- Morgan Stanley analyst Adam Jonas said that the Detroit Big Three, Tesla, Ferrari, and Harley-Davidson have enough cash on their balance sheets to ride out a severe downturn in the economy.
- But he also wrote in a research note that they can't hold out forever.
- He considered, ominously, that the annual sales pace for autos could fall from 16-17 million to as low as 5-7 million units - an unprecedented modern level.
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Will the COVID-19 coronavirus outbreak hit the US economy for weeks, months, or longer?
That's the question Wall Street is asking about the pandemic's impact on the US auto industry. As I noted this week, the Big Three Detroit automakers - General Motors, Ford, and Fiat Chrysler Automobiles - have enough cash on their balance sheets to ride out a recession, even a severe one. Tesla is a bit iffier, but it, too, has money in the bank after a recent $2 billion capital raise.
But this all assumes a worst-case scenario of annual US auto sales falling to 10-11 million units in 2020 - a Great Recession-level collapse.
Morgan Stanley lead auto analyst Adam Jonas, in a research note published Tuesday, offered a far more dire prospect.
"The US OEMs have stated they each can remain profitable in a [10-11-million] unit US SAAR environment," he wrote. ("SAAR" is "seasonally adjusted annual rate," and for the past five years it's come in at about 17 million.)
"Now may be the time where they prove it," Jonas added. "However, if US SAAR were to fall to say 5 to 7 million units… that would likely lead to significant testing of fortress liquidity."
A drop of that magnitude in unprecedented in the modern period. In fact, you'd have to go back to the 1940s and World War II, when the Detroit automakers largely quit making cars and became the "arsenal of democracy," to find anything similar, as far as a sales collapse.
Jonas is optimistic that years of booming sales and steady profits in the industry have equipped the Big Three, along with Tesla, Ferrari, and Harley-Davidson, to ride out a severe downturn of moderate length.
But he correctly pointed out that the test the industry's leaders have long anticipated has arrived - and it's potentially more disruptive than anything they could have modeled and planned for.
Get the latest Ford stock price here.