Car manufacturers are increasingly feeling the consequences of the virus outbreak in China. Some corporations fear failures in Europe or extend the company vacation. Now the search for suppliers outside of China begins.
Fiat Chrysler is the first European automaker to anticipate that a stagnant supply of parts from the country in two to four weeks could affect production at a plant in Europe. Which plant it is, said CEO Mike Manley. The largest Japanese automaker Toyota announced on Friday that production in all of its Chinese factories would cease until February 16. Other manufacturers have also extended the factory holidays after the Chinese New Year because of the virus outbreak.
Suzuki is considering sourcing vehicle components outside of China as the spread of the coronavirus threatens vehicle production in its largest market in India. Suzuki does not build or sell cars in the People’s Republic, but purchases components from there for its plants in India. There, the Japanese small car specialist controls around half of the Indian market with the joint venture Maruti-Suzuki.
Supply chains corrode
BMW had already extended the factory vacation for employees in production in the Chinese city of Shenyang to February 9. Office workers should work at home during this time. According to previous information, Volkswagen does not want to resume work at the locations with its Chinese partner FAW before Sunday. In the joint venture with SAIC, this is so far planned on Monday.
Hyundai was the first foreign car company to shut down production in Korea due to an interrupted supply chain. In the industry intertwined between manufacturers and suppliers worldwide, disruptions in parts supply can have a massive impact on car production.
An out of time crisis
China is the most important car market for export-dependent German car manufacturers and at the same time a growing production location. If the showrooms of the dealers and the factory halls remain empty for longer, this could hit Audi, BMW, Daimler, Porsche, and VW. Because of the burden of the trade conflict with the USA, new car sales in China fell in 2019 for the second year in a row.
The German auto companies are also at a critical stage in the corona crisis: this year they want to launch new electric cars that contain a lot of technology that is supplied from China. Prolonged failure of deliveries could mess up the plans – with unforeseeable consequences for reaching the climate goals in the industry.
The uncertainty is growing
According to a survey, the virus unsettles numerous German companies. According to a survey published by the Düsseldorf-based consulting firm Kloepfel on Friday, 28 percent of the managers surveyed stated that suppliers had already failed, but which can still be compensated for by alternative providers.
At the beginning of February, the consultants specializing in supply chains surveyed 243 specialists and managers in the German industry and trade. 19 percent fear that supply shortages could shut down their production. 42 percent of the companies stated that they had not yet been affected.
Many companies now tended to buy hamsters, said the head of the consulting firm, Marc Kloepfel. The camps would be replenished. “In addition to the manufacturing industry, this also affects retail very strongly.”
Tailors and cobblers also suffer
The coronavirus is now also disrupting the business with expensive clothing and handbags: The British luxury company Burberry has canceled its outlook for the business year that runs until the end of March. 24 out of 64 stores in China are currently closed, the company said on Friday. CFO Julie Brown said sales in Chinese stores that were still open had plummeted 70-80 percent in the past two weeks.
For European manufacturers of expensive consumer goods from clothing to cosmetics and shoes to watches, China is an extremely important market. For many Chinese, the purchase of “ming ai” (famous brands) is the main reason for holiday trips to Europe. Burberry makes around 40 percent of its sales with Chinese customers.
Chinese tourists’ spending in Europe is currently even less affected, according to Burberry. However, the British expect deterioration in the coming weeks. Burberry had only raised its sales forecast in January – before the virus spread.
Consumer goods manufacturers are also affected: Nike warned of significant losses this week. The Americans have had to close branches in China as well as the German competitor Adidas. The cosmetics groups L’Oreal and Estee Lauder also see burdens on their business.