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Published in Manufacturing

Shutdown could delay new vehicle launches, increase pricing pressure

BY Sunday, April 26, 2020 06:15pm

Automakers are delaying or rethinking the timing of new vehicles as production disruptions caused by the global COVID-19 pandemic linger into the spring.

That’s according to industry analysts who say the new coronavirus and widespread stay-at-home orders that shut down auto plants and suppliers worldwide have already affected vehicle launches in 2020 and 2021. 

However, the full scope of the pandemic’s disruption on new models is likely to be felt even more in the coming years, according to Mike Wall, director of automotive analysis in Grand Rapids for IHS Markit.

“When you look at the vehicles launching — especially the back half of next year, going into 2022 and 2023 — everything is on the table,” Wall told MiBiz

The danger to carefully orchestrated programs and schedules grows as the virus outbreak persists. If the industry can snap back fairly quickly after the shutdown, analysts predict future launches could remain on track. However, automakers will certainly be working with significantly less cash flow than planned. 

In the firm’s latest forecast, IHS Markit expects global light vehicle sales to fall 22 percent to 70.3 million units in 2020. U.S. auto sales are expected to fall more than 26 percent to 12.5 million units this year, compared to about 17 million in 2019.

At the moment, Wall expects 14.8 million light vehicles will be sold in 2021, an increase over projections for this year, but still nowhere near forecasts from just weeks ago. 

Vehicle production will reflect decreased demand levels, according to the data. The IHS Markit forecast reflects production shutdowns in North America from mid-March through early May, at a minimum. In those nine weeks, an estimated 2.75 million units will have been lost with the risk of further extensions as the virus continues to affect various regions of the country.

“For those vehicles that the tooling is cut already that are launching this year, we’re not seeing serious jeopardy to the programs themselves,” Wall said. “It’s more or less timing variations.” 

However, OEMs could cancel future redesigns or feature updates to existing models, often known as facelifts or mid-cycle refreshes.

“Every few years, they tweak the front end, the rear, the interior and do a minor facelift,” Wall said. “A lot of those have been put on hold and that’s one way to stave off further spending up front.” 

The North American International Auto Show (NAIAS) in Detroit, one of the industry’s premier annual events, announced last month it was canceling its June 2020 show in light of the pandemic and FEMA’s plans to repurpose its venue into a temporary coronavirus field hospital. 

Automakers usually debut new vehicles at the show, which was permanently moved from January to June last year and typically draws hundreds of thousands of people to the Motor City to catch a glimpse of the latest from the industry.

Already, at least 15 vehicle launches have been delayed this year, according to data from LMC Automotive. Eleven launches scheduled for the second half of 2020 are at high risk of delay and 22 additional new models could shift into next year. Four launches have already been delayed from 2020 to 2021, according to the data. 

As the effects of the pandemic continue to take shape, the crisis is already rippling through the automotive industry’s complex supply chain. 

“Right now, we’re seeing some delays but not cancellations,” said Kevin Clay, CEO of Grand Rapids-based automotive supplier Pridgeon & Clay Inc. “The delays are what youwould think would be commensurate with the amount of time that we’ve all taken off work.” 

The uncertainty of when production will restart this year and questions about the length of the recession after the crisis will lead to changes in whether automakers will stay on schedule with launches that are currently targeted for the middle of the decade, according to Laurie Harbour, CEO of Harbour Results

Automakers will be forced to prioritize their investments and trucks, SUVs and crossovers will continue to offer higher profitability per unit than sedans — making it probable that companies will continue to bet overwhelmingly on those segments, according to Harbour. 

“Because of the financial impact that these companies are going to go through this calendar year, OEMs are going to have to pick and choose which programs make sense for them to launch,” Harbour told MiBiz. “I think that profitability or lack thereof is going to impact future launches.” 

Harbour predicts that it could take the industry “a good two years” to recover from the crisis caused by COVID-19. That means auto suppliers in West Michigan are going to face a more competitive environment in the coming months, as OEMs finalize their plans for the next generation of vehicles. 

“It’s not that there isn’t going to be any demand — it’s just going to be less,” Harbour said. “So, it’s going to be a real fight for price.”

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