Share prices of US carmakers have been in free fall since the beginning of the year. General Motors Company (NYSE: GM) lost 42% of its market value, Ford Motor's (NYSE: F) share price was down 46% and Fiat Chrysler's (NYSE: FCAU) price plunged 46%.
This price development is very similar to European carmakers. Volkswagen (OTC: VWAGY), BMW (OTC: BMWYY), Daimler AG (OTC: DDAIF), Peugeot S.A. (OTC: PUGOY) and Renault SA (OTC: RNLSY) lost 37%, 45%, 53%, 48%, and 65% respectively. In other words, the US stock market expects that Coronavirus will do the same damage to US Carmakers as it did to European carmakers? But will that be the case?
European Automotive Industry Has Been Knocked Down
Coronavirus forced the biggest carmakers in Europe to stop production. PSA Group, Renault and Fiat Chrysler have decided to close 35 manufacturing plants across the continent. Plants will be closed in Italy, Poland, Serbia, France, Spain, Germany, Portugal, Slovakia and the United Kingdom. Volkswagen, the biggest carmaker in the world (sold approx. 11 million vehicles in 2019) has also announced that it will halt production in its plants in Europe. Those 4 companies sell together approx. 23 million cars per year (1,3 times more vehicles than all carmakers sell in the USA).
Reasons to close factories are mostly driven by reduced market demand, problems with distribution channels, self-quarantines and workers' refusals to work due to health concerns. According to the latest results, Europe is the epicenter of COVID-19 with more than 184,976 cases all over the continent and with more than 7.500 deaths so far. Coronavirus is spreading very fast. If we compare currently active cases in Italy, Spain, Germany and France with just a week ago, the total number of infected people in those countries is up more than 400%.
In such a condition it is almost impossible to run a business. The only solution is to pause production for a while. Consequently, share prices of all European producers were in free fall losing in extreme cases as much as 65% of its values since the beginning of this year.
What About US Carmakers' Share Prices?
Currently, Coronavirus didn't hit US automakers the same way it has hit producers in Europe and China. Factories are still working. The current number of active cases in the USA is approx. 13,5x times lower than in Europe. On March 16th, the total number of newly infected people was 30 times lower than in Europe (100 vs. 3.000 for the same date).
But share prices of US carmakers dropped almost as much as those of its European counterparts. Even though US automakers sell most of its cars in North America, they do sell approximately 15% of their portfolio in Europe.
Questions Are Why And How?
Just a week ago, on March 9th, the number of active cases in the USA was much lower, "only" 663 people specifically. In other words, the number of infected people increased by almost 700%. On March 6th, Italy had approximately 4,000 active cases. Ten days later, that number jumped to 23,000. Those trends surely explain why the market expects the European scenarios to occur in the USA as well. In the next 10 days, we will see if this will be the case. Hopefully not.
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