European Carmakers Sound Alarm Amid Coronavirus Shutdowns
The ongoing coronavirus outbreak has proved a baptism of fire for the new decade. In addition to a host of vulnerabilities already exposed by the virus, from public health efforts to international travel coordination, social media regulation to latent-turned-potent xenophobia, European carmakers are now, too, entering the firing line.
Europe’s famed automobile industry has long depended on China. The bloc is the biggest exporter of passenger cars to China, accounting for 53.5% of total Chinese car imports by value. In other direction, Chinese-owned carmakers produced more than 422,000 passenger cars in the EU in 2018, spread across five production plants in Bulgaria, Belgium, Sweden and the United Kingdom.
German carmakers are particularly vulnerable to shifts in the Chinese market. Volkswagen sells more cars in China than in any other country, and Chinese consumers are a similarly core market for BMW and Daimler. The coronavirus outbreak, then, presents a potentially devastating new development for European carmakers.
“The biggest problem in Wuhan is that nobody is buying a car,” Ferdinand Dudenhöffer, a professor at the University of Duisburg-Essen, told the New York Times, “the Germans have the biggest risk portfolio in China.”
Beyond point-of-sale risks, coronavirus is testing global supply chains- already under strain from US President Trump’s trade feud with Beijing- to their limits. Carmakers are some of the most vulnerable to interruptions in the international flow of goods: automobiles are complex products, made up of any number of precision parts. Many carmakers, like Volvo, are beginning to rely more exclusively on Chinese parts like spare tires, and factory closures in China will soon have global implications.
Factories run by Europe’s Volkswagen, Daimler, Renault and Continental, as well as Japan’s Nissan and American carmakers Tesla and Ford, have all seen auto plants shut down throughout China as part of efforts to contain the spread of coronavirus. Several say they plan to re-open their factories next week- provided they receive approval from Beijing. With the number of cases and death toll continuing to rise, this may be unlikely.
South Korea’s Hyundai, the world’s fifth-largest carmaker, announced this week that it would temporarily halt production lines at factories in South Korea due to shortages of Chinese parts. As the inventories of other manufacturers dwindle, similar announcements from European carmakers should be expected.
“Everybody planned to be down for a week, but nobody planned to be down for a month,” says Dan Hearsch, managing director at automotive and industrial practice AlixPartners, “The manufacturers are concerned about depleting their inventory of parts, but the question is how long is it going to go on? If it becomes six weeks, eight weeks, 10 weeks, that’s a real problem.”
Indeed, executives at several European carmakers this week warned that plants closer to home are mere weeks away from halting production due to disruptions caused by coronavirus. Germany’s Continental, which makes key parts for most major European carmakers, currently relies on 50 sites in China; the firm says it is committed to “minimising any disruptions.”
At the time of publication, approximately 28,285 coronavirus cases worldwide have been confirmed.