To understand how the coronavirus could affect the U.S. auto industry, we must first understand what caused Honda sales in China to drop by 85 percent, Toyota to fall 70 percent, Volkswagen by 91 percent, and GM sales were down 92 percent. There are two primary factors tightly linked by one overriding event: the Chinese government's decision to put much of the Hubei province on lockdown, including the massive capital city of Wuhan. By preventing about 60 million citizens of Wuhan and Hubei province from leaving their homes except to get groceries or medical attention, China created two big problems for the auto industry. First, no one could go out to buy cars, and second, even if there were customers, auto manufacturing plants were shuttered with no one to build the cars.

Hubei, however, is only China's 14th largest province by land mass and 9th by population, so it alone cannot account for the sales drops. Hubei wasn't the only province to experience lockdowns, though. At its peak, at least four provinces (of 26) and nearly 50 cities had imposed some kind of lockdown, including major business hubs such as Beijing, Shanghai, Guangzhou, Shenzhen, and Chengdu.

China isn't the only country on lockdown, either. Earlier this month, the entire country of Italy was placed on lockdown to slow the spread of the virus. While democratic Italy's measures are far less strict than authoritarian China's, it has nonetheless led the country's largest domestic automaker, FCA, to temporarily close three plants in the country which produce roughly 600,000 vehicles annually for both domestic and export markets. Late in the day Friday, Lamborghini announced it would close its factory until March 25 and the Ferrari factory is running at reduced capacity(it would close the following Monday). Meanwhile, the country's largest dealer network has closed until the end of the month.

Lockdowns in America

The same could happen in America if the outbreak gets bad enough. America's first lockdown has been put in place in the New York City suburb of New Rochelle, and serious outbreaks in Washington State and Santa Clara County, California, have raised the possibility of similarly drastic measures. In just the past 48 hours, every major sporting league in America, from the NBA to NASCAR, has either cancelled its season or postponed games or races. Over the weekend, the city of Los Angeles closed all of its bars, movie theaters, performance venues, bowling alleys, gyms, and dine-in restaurants (take-out and delivery excepted).

The auto industry was quick to cancel major events including major auto shows in Geneva and New York. Smaller auto shows in other communities have also been cancelled. Not only is this a financial hit for companies who spent millions in preparations and elaborate stands with their latest vehicles on display, but it will impact future auto sales which the auto shows would have stimulated.

Ford, GM, and FCA have now asked their employees to begin working from home starting Monday, March 16. While no domestic auto factories have closed, a worker at an FCA plant has tested positive for the coronavirus and this person and their closest coworkers have been quarantined. And the FCA minivan plant in Windsor, Canada, has been idled since Thursday after employees walked off the job after one worker went into self-quarantine. The state of Michigan had reported at least two confirmed cases by the end of the week, bring the crisis to the threshold of the state's 1600 or so auto-related manufacturing businesses. Michigan's auto manufacturing sector alone accounts for 4.3 percent of U.S. gross domestic product (GDP).

An outbreak at a U.S. factory has a large and immediate impact on a community. If that plant happens to supply key components, such as engines or transmissions, it can quickly shut down assembly plants that rely on a steady supply of parts. Likewise, the closure of a parts supplier's plant anywhere in the world could grind assembly lines to a halt. Many parts are sourced from China which is disrupting the supply chain. While some of China's plants are beginning to come back online, most are believed to be running well below capacity, though specific information on which plants are open and their operational capacity are hard to come by. In the U.S., Detroit's automakers have told reporters they have enough parts to keep production running until nearly the end of the month, though there are also reports of certain parts being flown in at great expense to keep the lines running.

It's not just domestic plants at risk. Earlier this week, Mexican officials reported their plants are having trouble sourcing parts from China and are at risk of shutting down before the end of the month. While German automakers continue to insist their supply chains are fine, both Japanese and Korean automakers have reported disruptions to the supply chain and partial or temporary plant closures.