Executives at several carmakers and motor parts suppliers warned that plants in Europe and the US were only weeks away from being forced to close as disruptions caused by the coronavirus outbreak in China rippled through the global manufacturing supply chains.
The warning came as Hyundai said on Tuesday that it had to shut down all its car factories in South Korea after running out of components from China. The world’s fifth-biggest carmaker by sales said it was searching for new sources of engine wire-harness after problems in the supplies of the core electric componentry from China.
“There is a concerted effort to mitigate it before it really bites,” said a senior director at one global car group, adding that its plants had three to four weeks to remove Chinese parts from their supply lines or risk halting production as well.
Carmakers are reliant on a global network of suppliers, with parts originating in China often passing through companies in several countries before being placed into vehicles at factories in Europe or the US. Pressure is building on supply companies to maintain output and protect staff, with partsmakers Continental and Thyssenkrupp both holding crisis meetings earlier this week.
“We are working closely with our suppliers and customers to minimise any disruptions,” said Continental, which runs 50 sites in China, and makes key parts for most major European carmakers.
The disruptions show how coronavirus is wreaking havoc in supply chains across sectors, notably in the vital tech sector, as travel restrictions prevent normal resumption of work after the lunar new year in Wuhan, central China, where the outbreak originated, and elsewhere in the country.
Many companies have said they expect to resume production in China next week in accordance with guidelines from authorities, but the plan could be reviewed if the coronavirus, which has infected 20,689 and killed 427, continues to spread.
Analysts expect the impact on car sales and parts procurement in China from the coronavirus outbreak to be bigger than during the Sars outbreak in 2003 because the world’s second-largest economy has become a much bigger manufacturing hub for the motor industry, including electronic parts.
“Restrictions on movement and other measures have raised the risk of disruption to supply chains, and we see potential for a stalling in automobile production within China,” analysts at Nomura said. “We also see a risk that supply chain issues could have knock-on effects on production in Japan and elsewhere in Asia.”
Many vehicle manufacturers are still scrambling to assess how they will be affected by a Chinese shutdown, several executives told the Financial Times.
“It’s almost impossible to know where the pinch points will be,” said Justin Cox, head of global production at LMC Automotive. “We just don’t know right now how big the problem is or how long this will go on for.”
He added: “A lot of carmakers will have back-up supply options, so they can switch suppliers. But if there is such a loss of output globally, there might not be enough to go around. If it does run out, they have to stop.”
Carmakers in Germany, which make the bulk of their profits in China, have announced the temporary closures of their production plants in the country, as have large car-parts suppliers.
Meanwhile, Japanese carmaker Nissan on Tuesday said it was considering extending a shutdown of its joint-venture operations in China, in line with other carmakers including Toyota, Honda and Ford. For its two plants in Hubei province, which is at the heart of the outbreak, Nissan said production was expected to restart some time after February 14.
Earnings at Volkswagen and BMW operations in China are expected to fall by at least 5 per cent in the first half of 2020, after the companies suspended production in the country, according to analysts at research firm Bernstein.
Hyundai’s operations in South Korea are expected to resume by early next week and the shutdown did not affect Kia Motors, its other car brand, the Korean carmaker said.
But analysts warned that supply disruptions could last longer than expected. “They can start producing the parts in South Korea but this will drive up the cost, which will erode profitability,” said Lee Hang-koo, a researcher at the Korea Institute for Industrial Economics and Trade. Suppliers’ earnings could also be hurt too “if the problem drags on”.
The German automotive industry — including partsmakers such as ZF, which has 40 plants in China — generates about €600m in sales per working day from China, according to Ferdinand Dudenhöffer, a professor at the University of Duisburg-Essen.
Volkswagen, which operates 15 jointly owned plants and employs 100,000 staff in China, insisted that its supply chain was “on track to be fully functional in time for start of production, and planned deliveries to customers remain unchanged”.
Rival BMW also said there was “no impact” on its supply chain, which includes batteries made by Chinese companies such as CATL. General Motors, which runs plants in Korea, said it was “monitoring” the situation closely.
Additional reporting by Kana Inagaki in Tokyo
Source: Economy - ft.com
