VIRUS TAKING TOLL ON AUTO INDUSTRY
David Booth says quarantines in epicentre of outbreak disrupting sales, production.
Have you taken a peek at the stock markets lately? Have you ever seen so much red? There hasn’t been this much panic in the streets since Donald Trump won the Republican primary (though that may yet be surpassed if Bernie Sanders wins the Democratic nomination).
Politics aside — and, yes, even disease is political these days — the news of the day is all coronavirus all the time. And the one thing that stands amid all this talk of contagion and death is how truly interconnected we have become: a virus still overwhelmingly centred in one Chinese province is now ripping apart economies as far away as Canada.
Particularly devastated is the auto industry. Wuhan is home to plants for General Motors, Honda, Nissan, Peugeot Group, and Renault. It is also the capital of Hubei province, which accounts for roughly 10 per cent of the 23 million or so cars annually produced in the country. That pretty much all stopped when the entire region was quarantined, though operations are just now starting to slowly open up again.
Worse yet, car sales in China have virtually stopped; sales were down 92 per cent in the first 16 days of February.
Things are so bad that Geely, owner of Volvo as well as being a major automaker, has initiated a “contactless” car purchase experience — online sales, home delivery, etc. — so Chinese consumers don’t have to interact with another human to take ownership of a new car.
Considering how many car companies rely on China to boost their otherwise flagging bottom lines — Buick would not exist were it not for its popularity in China, and Volkswagen’s boasting of a mostly EV future is largely dependent on Chinese consumers — any prolongation of these quarantines will have devastating effects on the auto industry for months to come.
And that’s just China. The downstream effects for just-intime manufacturing are devastating.
European automakers are already reeling. Jaguar Land Rover’s supply chain system is in such desperate straits, says the BBC, that the factory has taken to shipping crucial parts from China to the U.K. in suitcases to keep supplies flowing. FCA is closing a plant in Serbia because it has run out of parts, and is threatening to shutter others in Italy, which has been hit particularly hard by the spread of the disease.
Meanwhile in Korea, Hyundai reportedly shut down production lines as the result of a dearth of wiring harnesses coming from China, slowing production of the company’s popular Palisade SUV and possibly delaying the launch of the brand-new Genesis GV80 luxury sport ute. Nissan, which has its Chinese headquarters in Wuhan, saw its shares drop 30 per cent in February.
North American automakers, however, have so far been unaffected by the crisis. Parts arriving from China have a significant delivery lag time, enough that there has been some time to source other suppliers.
Indeed, if there’s a cause for concern in North America, it’s the seeming lack of concern from politicians, especially south of the border. Trump has downplayed the dangers, claiming (optimistically) that infections will soon fall to zero.
Considering how fast the virus is spreading and how dramatic the responses are — Japan is thinking of closing its schools for a month and Saudi Arabia has suspended all pilgrimages to Mecca for foreigners — it may be only a matter of time before GM, Ford, and all the transplants operating in the U.S. and Canada are affected, if by nothing else but continued parts shortages.
If this rapidly escalating trend to isolation continues, the effect on global sales is sure to be dramatic.
Moody’s had already predicted global sales would fall
0.9 per cent this year. It has recently revised its predictions and now estimates a whopping 2.5-per-cent decline. That’s a difference of about 1.3 million units, all directly attributable to COVID -19.
Even that 2.5-point drop may prove optimistic. Presidential admonishments that there’s nothing to worry about notwithstanding, if the coronavirus crisis reaches North American shores, a total rout is not out of the realm of possibility.
Experts are already suggesting we buy extra supplies of canned goods and medical supplies. Perhaps we should stock up on batteries and brake pads, too.