Coronavirus fallout: Who will pay the car industry’s bills this time?

At the rate the coronavirus is spreading, car companies won’t be making vehiclesor big profits for a while. Who’s going to foot their bills in the event of an economic downturn like 2008? A financial crisis-like bailout won’t be a good look.

Heading into this slump, carmakers were hardly exercising restraint, splashing out on big, tech-savvy investments and electric vehicles. Many global brandslike Ford Motor Co.botched their bets in China, the world’s largest market, and have struggled to keep up there asit weakened.

Now, from the U.S. to India, Vietnam and Thailand and elsewhere, auto giantsare shutting downproduction. It means more thanturning the lights off.Sales are expected to fall almost 15% this year to fewerthan 80 million vehicles, according S&P Global Ratings. In the U.S., the drop may be the biggest since 2009. Even as China tries to get back to work, auto andparts factories will likely run at low capacity.

The pandemic is showing upvulnerabilities on balance sheets. Over the past two days,Moody’s Investors Services downgraded auto manufacturers including Toyota Motor Corp.andBMWAG, and putseveral otherson review,including General Motors Co., citing “weaknesses in their credit profiles including their exposure to final consumer demand for light vehicles."S&P downgradedFordto junk statusand putToyota on review.The billions of dollars of cash that car companies are sitting on may giveinvestors comfort that contingency plans are in place. But automakersrun cash-intensive businesses, paying suppliers and funding operations. Having a cushion helps in tough times, but not for long.

Unlike other cash-heavy enterprises,most also run so-called negative working capital, meaning their current liabilities are higher thancurrent assets. A dollar upfront is better than a dollar in a few weeks. The reason they can do this is because they get paid by their dealers before delivery – especially in the U.S, which is a credit-driven market.

That’s all good when the cars are selling. But when thing turn down,these companies startburningthrough cash quickly, as my colleague Chris Bryant has written. Pre-virus sales outlooks were already poor.The trouble with Covid-19 is thatno one knows how long it will lastor when buyers will return. That makesitharder to say how much cashthey’ll need,part of the reason some are proactively drawing down their credit lines.

In the current gloom, it’s worth looking at how far every dollar of sales goes towardmeeting operationalexpenses and paying down short-term debt, or the ratio of working capital to sales. Companies still have to meettheir payables, but inventories aren’t being drained. During the financial crisis a decade ago, Bloomberg Intelligence’s Joel Levington notes the ratiostarted slightly negative and rose to 5%. If that occurred again, he estimates, an average automaker would need an additional $6.9 billion of capital. With cash needs cropping up across the economy, it’s unclear where that money would come from.

The descent can be quick: At the height of the crisis, Japanese automakers in the U.S. ran negative free cash flows of 830 billion yen ($7.7 billion), according to Goldman Sachs Group Inc., dropping fromclose to positive 2 trillion yen. In China, cash flows are highly correlated to profitability.If you’re running losses,working capital will bite.The cascading effect of a cash crunch could runfar and wide.Some large Chineseauto parts manufacturers rely on international automakers for 30% to 50% of their businessto generate positive operating cash flow. “This could change quickly," says Jefferies Financial Group Inc. analystAlexious Lee.Then there’s the debt coming due. Automakers haven’t piled on large amountsexcept for their financing arms. But, per Levington, as of last week $179 billion of debt had a 30%-plus chance of default. The convulsions in markets will make it more expensive to pay. The likes ofTata Motors Ltd.-owned Jaguar Land Rover Automotive Plc have seen their bonds trade down to as low as 59 cents on the dollar.Across the sector, more than$100 billion matures this year with almost 40% rated belowA, henotes.Financing arms, a big source of problems in 2008, have again become major drivers of operating profits. If China is any indication for how quickly things cansour, defaults on auto loan-backed securities rosesharply last month and prepayments fell to a record low.The position of cargiants is nowreminiscent of the pre-financial crisis years.When Detroit’s automakers were on the verge of collapse,the U.S. government braved public rebuke and stepped in with$82 billionin various formsto avoidthe economic pain of collapse. The bailout remains debated, butone thing is clear: Carmakers will need help this time, too.While Washington’snew $2 trillion stimulus could indirectly benefit thesector, prolonged pain wouldneedmore support.

Cars may have gotten bettersince the lastcrisis, but automakers haven’t readiedtheir balance sheets or operations for one as severe asthis is turning out to be.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.