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China announces new measures to contain coronavirus 1:31
New York (CNN Business) - The human cost of the coronavirus outbreak in China is tragic, growing and evident. And the cost for companies around the world could also be severe in the coming weeks.
Manufacturers around the world depend on parts from China to maintain their own supply chains. Experts fear that factories around the world can stop if many of the plants in China remain closed this week.
Automotive plants could be among the first to feel the impact. This is due to the large size of the Chinese auto parts industry and the fact that a car with only 99% of its parts cannot be built.
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"Only one missing part is needed to stop a production line," said Mike Dunne, a consultant for the automotive industry in Asia and former chief of operations for General Motors in Indonesia.
Dunne said there have been many examples in the past where problems such as a fire or a natural disaster cause a single supply plant to close and can affect automotive plants worldwide. This could be much worse depending on how widespread the closure of plants becomes due to the virus.
China is a major supplier of parts for automotive plants worldwide, as it sent almost $ 35 billion of parts in 2018, according to UN data. About 20 billion dollars in Chinese parts were exported only to the United States in 2018, according to the International Trade Administration of the Department of Commerce. While some of those parts go to auto parts retail stores, a large percentage of them go to assembly lines and are used to build cars.
And experts say that the parts at risk are probably greater than that, since many Chinese parts, from computer chips to screws and bolts, are not simply classified as car parts in the same way as a bumper or engine piston. They rank that way. In addition, Chinese parts often end up being used in car parts built in other countries.
Finding replacements for all those parts is impractical if the supply continues to be interrupted, said Kristin Dziczek, vice president of the Center for Automotive Research, a group of Michigan experts.
"It's hard to say when it will start affecting here," he said. "I would expect to see a global cascade impact by the end of February if Chinese production does not return [this week]. All automakers have a supply chain war room now underway to determine what they can do. But China is so big that there is no way they cannot be affected. ”
So far, most of the car assembly plants in China are closed and there to serve the Chinese market. Volkswagen announced that it would keep its Chinese auto plants closed partly due to travel restrictions there and partly due to lack of parts.
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But it has already begun to spread to plants in other places. Hyundai has closed its assembly plants in South Korea, not because the disease itself has spread there, but because it cannot keep the plants operating without Chinese parts. Last week, Fiat Chrysler said it has a European plant at risk due to the lack of Chinese parts in the next two or four weeks.
All other car manufacturers will say that they are closely monitoring the situation in China, but that it is too early to say what the impact will be on their global operations.
"It's a very fluid situation," said Mary Barra, CEO of General Motors, last week when she spoke with investors.
Experts say the global auto industry has not seen the full impact before because the plants had been scheduled to close for the Lunar New Year. Many assembly plants had an additional inventory of holiday parts. While the closure extended for a week due to the outbreak, most of the plants have not yet run out of Chinese parts. But that can't last.
The possibility of widespread shutdowns at global auto plants is much more likely if plant closures continue, said Simon MacAdam, a global economist at Capital Economics in London.
"Right now it is quite difficult to know," he said. “A supply chain is as strong as the weakest link. That's why there is so much uncertainty about the estimates. ”
Even if the plants try to reopen, it is not clear if they will be able to operate normally due to the possible shortage of labor, or in the worst case, a greater spread of the disease, Dunne said. And getting the pieces sent will not be the same as always.
"They are supposed to start returning to work on Monday," Dunne said. “But even then, it will be hesitant. Some cities will have roadblocks, some will not have flights. We are going to have an interesting moment starting this week. ”
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