Coronavirus Outbreak Causes Disruptions in Global Auto Production

By Emel Akan
Emel Akan
Emel Akan
Emel Akan is a senior White House correspondent for The Epoch Times, where she covers the Biden administration. Prior to this role, she covered the economic policies of the Trump administration. Previously, she worked in the financial sector as an investment banker at JPMorgan. She graduated with a master’s degree in business administration from Georgetown University.
February 23, 2020Updated: February 23, 2020

WASHINGTON—Global automakers are among the first to feel the impact of the coronavirus crisis, as the outbreak stalls production at Chinese plants, rattling the industry’s global supply chain.

The novel coronavirus disease (COVID-19) originated in Wuhan, a city in central Hubei Province, which is China’s fourth-largest car manufacturing hub, accounting for 9 to 10 percent of total vehicle production.

The province is home to many factories that make both finished vehicles and car parts. It’s also a crucial hub for the production of electric vehicles.

“We expect auto manufacturers in China to cut production by about 15 percent in the first quarter of this year following the outbreak,” S&P credit analyst Vittoria Ferraris said in a report. “More importantly, the global auto supply chain, which depends heavily on China, will also be negatively affected.”

Ferraris estimated that “up to one-half of China’s auto and auto-parts production” could be affected by plant closures if the crisis drags on.

Many auto manufacturers and suppliers had been on an extended temporary shutdown following the Lunar New Year holiday.

Although automakers such as BMW reported last week that they had resumed production, “almost none are at full production,” according to Michael Dunne, head of Asian automotive consulting firm ZoZo Go.

“An estimated 32 percent of auto and auto-parts plants have restarted production,” he wrote in a blog.

The auto industry was caught off guard by the severity of the outbreak. The lockdowns in Wuhan and surrounding cities, combined with auto plant closures, have already started to take a toll on car sales and production.

Total sales for General Motors in China in January slumped 40 percent, according to Automotive News, a Detroit based newspaper for the auto industry.

Meanwhile, new light-vehicle deliveries across China fell 20 percent in January because of COVID-19; the sales decline has been more dramatic in February.

“Through the first two weeks of February, new car sales were only 5 percent of the level achieved during the same period in 2019,” Dunne wrote.

In addition, the Chinese Automotive Dealers Association survey of 4,022 dealerships showed that only 9 percent of dealers throughout the country were open for business, he added.

Among global automakers, Volkswagen has the highest exposure to the Chinese market. China accounts for nearly 40 percent of the carmaker’s global vehicle sales.

German automakers, including BMW and Mercedes, have also been increasing their market share in China in recent years. Hence, the COVID-19 outbreak is presenting a setback for Germany’s auto industry, which heavily depends on auto sales in China.

Supply Chain Disruptions

With many Chinese factories idled, global automakers are scrambling to source auto parts amid mounting supply disruptions, causing ripple effects beyond China’s borders.

South Korea’s Hyundai Motor Co. and Kia Motors halted production in several plants in Korea due to component shortages. GM also halted its production temporarily at an assembly plant in South Korea.

Fiat Chrysler Automobiles NV also said it had temporarily stopped production at its plant in Serbia due to supply issues.

Industry estimates suggest that roughly 30,000 parts are needed to build each car.

And China is among the world’s largest suppliers of parts. The country exported motor vehicle parts and accessories worth $34.8 billion in 2018, according to the UN’s Comtrade database. And the U.S. auto industry was by far the most reliant country on China, accounting for 34 percent of those exports.

While some factories are gradually reopening across the country, the plants located in and around Wuhan would remain suspended for a while.

Wuhan hosts Dongfeng Motor Group, one of China’s largest auto groups, with 176,000 employees. The state-owned automaker has partnerships with Japanese and European auto manufacturers, including Honda, Nissan, Renault, and Peugeot-Citroen.

Foreign auto brands are only allowed to manufacture cars domestically in China through joint ventures with local partners such as Dongfeng Motor Group.

GM and its joint ventures also have a car factory in Wuhan, producing four models that contribute about 19 percent of GM’s total China production.