Header Ads

Breaking News

Chinese Car Factories Idled by Virus Raise Risks to Global Growth


FRANKFURT — Chinese car and car-parts factories may stay closed longer than expected because of the coronavirus, increasing the chances that assembly lines in Asia, Europe and the United States could grind to a halt because of shortages of components.

The hit to the auto industry, which employs eight million people worldwide, comes at a time when output from the world’s factories is already sagging. It is likely to amplify the already alarming human and economic cost of the outbreak.

Many automakers had planned to reopen their Chinese factories on Monday, which was already a week later than planned following the traditional Lunar New Year holiday.

But several companies including BMW, PSA and Toyota have delayed restarting their assembly lines another week and others appear likely to. Even a relatively brief interruption in the flow of parts and materials could have far-reaching effects, analysts said.

“Two weeks is probably the buffer most people have got,” Mark Fulthorpe, a director at the market researcher IHS Markit who follows the auto industry, said Friday. “A disruption in the supply chain can multiply and have a dramatic effect.”

The shutdowns at Chinese factories hit automakers from several angles. The virus is already causing them to lose sales in China, the world’s largest car market by far. If they are forced to shut down factories outside of China because of parts shortages, as Hyundai has already done in South Korea, they could also lose sales in other regions.

  • Updated Feb. 5, 2020

    • Where has the virus spread?
      You can track its movement with this map.
    • How is the United States being affected?
      There have been at least a dozen cases. American citizens and permanent residents who fly to the United States from China are now subject to a two-week quarantine.
    • What if I’m traveling?
      Several countries, including the United States, have discouraged travel to China, and several airlines have canceled flights. Many travelers have been left in limbo while looking to change or cancel bookings.
    • How do I keep myself and others safe?
      Washing your hands is the most important thing you can do.

Because the auto industry is so vast, its pain would spread throughout the global economy. And it is hardly the only industry at risk from supply chain problems. Others include computers and electronics, textiles and heavy machinery.

Every week that Chinese factories remain shuttered subtracts $26 billion from world trade, according to an estimate by Ana Boata, head of macroeconomic research at Euler Hermes.

Some of those sales will be recouped after the virus subsides, but “we doubt the global economy is strong enough to catch up entirely,” Ms. Boata said in a note to clients Friday.

The disruption to the car industry is most intense in Wuhan and the surrounding province of Hubei, which is home to many auto parts suppliers.

PSA, the French maker of Peugeot and Citroën cars, said its three car factories in Wuhan, the center of the epidemic in China, would remain closed until Feb. 14.

The virus has also interrupted production far from Wuhan. The German carmaker BMW, which has three factories in Shenyang, in northern China, has suspended production until Feb. 17.

Toyota said it would not resume full production at its four car and eight component factories in China until Feb. 17, a week later than planned. The Japanese carmaker said it was keeping an eye on potential problems outside China, but “there is currently no impact.”

None of the carmakers can restart operations until they receive government permission to do so.

Daimler and Volkswagen, which also have large operations in China, said Friday they could not comment on whether their factories would reopen on Monday as planned. Given that the virus does not appear to be under control yet, the risk of a longer shutdown appeared to be high.

The German economy is especially vulnerable to any economic slowdown in China. A decline in the Chinese growth rate of 1 percentage point would strip 0.6 percentage points from German growth, the Ifo Institute in Munich estimated. That is in part because German factories are so dependent on components made in China.

Growth in the European Union is already close to zero. The coronavirus could be enough to shove the region into recession.

“The rapid spread of the coronavirus throughout China is quickly becoming a major source of uncertainty for the economy,” economists at ING Bank said in a note to clients.

The longer it takes to contain the virus, the greater the risk that factories outside of China could begin to fall idle. Fiat Chrysler Automobiles warned Thursday that a plant in Europe, which it declined to identify, was in danger of running short of a critical component.

“If the situation in China continues to worsen, FCA has identified potential risk within the next two to four weeks at one manufacturing facility in Europe,” the company said in a statement. The company “will continue to monitor the situation and continues to develop contingency plans.”

Mr. Fulthorpe of IHS Markit said it could be difficult for companies to quickly find substitute suppliers.

Even the lack of a small, seemingly insignificant part can cause a factory floor to go quiet. Automakers may not even know the origin of all of the components they use. They may be in for unpleasant surprises when an essential wiring assembly or other part, which they did not even know came from China, suddenly becomes unavailable.

“You can’t build a vehicle with 95 percent of the parts,” Mr. Fulthorpe said. “You need everything.”

Source link

No comments