US production volumes still subject to uncertainty in H2 2020: LMC
Special to The Auto Channel
From LMC Auto
An old boss would often tell me that “chance favours the prepared mind”. I had no idea at the time that it was a famous quote from Louis Pasteur, but it was framed in the context that preparing for the unknown and for the possible outcomes of the task at hand dramatically improved the likelihood of success.
It seems that since the coronavirus has hit the US, we have all earned a PhD in preparing for the unknown in both our personal and professional lives. And we are being challenged once again. According to the COVID Tracking Project, recent figures show that deaths from the virus exceeded 1,000 for five consecutive days for the first time since May. And with the case count continuing to surge across the US, more than 4.6 million people have been infected with the virus, according to the CDC.
Looking back to the initial surge of the virus, social distancing and lockdown measures cost US Light Vehicle production an estimated 1.8 million units as plants across the country were idled. While there are protocols now in place to help reduce risks at vehicle assembly plants and in the supply chain, the risk of further interruptions remains high.
But what would the impact of a second wave of lockdowns look like?
Given the level of uncertainty as to whether, when, where or to what extent a plant may have to shut down because of another coronavirus outbreak, trying to predict COVID-19-related closures in the second half of the year is a fruitless endeavour. The best way we have of estimating the potential impact, as situations arise, is to look at the likely volume of production for the remainder of the year.
Factoring in projected regional and export demand, along with inventory replenishment, we expect US automakers to produce nearly 40,000 vehicles daily in the second half of 2020. Based on an average plant working week of 5.5 days, a halt of all US production for a week would cost the industry about 220,000 vehicles. In the case of a localised outbreak, with only 20% of the plants suspended, then we would lose roughly 45,000 units of production in that same week.
With fluctuations in the number of working days, however, not all months are created equal. In short, the impact of a shutdown would depend upon its timing – from a volume standpoint, a closure in the month of October would be worse than in September, for example.
Not all plants are created equal either. The suspension of Ford’s Kentucky Truck plant, which churns out around 1,400 Ford Super Duties, Expeditions and Lincoln Navigators on a daily basis, would have a far greater impact than if production were to be halted at GM’s Orion plant, which builds the Chevrolet Bolt and soon-to-be-discontinued Sonic at a rate of around 250 units a day.
To be clear, we do not currently anticipate any excess downtime due to the pandemic, but there is no denying that the risk remains. Not only that but the economic fallout could surpass our current estimates, which would, in turn, have negative consequences for new vehicle sales and production, adding a further layer of risk to the situation.
So, harking back to my old boss’s advice, the key is to be prepared. Either that or take your chances.