Research predicts a 12-15% drop in global sales which will end up being a $5.7 billion impact on the already troubled auto industry.
A bright spot- the specialized equipment market
AutoZone /zigman2/quotes/209114484/composite AZO -1.54% reported third quarter earnings today with stock surging after both its profit and sales beating expectations and the stimulus check providing a sales boost. With net sales of $2.8 billion for its third quarter that ended on May 9, 2020, the company's strong balance sheet along with a substantial free cash flow is showing significant financial flexibility. Net income did fall from $405.9 million in the same period last year to $342.9 million resulting in $14.39 a share, but the negative impact of the pandemic turned positive in the last four weeks as the stimulus checks made their way into the economy.
The challenge of a mature industry persists
The complexity of their supply chains as thousands of parts come from a rainbow of suppliers all over the globe is what made automakers perfectly exposed to the pandemic in the first place. We know about the big fish but it is unclear how many small firms managed to survive the storm that isn't over just yet. And despite being small, the loss of a few of important manufacturers can still paralyze production. Moreover, despite restarting, US is bound to be hampered by the ongoing lockdown in Mexico, its major supplier of parts. Pessimists warn that it could take months for the supply chain to be fully functional again. And let's not forget that the industry was struggling even before the pandemic hitting its ecosystem due to a slow transition to electric vehicles along with changes in production that now requires adoption of new technologies such as AI. Whichever prognosis you opt for, skies ahead are everything but clear.
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