Coronavirus set to disrupt automotive industry

03 February 2020

3 February 2020

The global automotive industry is braced for disruption as the coronavirus epidemic continues.

Several suppliers have been hit, with factories shut down and travel suspended. Carmakers too are monitoring the situation, restricting travel where necessary, as the virus spreads out from its origins in China and is now a global emergency, according to the World Health Organisation.

Seven workers at Webasto in Germany have contracted the virus after a colleague from China visited their facility, which has now been temporarily closed, with updates on their condition reported as ‘positive’.

Meanwhile, managers at the firm have been establishing how employees can continue their efforts from home, with operations at the plant due to resume on 11 February.

Supply issues

The situation has also led to panic in the town of Stockdorf, where the Webasto plant is located. ‘We are receiving more and more news from employees that they and their families, who are not part of the risk group, are being barred by institutions, companies or shops if it becomes known that they work for Webasto,’ said Holger Engelmann, Chairman of the Management Board of the Webasto Group.

‘We understand that the current situation is uncertain and also frightening, but this is an enormous burden for the families of our employees.’ Engelmann also asked leaders of educational and daycare facilities to contact the responsible ministry of culture or health to find out how to deal with the current situation.’

Bosch CEO Volkmar Denner warned that the coronavirus could impact the car manufacturing global supply chain, which is heavily dependent on China.

‘We need to wait to see how things develop. If this situation continues, supply chains will be disrupted. Some forecasts predict the peak for infections will drag on until February or March,’ Denner told journalists.

‘In Wuhan, Bosch has two plants making steering systems and thermotechnologies, with around 800 employees. There have been no reports of infections,’ he added.

The CEO said the supplier was concerned but had not yet seen disruption to its business or supply chain.

Precedent set

However, with the automotive industry operating on ‘just-in-time’ deliveries, any disruption to supply chain or procedures will have consequences on production. Alongside suppliers, many vehicle manufacturers have plants in Wuhan, the first city to report the coronavirus. Limiting travel to the country, and cancelling the supply of parts out, will mean sourcing products could become harder.

‘I cannot envisage that the coronavirus outbreak will not severely disrupt the automotive supply chain and, in turn, vehicle production and deliveries, says Neil King, Senior Data Journalist at Autovista Group. ‘Even if employees in affected areas in China can still travel to work, and so factories remain operational, transport restrictions will undoubtedly delay the movement of automotive parts, if not sever it entirely in some cases, and disrupt the just-in-time modus operandi.’

‘One precedent that comes to mind is the impact of the tsunami that hit Japan in 2011. A Japanese warehouse facility of the drugs and chemicals company Merck was destroyed at a plant that produced the company’s global supply of Xirallic, a key pigment in vehicle paint. Although the plant itself did not suffer major damage, the loss of the warehouse alone was enough to disrupt supply and carmakers, including Ford and Chrysler, had to suspend sales of vehicles in certain colours.’

‘As the coronavirus continues to spread, more automotive companies will invariably be affected. All that remains to be seen is what the magnitude and duration of the disruption to the sector will be,’ King concluded.

Sales fears

With China, the biggest automotive market in the world, the impact of the virus, which has seen numerous countries close their land borders, will inevitably hit sales and therefore profits in the months ahead.

Budgets are already stretched to a breaking point for many manufacturers, with the need for electric-vehicle (EV) development and new technologies requiring investment. China is a crucial market, and as car buying is not a priority for many at present, some will likely issue profit warnings before announcing their next financial results.

One example to note is Jaguar Land Rover (JLR). Its third-quarter results ended 31 December 2018 saw it post an overall pre-tax loss of £3.4 billion (€3.9 billion) after exceptional charges were taken into account. The company said sales in China were to blame, dropping 35% in the nine months to December 2019. This triggered a series of job cuts and manufacturing reshuffles that have seen the carmaker return to profit, helped in part by an increase in its Chinese registrations.