Auto workers’ tenuous return offers ray of hope in jobs crisis

Tens of thousands of US auto workers are returning to factories that have been shuttered since mid-March due to fears of spreading the coronavirus. (AP)
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Updated 16 May 2020

Auto workers’ tenuous return offers ray of hope in jobs crisis

  • US motor industry restarts its engine in bid to get stricken economy back on track

DETROIT: Defying a wave of layoffs that has sent the US job market into its worst catastrophe on record, at least one major industry is making a comeback: Tens of thousands of auto workers are returning to factories that have been shuttered since mid-March due to coronavirus fears.

Until now, it was mostly hair salons, restaurants, tattoo parlors and other small businesses reopening in some parts of the country. The auto industry is among the first major sectors of the economy to restart its engine.

About 133,000 US workers — just over half of the industry’s workforce before the pandemic — are expected to pour back into assembly plants that will open in the coming week, according to estimates. In addition, parts-making companies began cranking this week to get components flowing, adding thousands more workers.

Looming in the background is an economy decimated by the pandemic. Nearly 3 million laid-off US workers applied for unemployment benefits last week, raising the total seeking aid in the past two months to about 36 million. Although some states have begun to let selected businesses reopen, workers are still reporting difficulty getting unemployment benefits. Freelance, gig and self-employed workers are struggling.

Even the auto sector won’t see a full return to normal yet, and if people don’t start buying vehicles again, workers could be sent home. Yet automakers say there’s enough pent-up demand, especially for pickup trucks, to get factories humming again.

That could help states slow the drain on their unemployment benefit funds. In Michigan, where over one-third of the labor force sought benefits, the fund fell from $4.6 billion before the pandemic to $4.1 billion on April 30, said Jeff Donofrio, director of the state Department of Labor and Economic Opportunity. Some returning auto employees could work part-time and get still some unemployment benefits, but federal programs could cover part of their payments, he said.

At Ford, where about 47,000 US factory workers will return by next week, there’s optimism that consumer demand will accompany them. Chief Operating Officer Jim Farley said the company, using data collected from new Ford models from the past two years, is seeing sales recover.

In Europe, China and the US, Ford has found a correlation between the number of trips people take and auto sales, with trips increasing as restrictions eased.

“We started to see in early April a change where people started to take more trips,” Farley said Thursday. “The (sales) decline stopped and our retail sales improved a lot.”

Auto sales in China, where the virus peaked before the US, could be a harbinger of things to come. China sales fell just 2.6 percent in April from a year earlier, compared with a 48 percent free-fall in March. Production at many plants is nearly back to normal after being shut down in January and February. Volkswagen, Honda, Mercedes and Ford reported no virus cases among employees since reopening. Fiat Chrysler had two, but said the workers never entered factories.

Things are worse in Europe, where sales plummeted 55 percent in March and some factories are running at only 40 percent of capacity. The pandemic has affected over 1.1 million European auto industry workers, almost half the sector’s manufacturing jobs. Most are getting paid through government support. A survey of auto parts suppliers shows that a third of executives believe it will take at least two years for the industry to recover.

US sales fell 46 percent in April as the virus took hold, but analysts are forecasting a smaller decline of 30 percent in May. Sales have been juiced by huge incentives, with some automakers offering 0 percent financing for as long as seven years.

Pickup trucks are giving automakers the most hope, said Jeff Schuster, senior vice president at LMC Automotive, a consulting firm. Through April, total auto sales were down 21 percent, but pickups were only off 4 percent, he said.

Yet Schuster says automakers could be a little too optimistic about sales overall. “Those consumers who are still unemployed are not likely to be making auto purchases,” he said.

Some US automakers, like General Motors, are restarting slowly, only bringing back workers on one shift in factories, some of which ran around the clock before the pandemic sent the economy into a tailspin. Others, like Subaru in Indiana, have a full roster of employees.

Although companies are taking precautions, one big virus outbreak at an auto plant could send the industry back into hibernation. And the industry could face parts supply interruptions from Mexico, where the government wants to reopen factories despite rising virus cases.

