By Norihiko Shirouzu and Yilei Sun
BEIJING (Reuters) – Automakers across the world face the possibility of extended supply chain disruptions as factories in China stutter back to life after closures due to the coronavirus outbreak.
The car industry is especially exposed as Wuhan – the epicenter of the outbreak – is known as one of China’s ‘Detroits’, accounting for nearly 10% of vehicles made in the country and home to hundreds of parts suppliers.
Non-essential factories in Wuhan and other cities in Hubei province remain on lockdown at least until Wednesday. When they reopen on March 11, or whenever authorities give the go-ahead, it is not clear if companies will have the raw materials or workers to get back to normal operations.
Automakers are concerned about their employees’ health and the uneven and unpredictable application of rules in different cities and regions that is making it hard for an industry that is used to uniformity to plan ahead.
“In some cities, one worker gets infected, the whole factory where he works needs to be shut down,” said one official at Honda Motor Co, which has a manufacturing hub and more than 100 suppliers in Wuhan and the surrounding area.
“In Wuhan, that has not been clarified,” he said. “You don’t know what’s going to happen to your factory until you report an infection case to authorities. It’s hard to live with that kind of uncertainty when you’re running a massive factory.”
Employees reported back to work at Honda’s other Chinese manufacturing hub, in the southern China city of Guangzhou, on Feb. 10 and partial production restarted on Feb. 17. Production there is still running well below capacity due to parts shortages and logistical delays, the company official said.
Honda is expecting to reopen its Wuhan hub this week, after the lockdown is lifted or whenever authorities allow it. Together, Honda’s two China hubs have the capacity to produce 1.2 million vehicles a year, or more than 20% of the company’s total global production.
Like other manufacturers in Wuhan, automakers and parts suppliers are still dealing with partially blocked roads and health inspections on major transportation arteries, which are creating problems moving around raw materials and finished parts, according to Yohei Shinoda, personnel manager for Kasai Kogyo Co, a Japanese company with four plants in China producing interior door and roof trims for Honda and other automakers.
“Even if we wanted to resume production, we can’t access the materials we need due to supply chain disruptions,” said Shinoda, whose firm has plants in Wuhan, Guangzhou, Kaifeng and Dalian. “On top of that, we’re facing staffing shortages at our plants.”
A joint venture between U.S. company Cummins Inc (NYSE:) and truck maker Dongfeng Motor Group which makes diesel engines for big buses and commercial vehicles in the city of Xiangyang in Hubei province may face problems.
“The logistics between cities remains an issue, we expect it will take longer for us to get parts from upstream suppliers and send engines to Dongfeng plants in other cities,” an official of the joint venture told Reuters.
The corporate damage in Hubei could be significant and long-lasting. A joint survey of 573 Hubei companies – including 12 involved in auto manufacturing – by Wuhan University and the Wuhan Federation of Industry and Commerce late last month showed more than 97% of them halted or partially halted production due to the coronavirus outbreak. Nearly 60% said they would be bankrupt in three months or fewer if operations are not restored.
The picture in the rest of China is slightly better. More than 90% of some 300-plus automotive parts suppliers outside Hubei say they have resumed production, with 80% of workers present, according to the China Association of Automobile Manufacturers.
However, the association said production rates were still not high, given the dearth of orders from manufacturers and logistics problems at smaller second- and third-tier suppliers.
Chinese automakers and parts producers exported $53 billion worth of automotive components to the United States, Europe, Japan, South Korea and elsewhere last year. If plants do not get back up to speed quickly, vehicle assembly lines across the world are at risk of slowing or shutting down.
General Motors Co (NYSE:) Chief Executive Mary Barra said on Wednesday that the company’s North American car and truck plants have secured components to last “quite far into this month.” Normally, automakers have parts shipments lined up and assured for many months in advance.
Companies are doing what they can to get back on track, but there is no guarantee against disruptions.
U.S. drivetrain supplier Dana Corp’s global purchasing team scrambled to get more than 200,000 facial masks for its plants in China to keep workers safe on the job. So far, Dana has avoided any significant disruptions, CEO James Kamsickas said.
U.S. auto supplier Cooper Standard has 13 factories across China which have resumed production with 65% of the normal workforce, said Larry Ott, Cooper Standard’s head of global human resources at the company’s headquarters outside Detroit.
“That’s basically what we need right now to satisfy the customer demand,” he said.