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The latest pandemic, COVID-19, is having a significant impact on the global automotive industry, with its complicated global supply chains. At this time, each of the major geographical hubs is experiencing major disruption. For instance, China is likely to experience about a 15-20% decline in auto production, based on PwC analysis – and that is assuming the virus is soon contained. The auto industry in China has already lost about two million units of production because of the extended shutdowns after the Chinese New Year and the slow ramp-up of plants in early March. In addition, the Hubei region, where the virus outbreak first occurred, is China’s fourth largest vehicle production hub, with more than 2.2 million vehicles produced in 2019. All assembly plants in that region remain shut through at least March 20.
Auto production in other parts of Asia where the virus has spread, namely South Korea and Japan, is also being negatively affected. Many of those South Korean and Japanese assembly plants are experiencing parts shortages for vehicles that are dually produced in China and Japan.
To make matters worse, showroom traffic at most Chinese dealerships was down by 70-90% in February. The industry is anxiously awaiting the upcoming March vehicle sales data from China that will tell whether the virus has created an even bigger demand problem, adding to the pain of a devastating production decline.
The auto industry in general, and the US in particular, learned a valuable lesson from the impact of the tsunami in Japan in 2011. That crisis shut down the global auto industry for days because of shortages of certain pigments needed for paints that tracked back to one Tier 3 paint pigment supplier in Japan. Today, most US, Japanese, and European automakers have good supply chain visibility – often instantly and online – into their Tier 1 and 2 suppliers. In our current crisis, automakers are communicating daily with their Tier 2 suppliers to track the status of their Tier 3 suppliers.
This kind of visibility and communication is essential to auto OEMs and Tier 1 suppliers. It helps them detect any potential issues early and allows them to put in place alternative supply chain plans. While most North American assembly plants depend on China for some auto parts, most significantly wheels, brake and steering components, and electronics, many of these components could potentially be sourced in North America or other automotive supply markets. The greatest potential threat to North American assemblers is likely to be the supply of electronics components, since China dominates electronics manufacturing for the auto industry. While Wuhan, the epicenter of the virus, has a limited role in electronics manufacturing, it produces many of the capacitors used in electronic systems.
We don’t know at this point how badly the virus will damage the global auto supply chain, but it’s clear it will likely have a devastating effect on the auto industry. While the coronavirus outbreak in China will not likely shut down many assembly plants in North America any time soon, the rapidly growing outbreak in the US may do just that. OEMs and suppliers alike have to balance every day whether to vacate areas in a plant where a virus outbreak occurred or to shut down the entire facility.
Auto suppliers should take steps to mitigate negative impacts. Below are five areas that suppliers can quickly begin to address:
Check out our latest thinking on how COVID-19 is affecting US businesses and our online, interactive COVID-19 Navigator.