The ongoing coronavirus threat, now declared by the WHO as a pandemic, has caused global economic activity to slow down. The auto industry has also been deeply impacted, like many others, as the production of automobiles and car parts has dramatically slowed down due to manufacturing halts.
Coronavirus Disrupts Auto Parts Production in China
The virus originated in China, and so far the country has reported over 80,000 cases of the coronavirus. As a result, the auto industry in the country was mostly shut down in late January, disrupting the supply of auto parts around the world.
As reported by the China Passenger Car Association (CPCA), retail sales on passenger cars declined by a massive 92% in the first few weeks of February. Data shows that 59,930 passenger cars were sold in 2019, while only 4,909 vehicles were sold at around the same time this year.
Car Parts Supply Shortage Affects Carmakers Globally
According to reports, many automakers, including GM and Honda, are finding it difficult to maintain supply. Many plants have now reopened; however, only around 25% of workers have returned to their jobs. This means production in Chinese automotive factories remains at a fraction of its total capacity.
Experts believe the impact would be more severely felt in the car parts segment of the industry, as many regions of the world, including Australia, may potentially face a shortage of car parts in the coming weeks and maybe months. Disruptions in the global auto parts markets are expected to continue till June, even if production gets back to normal capacity in China.
China is a major global supplier of replacement body parts, tyres, suspension components, windshield wipers, to name a few of its car parts exports.
US Sees Decline in Production and Sales
In the US, although the coronavirus has not yet impacted car sales as of February, experts believe an increased spread of the virus could result in total annual car sales falling below 16 million units, lower than the 17 million car sales reported last year. An economic meltdown, if it occurs, is also likely to impact car sales in the US.
US production is also expected to slow down, as many assembly plants in the country rely on Chinese-manufactured parts. Demand for cars may also fall if the country starts implementing quarantines, prohibiting people from visiting car dealerships and participating in events. A mitigating measure would be through intensified online car marketing and sales, as China has done.
How Local Auto Industry Players Are Responding
In Australia, Hyundai has already informed its customers in advance about possible delays in new car deliveries due to the shortage of parts coming from China. According to the announcement, the company sees this setback affecting about 50% of all models slated to arrive in the coming months.
Many car manufacturers operating in Australia, however, have not issued similar notices so far. KIA, a sister brand of Hyundai, has stated that the company is carefully managing all production phases and does not expect to take any drastic measures in the Australian market.
Some Japanese automakers, including Nissan and Honda, had also suspended production of their China-based plants. Many other automobile companies, including Jaguar Land Rover, Fiat Chrysler, and General Motors, have also noted that the suspension of car parts manufacturing activities in China has impacted the global production at their assembly plants.
Automakers Face the Challenge Amid Bleak Forecasts
As car companies face the COVID-19 threat, they are turning towards creative solutions to overcome the challenge. To boost sales, companies like Volkswagen, Nissan, and BMW, to name a few, are investing in online shopping experiences. They use tools such as VR demos and live broadcasts to engage with customers that are reluctant to visit car dealerships at this time.
The Internet became the alternative venue for events and shows, like the recently cancelled Geneva International Motor Show, where carmakers conducted virtual presentations of their debuting concepts and production cars.
There are forecasts that global sales could fall by up to 2.5% in 2020, which is much higher compared to the expected decline of 0.9%. Due to the dependence of global auto manufacturers on car parts manufactured in China, the short supply of auto parts will create a ripple effect on the overall chain of production.
There will be shortages and delays, even as companies are now reportedly using air freight methods to expedite delivery of parts. While this shortens transporting time, it also increases costs and affects earnings.
As for consumers in Australia, the car parts market could face shortages and prices could go up, at least until plants in China return to full capacity and fresh supply reaches Australian markets. Until then, customers around the world, including those in Australia, can expect delays in new car deliveries and also the availability of car parts for their existing vehicles.
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By Muhammad A. Lashari