Carmakers worry about sales collapse due to Covid-19
FRANKFURT, GERMANY >> European auto manufacturers have so far defied expectations that supply chain chaos would bring their assembly lines to a standstill.
Even after northern Italy, an important node in the global parts network, went into lockdown on Sunday, carmakers like BMW, Daimler, Fiat, Peugeot and Volkswagen said on Monday that production was normal.
How long that can continue is an open question as the coronavirus disrupts daily life and economic activity in new and unpredictable ways. Carmakers are watching events with palpable anxiety.
But it appears for now that the automakers’ biggest problem is not whether they can build cars but whether they can sell them.
The initial outbreak caused sales to collapse in China, the world’s biggest car market. Porsche, for example, was forced to close all of its Chinese dealerships in February. Most automakers had to shut down Chinese factories at least temporarily.
The spread of the virus to Europe and the United States virtually ensures that the eurozone will slip into recession and that a global decline in car sales will be worse than expected. Auto sales closely track economic growth.
“When GDP goes down, the carmakers have a big problem because people need their money for other things,” said Ferdinand Dudenhöffer, a longtime industry observer. “The big problem is demand, not production.”
Automakers have learned from past episodes of supply chain disruption. In 2010, for example, the eruption of a volcano in Iceland spewed fine particles into the atmosphere and brought air travel and airfreight over Europe to a halt. Most companies now have at least two suppliers of any component as insurance against strikes or natural disasters.
“From every one of those crises you learn something,” Herbert
Diess, the chief executive of Volkswagen, said in an interview last week. “You double up supply chains, you reroute.”
As the coronavirus has morphed into a global epidemic, carmakers have been forced to scramble for parts and raw materials. But they say have been able to cope, sometimes by paying extra to ship components by air that would normally travel by land or sea.
“It’s a big challenge,” Oliver Blume, the chief executive of Porsche, said in a telephone interview. “We have a team that is monitoring the situation every day.”
“We have suppliers in Italy,” Blume said before the Italian lockdown. “We have to watch very closely in the next few days what will happen.”
On Monday, Porsche said the virus outbreak in Italy had not yet hurt production. Volkswagen, which owns Porsche as well as Audi and other brands, said it had also been continued operating without problems. Italian suppliers were still able to send shipments to Germany, a Volkswagen spokesman said.
Italian companies said they, too, were still in business. The tiremaker Pirelli said that its Italian factories were still operating and noted that, in any case, they accounted for less than 8% of the company’s tire production. “There are no impacts on production activities,” Pirelli said in a statement.
Brembo, an Italian maker of high-performance brakes, said its three factories in northern Italy were still operating.
Fiat Chrysler’s Italian factories were operating normally on Monday, a spokesman said, although office workers were given the option of working from home. Fiat has reopened a factory in Serbia that closed temporarily last month because of missing parts from China.
Jaguar Land Rover, which produces luxury cars in Britain, said that it had a two-week supply of most parts. But the company added in a statement that it “cannot rule out the risk that a shortage of a critical component could impact production at some point.”