Scale of coronavirus too big for GM to escape unscathed, experts warn

General Motors will restart production at its plants across China beginning Saturday as it continues to take precautions to ensure worker health amid the coronavirus outbreak.

But economists warn all the precautions in the world will not leave automakers unscathed.

GM is especially in danger. Its wide-scale operations in China put its 2020 revenues this year at “high risk” because of the outbreak.

“GM’s workforce production and earnings in China will be negatively affected,” Patrick Anderson, CEO of East Lansing-based economic consulting firm Anderson Economic Group, told the Free Press. “GM is trying hard under difficult circumstances. However, even GM cannot avoid entirely the fallout from this epidemic.”

In a report by Anderson’s company, Volkswagen, Honda, Tesla and Hyundai-Kia were also named as the automakers to be most affected.

Detroit in China

GM now sells more cars in China than it does in the United States, notes the report released Monday called “Coronavirus Consequences to Workforce, Suppliers, and Manufacturers in the U.S. Automobile Industry.”

Ford Motor Co. was not on the report’s list of automakers at high risk despite operating six assembly plants in China.

Ford will resume vehicle production in China “this week,” said a company spokesman. He declined to offer any details on which plants will restart or when.

A Ford statement on its media site said it has about 37,000 employees in China. Ford has two joint ventures in China: Changan Ford and JMC, none in Wuhan.

Ford vehicles that are locally produced in China include Escort, Focus, Mondeo, Taurus, Edge, EcoSport, Territory, Kuga, Everest and Transit.

Fiat Chrysler Automobiles does not have any operations in Wuhan, but its planned merger partner PSA Groupe does.

FCA continues to monitor its global supply chain in relation to the coronavirus outbreak and there is no immediate impact on the company, it said. If the situation in China worsens, FCA said it will know within the next two to four weeks whether one manufacturing facility in Europe is affected.

FCA said it will continue to monitor the situation and develop contingency plans to support its global manufacturing.

First the strike, now China

The Anderson report noted the impact the UAW’s 40-day nationwide strike in the United States had on GM last year. In the fourth quarter, that strike cost GM $2.6 billion in pretax profits.

This year, the ding likely will come from China, where auto sales had already started to sputter last year in the nation’s slowing economy.

“GM’s Chinese operations should be considered nearly all at high risk, given their size and GM’s long-standing strength in integrated production planning,” the report said.

During its Capital Markets Day with investors last Wednesday, GM leaders acknowledged the near-term challenges its business faced in China, but they held strong that GM can withstand the pressures in the long haul.

GM said it anticipates that trade tension between the United States and China would strain the Chinese economy and weaken consumer confidence and it also expected currency fluctuation to affect GM’s U.S. dollar earnings results. But the unexpected coronavirus adds pressure.

“Prior to the virus outbreak, we had estimated the industry would be slightly down in 2020,” said Matt Tsien, executive vice president of GM China. “We now expect additional near-term volume impact. GM’s target is to perform in line with the industry in 2020.”

But long-term, Tsien said, GM is bullish on its business in China.

“We still believe this market can grow to well over 30 million units annually in the coming years,” said Tsien. “We’re leveraging our strong business foundation built over the past two decades, combined with China’s scale, to achieve success for the long haul.”

The outbreak

The coronavirus is a cousin of the SARS virus and has killed more than 1,000 people in China since the outbreak began in December. It’s reported to cause pneumonia and then not respond to antibiotic treatment.

The infectious disease started in Wuhan, one of China’s largest industrial hubs with 11 million people.

Wuhan is home to China’s steel industry. GM and SAIC Motor Corp. have a joint venture assembly plant in Wuhan that employs nearly 6,000 people. Some earlier reports erroneously reported that GM “evacuated” its plant in Wuhan.

The Wuhan plant is one of 15 assembly plants GM and its joint ventures have in China. GM builds four different Chevrolet and Buick models at the Wuhan facility. All of them are sold only in China.

The only vehicle GM builds in China for export to the United States is the Envision SUV. GM builds the Envision in Yantai, a port city in eastern China’s Shandong province, about a 13 hour drive from Wuhan, said GM spokesman Jim Cain.

GM precautions

Cain said GM is taking precautions to ensure the safety of its workers there.

• GM put global travel restrictions in place Jan.

23. Only business-critical travel is permitted, and it must also be approved by management and the GM medical staff. As of Monday, there were “essentially no” GM employees traveling to China.

• GM has teams working on contingency plans to manage supply chain risks so it can restart production in China starting this weekend.

• GM teams are working on ways to mitigate production risks in markets that import parts from China. It has not had to stand down plants in other Asian markets such as South Korea.

“The cadence we will follow when restarting production will take into account many factors including health of the supply chain, logistics and inventory,” said Cain.

But GM’s main priority, he said, is employee health and safety. Anderson Economic Group said it respects GM’s struggle to balance safety concerns with the demands of restarting production.

But, said Anderson, “The scale of the outbreak and its effects in China is too large for GM, and everyone else, to escape unscathed.”