CHINA PUTS BRAKES ON CAR PARTS
THE rising death toll from the covid-19 coronavirus outbreak in China is tragic, and while the obvious imperative is to contain it as soon as possible, the lasting effects could be felt for months.
Wuhan, the city at the centre of the outbreak, is the headquarters of Dongfeng, which has partnership arrangements with Nissan, Renault, Citroën and Honda, while a division of Peugeot is headquartered there.
Even outside the immediate area, China supplies over US$35bn worth of parts to carmakers across the globe and already Fiat-Chrysler has said it might have to shut down production at one of its European plants next week thanks to supply chain issues, while South Korea’s KIA and Hyundai have already closed some plants because they can’t get the necessary parts.
European carmakers will suffer from falling sales too. China is a massive market for them, with four in every 10 Volkswagens and three out of every ten BMW and Mercedes-Benz models sold in that country. China saw a drop of 18% in new car sales last month compared to January 2019, and with millions of people either under self-isolation, or simply afraid to venture outdoors even where the virus is not widespread, that drop is expected to reach 50% in February.
This is worse than the impact of the 2003 SARS epidemic, when growth of 34% that March slowed to 8% in May.
Of the 183 factories in China that manufacture finished cars, only 59 have reopened, and parts suppliers have been badly hit.
David Leggett, automotive editor at GlobalData, a leading data and analytics company, mapped out what the next few months might bring.
‘This is an inevitable consequence of the deepening and spreading economic impact of the coronavirus, especially on manufacturing supply-chains,’ he said.
‘The next few weeks will be critical for automakers. The typical car is made up of 20,000 parts, and there is an elongated supply chain of parts and subassemblies put together in complex sequence to create the finished vehicle.
‘Korean manufacturers were the first to show up as impacted by supply-chain disruption reflecting shorter shipment distances between China and Korea, but the Fiat-Chrysler news indicates that impacts across the world are now coming over the horizon.’