Before the media coverage of the coronavirus began, Wuhan was known as a burgeoning automobile and tech center, home to factories of the largest international car companies in the world and a hub for automotive supply chains. General Motors, Renault, PSA Group, Honda, Kia, Nissan and state-owned Dongfeng Motor all have factories located in Wuhan.
However, the proliferation of the coronavirus has brought the industrial city of Wuhan to a halt, thereby threatening the health of the global auto industry. The uncertainty surrounding the scope of the virus’ effect on international business and the global auto market is the most significant challenge for business professionals responsible for developing strategies that accurately reflect the severity of the problem. But one thing is certain: there is a lot on the line for automakers and the global economy.
China’s Major Exports: a lot at stake
China exports an estimated $14 billion worth of essential auto parts and accessories to the United States annually and another $56 billion of auto parts around the globe. And according to IHS Markit estimates, the coronavirus outbreak will result in production losses of 1.7 million vehicles in the first quarter of 2020 and an estimated 50%-80% decline in February vehicle sales across China. Automakers are also forced to reduce production outside of China due to the input shortages stemming from the country. While some automakers are temporarily using alternative suppliers that provide more expensive inputs, this strategy will likely harm profit margins in the long term. In other words, the global automotive industry’s reliance on Chinese auto supply chains threatens the livelihood of auto companies around the world.
Tough Road Lies Ahead
2020 already poses an uphill battle for car manufacturers as they face uncertainty from ongoing trade disputes, threats of American labor strikes (which may cost General Motors domestic labor an estimated $2.6 billion in pretax profits) and dwindling demand for cars in China’s slowing economy, the largest car market in the world. And although many American car manufacturers were already in the midst of sourcing alternative auto part suppliers due to ongoing trade disputes, car manufacturers still cannot quickly switch suppliers because there are very few viable alternatives to replace China’s low prices and ability to produce large quantities of goods.
Fast Facts: Automotive Companies and the Coronavirus
- BMW, PSA Group and Toyota have delayed restarting their Chinese assembly lines another week
- Tesla is delaying the delivery of Model 3 vehicles due to the government-ordered factory closures
- Hyundai, the world’s fifth largest automaker, paused production at its South Korean plants due to supply chain disruptions
- Nissan has halted production at a factory in Japan until February 17, at the earliest, because it is unable to procure inputs from China
- Fiat-Chrysler is considering halting production at one of its European plants if they are unable to source spare parts from Chinese suppliers.
“An industry’s livelihood greatly depends on the strength of its supply chain. And a supply chain is only as strong as its weakest link.”
If the above statement is true, and the weakest link of the global auto industry’s supply chain is the city of Wuhan, then it appears the global automotive industry has a tough road to recovery.
By: Riley Mallon
Read more about how the Coronavirus is affecting the global economy:
From ProcurementIQ - Coronavirus Spotlight: The Technology Sector
From IBISWorld - Industry Impacts of the Coronavirus
From IBISWorld - Going Viral: Coronavirus Weighs on Australian Economy
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