Automakers in the US are requiring employees to fill out questionnaires daily to see if they have symptoms, taking temperatures with no-touch thermometers before workers enter buildings, and requiring gloves, masks and face shields. They have also tried to keep at least six feet between workers, staggered time between shifts so workers don’t interact, and put up protective barriers when possible.

All the steps were tested on US workers who volunteered to make protective gear and breathing machines while they were laid off. Automakers say they know of no virus cases among workers in the effort.

But Phil Cuthbertson a worker at GM’s transmission plant in Toledo, Ohio, who will return Monday, said he has mixed feelings.

“I just don’t want the whole thing to be pushed on us to go back if it’s not safe,” he said.

Cindy Estrada, United Auto Workers vice president for Fiat Chrysler, said she has been impressed by the companies’ safety commitment. But she is sure some workers, especially in the hard-hit Detroit area, will be fearful because family members or co-workers have had COVID-19.

At least 25 UAW members employed by Detroit automakers have died from the virus, although no one is sure if they caught it at a factory.

The union will be watching in case workers get infected, though there is no magic number for when it will try to close a factory, Estrada said.

“If something looks like it’s becoming a hotspot, then we need to act quickly and make adjustments,” she said. “No one wants to see that happen.”


INTERVIEW: Real estate exec Fabrice Susini confident Saudi Arabia’s coronavirus-hit mortgage demand will return

Updated 31 May 2020

INTERVIEW: Real estate exec Fabrice Susini confident Saudi Arabia’s coronavirus-hit mortgage demand will return

  • "There seems little prospect of a cascade of mortgage defaults as long as the current policy of government support continues," Saudi Real Estate Refinance Company CEO Fabrice Susini tells Arab News

What a difference a pandemic makes. At the turn of 2020, Fabrice Susini, CEO of Saudi Real Estate Refinance Company (SRC), could look back on two years of significant progress toward the provision of affordable home ownership for the Kingdom’s aspirational young population.

Increased property ownership was one of the main aims of the plan to diversify the Saudi economy away from oil dependency, setting a target of 70 percent home ownership by 2030.

It was all going to plan. New mortgage issuance had been “staggering,” Susini said, and SRC had reached its target of facilitating 60 percent home ownership with months to spare.

“It was a very positive story,” he said, allowing him to work on the next phase of Saudi Arabia’s move toward being a home-owning economy — buying more mortgage portfolios from banks and other mortgage originators, injecting more liquidity into the housing market via domestic and international sukuk issuance, and offering new long-term fixed-rate mortgages to potential and actual home owners.

The economic lockdown that took increasing effect from March has changed the figures on which those plans were based. New mortgage applications, which has been running between SR20 million ($5.3 million) to SR50 million per week, dropped into single-digit millions as potential buyers were forced to stay at home rather than go viewing properties and took stock of their spending plans in light of the economic downturn that followed the pandemic outbreak.

“We expect to report a sharp drop for April and May. I would be surprised if the numbers remain the same,” Susini said. “But the fundamentals remain the same. It is still an underserved market, compared with the demands and needs of the young, dynamic population aspiring to home ownership. The process may be slowed by a couple of months, but the demographic is still there. There will be a slowdown but I’m sure a catch-up is coming and the forward movement will resume.”

One reason for his optimism is the action taken by the financial authorities to support the economy in its hour of need, especially the stimulus packages unveiled by the Saudi Arabian Monetary Authority (SAMA) and the Finance Ministry.

“There has been a lot of support coming through for small to medium businesses and private companies, and that will balance and smooth out the process. I don’t see a big hit coming,” he said.

Effective monitoring and control of SAMA liquidity injections would ensure they reached the SME and private sector organizations they are mainly intended to help, he added.

“I’d be very surprised if any significant proportion was not properly channeled to the private sector and SMEs,” he said.


BIO

BORN: Rome, 1964

EDUCATION: 

  • Law degree, Paris X Nanterre University, France
  • Banking and finance degree, Sciences Po, Paris
  • Master’s degree, finance, Dauphine University, Paris
  • MBA, London Business School

CAREER

  • Relationship manager, Societe Generale
  • Analyst, Bayerische Landesbank
  • Global head of securitization, BNP
  • CEO, Saudi Real Estate Refinance Company

The mortgage industry in Saudi Arabia enjoys significant subsidies from the government for its products, and while some of these have been changed in recent week, reducing subsidies to mortgages for military and some civilian personnel, he does not see this as the beginning of a trend to remove subsidies for mortgages in the broader scope of SRC’s business.

