Mark Fields, Former Ford CEO and TPG Global Advisor, joins Yahoo Finance’s Alexis Christoforous, Brian Sozzi and Heidi Chung to discuss how the automotive industry is faring amid the coronavirus outbreak.
Video Transcript
BRIAN SOZZI: Welcome back to Yahoo Finance Live. And I want to bring in TPG Global senior advisor and former Ford CEO Mark Fields. Mark, long time, no talk. Thanks for taking a few minutes this morning.
We have had, so far this morning, auto sales data in the US. It just has not been good. And as a veteran of that industry, when do you think US auto sales will come back?
We're already getting reports that cars are piling up on dealer lots. Incentives are starting to kick in. Your seeing a lot of the marketing switch to very 0% financing. When does the auto industry kick back into gear?
MARK FIELDS: Well, as you said, you're going to see some ugly industry numbers today. And that's really due to the lockdown and the stay-at-home orders that are in place around the world. You know, dealers have seen significant fall-offs in traffic in the second half of the month.
But to your question, you know, this really all comes down to consumer confidence. And at the end of the day, consumer confidence is not going to be rebuilt until there's very clear and unmistakable evidence that we've kind of turned the tide on the virus, along with making sure that there's continued financial support from the government. So until that kind of happens, I think you're going to see consumer confidence, to use an automotive term, to be in a little bit of windfall mode until that happens.
ALEXIS CHRISTOFOROUS: You know, Mark, would you say that, right now, the biggest problem facing the auto industry is actually not the supply chain? We see China coming back online to a large degree. But is the bigger problem consumer demand, not just here, but globally?
MARK FIELDS: You're exactly right. This-- listen, there's still supply chain issues. But at the end of the day, this is around consumer demand. And it gets back to my comment on consumer confidence.
And that's why you're seeing the OEMs take down their plants. First and foremost, it's to protect the employees. But secondly, if they have no demand and no visibility on the market, there's no sense in building inventory that is only going to sit at dealers' lots and put more financial pressure on dealers.
So this is really around, you know, what is the true demand? Now, there are still going to be some supply chain issues. For example, when the plants come back, it's going to be really important for the industry to all come back at the same time.
Because you know, the supply base, which, you know, supplies the very important parts for the OEMs, if they have interruptions because of sporadic COVID infections, that brings their plants down, which will ultimately bring down the OEM's plants. And that's why, as you think about the changed world, when we get to a post-COVID world, you know, OEMs are going to have to carry more cash, because they're going to have to carry more inventory, that just-in-time inventory. They're going to need buffer and safety stocks for those downtimes that might happen at certain plants.
And then, secondly, it's things like shift changes. They're going to take-- what used to be 15 minutes may take an hour because of the distancing protocols. So everybody in the automotive supply chain, including the OEMs, are going to have to keep very focused on liquidity.
BRIAN SOZZI: You know, Mark, you led operations at Ford, I believe, before you became CEO there. You know, how hard is it to make ventilators inside of car manufacturing plants? We're seeing GM try to do it. I believe Ford said they'll have ventilators starting to hit the market in June. But it's not like you flip a switch and you can make ventilators running down a car manufacturing line.
MARK FIELDS: That's correct. Well, first off, I think it really shows the expertise and the goodwill from the OEMs to say, listen. You know, in Ford's case, it's going from "quality is job one" to "saving lives is job one." And you're exactly right. This is not about just flicking a switch and turning an automotive assembly line into producing ventilators.
But the expertise that the OEMs and the automakers bring, in terms of [INAUDIBLE], engineering, and production, working with manufacturers like GE and others who really know how to, you know, design these ventilators, the OEMs are really good at scale and building at scale. And that's why, at their parts plants, like in Ford's case, in Rawsonville, they're going to be using that smaller plant to make these makeshift lines and get that scale and get those volumes of ventilators out to patients that need them right away.
ALEXIS CHRISTOFOROUS: Mark, talk to us a little bit about how the automakers are doing today versus 2008 during the Great Recession. We know, back then, they had to get a bailout. GM-- a bailout from the government. Are they better positioned to weather this coronavirus storm than they were during the financial crisis of '08? Albeit these are two very, very different situations. But how is the overall health of the auto industry now compared to that?
MARK FIELDS: Well, the overall health of the auto industry is much, much healthier than it was back in the Great Recession. The liquidity that both, you know, GM and Ford have range from, I think, $35 or $36 billion. That's good enough to-- you know, assuming a $5 billion burn rate every month, that's, you know, five or six months that they can run without having actually any production.
It was very different back in '08 and '09. Even the supply base-- the tier one suppliers, who are the biggest suppliers that support the automakers-- they're in much better financial shape, much better contracts with the OEMs. That being said, this is all about liquidity.
Because there's no visibility of demand, going forward. We don't know when the consumer's going to come back. And that's why they're taking all these actions of cutting discretionary costs, cutting compensation. They're going to have to move back some new product launches, if, for any other reasons, the engineers can't be testing and prototyping.
In addition, the government can't be approving things like EPA labels. So those things will be pushed out. But they're in much better shape. But every month that goes by where they're not producing, it causes more stress throughout the entire supply base. And that's why liquidity is so important up and down that chain.
BRIAN SOZZI: Mark, you led the charge at Ford-- to me, it feels like yesterday-- with mobility-- electric cars, mobility, autonomous driving. But as we stand here today, the auto industry is pretty much shut down. You have oil hovering around $20 a barrel. Gas prices have plunged below a dollar in some parts of the country. Has the electric car movement and the mobility movement-- I'll add Uber and Lyft. Has that been set back, let's say, 10 years?
MARK FIELDS: Well, I won't give a time frame of how much it's been set back, but, obviously, it's been set back. In the case of autonomy, listen. There's no sense, if you're an automaker, to be spending at the same pace on the autonomous future when your number one priority is surviving the non-autonomous present.
So those investments will be slowing down. Because the payoff for that is much further down the road. In the case of electrified vehicles, this is going to be another casualty, if you will, of COVID, in which an environment where you're going to have consumer purchasing power severely impacted and the fact that electric cars are still viewed as luxury items, because they're more expensive than internal combustion engines-- clearly, consumers are going to be very economically focused. And therefore, moving to that mass adoption of electrification is going to move out.
Plus, as you said, in some cases, a gallon of gas is cheaper than a gallon of water. And that crossover-- that cost crossover line that we always talked about-- has now-- between ice engines and electrification, has absolutely moved to the right. We just don't know how much to the right. That's going to depend on how we get a handle on this virus and bringing consumer confidence back.
BRIAN SOZZI: You know, Mark, so now you're at TPG Global. You're a senior advisor there, working with a lot of industrial companies. What are they telling you?
MARK FIELDS: Well, what we're doing right-- what we're seeing right now across the board in the companies that I'm involved in is a lot of pressure in the marketplace. But it depends. I work with a great company by the name of Transplace. The CEO there is a guy by the name of Frank McGuigan.
They do transportation management services. And they basically do logistics for a lot of the top 100 firms in the country-- Fortune 100 firms. And what we're seeing is a little bit of a barbell effect-- discretionary, you know, furniture makers, things of that nature, that demand is way down. Consumer products companies, the demand is way up.
But overall, what we're seeing is a big slowdown across the board, across all the companies that we have. And like every other company, we are working with our CEOs to address costs, to make sure we're as efficient as possible, to make sure we have as much liquidity as possible. Because that visibility of revenue going forward is very unsure right now.
BRIAN SOZZI: All right, let's leave it there. TPG Global senior advisor and former Ford CEO Mark Fields, good to see you again. We appreciate the time.