“There is no danger to mortgage subsidies that I am aware of. The budget has been carried out, the resources are there. But of course we want to make sure that every riyal of subsidy is used to its most effective extent,” Susini said.

“When we saw the situation was becoming more challenging, the SAMA package was a great help by injecting liquidity into the financial system, but we also wanted to be more proactive ourselves in the relationship we have with our borrowers and our partners. We didn’t just want to wait until people were actually in difficulties before we acted,” he added.

The result was the “forbearance” plan for borrowers, by which SRC asked its mortgage partners to offer a three-month mortgage holiday to those who felt the need, and many took up the offer. “A big majority has gone for it. We see ourselves as a ‘citizen’ company and we do not just want to rely on the authorities. We asked ourselves what we can do in terms of citizenship and public policy initiatives,” Susini said.

There seems little prospect of a cascade of mortgage defaults as long as the current policy of government support continues, and SRC and mortgage originators persist with the policy of showing patience and understanding in difficult economic circumstances.

Nonetheless, prospective home owners are facing big challenges. Not only has the lockdown made the market mechanics of home-buying more difficult, with viewings almost impossible in the light of curfews and travel restrictions, but there is also the question of whether people will hesitate over such a life-changing decision. Will they want to buy a house or apartment while the pandemic continues to rage?

Susini thinks customers will learn to prioritize their financial decisions more carefully. “You might defer the purchase of a new car, but still want to buy a home. You would direct your choice toward those things you regard as more important. Home ownership is probably regarded as more essential,” he said.

The appetite of Saudi citizens for house purchase in the new circumstances will be better judged when SAMA and other financial bodies publish official figures in the near future, he said.

With regard to the overall health of the real estate market, Susini said that he has not seen a significant fall in property prices, but underlines the fact that SRC caters mainly for the affordable segment of the market, where big falls in value are less likely. He noted that apartments have been holding their value “quite well” in comparison with bigger units like townhouses and villas.

In an era when global interest rates are falling toward zero in many parts of the world, there could be an incentive for customers to go for the long-term fixed-rate deals SRC is offering.

“We’re seeing the need for more awareness of the benefits of fixed rates. Borrowers can grasp the benefit of remortgaging at rates that are significantly lower now than they were before. It is a choice for the borrower really. They can either own their home more quickly than before, or maintain their payments on more sensible terms. It can be beneficial for them whether rates are subsidized or not,” he said.

SRC reduced its lending rates for long-term fixed mortgages last month, is first cut this year following two rate reductions in 2019. Borrowers could now take advantage of a 5 percent rate on a 25-year mortgage, Susini said.

SRC is also working hard on the digital space, with online facilitators becoming more crucial to home purchase. The company is in the early stages of a study on fintech and digital mortgage origination, and some initiative could be forthcoming by the summer, he said.

“If you can talk of a silver lining from the current situation, it is that it is accelerating the digitization of financial processes. The payment processes are already quite well developed, but the sale of processes presents more of a challenge. The health ministry has organized some innovative processes around the digital market place, and the justice ministry has done good work on the digital origination of contracts.”

The strategy of including mortgage originators in the SRC set-up will continue, and Susini is holding talks with financial and corporate firms to bring more products under its portfolio. 

SRC is owned by the Public Investment Fund, the Kingdom’s $325 billion sovereign wealth fund, so it has access to finance at the highest level. But under Susini’s stewardship there has also been a willingness to raise money in local markets via domestic sukuk issues. Two have already been launched, and a third is lined up to take place in the summer.

After that, the company will be work on an international bond offering toward the end of the year, though he declined to say how much would be raised.

“We want to ensure we can continue to finance mortgages, to have sufficient tools and channels so that no bank or finance company is stopped from offering mortgages because of issues to do with capital ratios of liquidity,” Susini said.

He viewed recent downgrades by ratings agencies of banks’ creditworthiness or prospects as a “gray cloud” over liquidity.

“We want to be ready so that primary originators of mortgages have all the tools necessary to keep operating regardless of the problems they might face,” he added.