Automakers get 'imaginative' with coronavirus parts disruptions

Breana Noble Henry Payne
The Detroit News

The real impact of the coronavirus outbreak in China on the North American auto industry soon could be felt as delays from the shipment of parts catch up to automakers — a disruption that could lead suppliers to reverse a trend of consolidating production in China.

As automakers cancel vehicle showings and implement employee travel restrictions, the magnitude of the outbreak's impact on U.S. manufacturers ultimately will depend on demand, according to experts. Companies may have to pay extra to prioritize shipping or for air freight travel as the extended holiday and slow production ramp-up catches up to manufacturers. But if the virus worsens here, it could hurt demand. While that may reduce the need for expedited shipments, it could cause a host of other problems.

Brock Teelander works on the assembly line at the GM Lansing Delta Township plant. The real impact of the coronavirus outbreak in China soon could be felt as delays from the shipment of parts catch up to automakers.

"The larger danger, in my opinion, is a demand-side collapse," Michael Dunne, CEO of Hong Kong-based advisory firm ZoZo Go LLC, said Friday during a webinar held by the Center for Automotive Research in Ann Arbor. "People’s appetite for going out, buying things, doing things can go to nothing in a hurry. ... It's a time for extended uncertainty over the next several months and to get used it to as soon as we can."

The U.S. death toll on Friday rose to 14 people in Washington state as total cases surpassed 250 in the United States. President Donald Trump signed an $8.3 billion emergency spending bill to help combat the outbreak.

For now, automakers are facing the challenge of ensuring they have the parts they need. General Motors Co. CEO Mary Barra earlier this week said the company's supply chain has been secured through late March.

GM also has canceled all upcoming media product programs through April, including the April 2 world premiere of Cadillac's first electric SUV in Los Angeles, the Lyriq.

"Out of an abundance of caution, we have made the decision to cancel," a GM representative said in an email. The electric GMC Hummer reveal scheduled for May is still on pending review.

GM now also is requiring leadership approval for employees traveling domestically and internationally. Fiat Chrysler Automobile NV implemented similar measures earlier this week. The Italian American automaker is developing contingency plans and changing vehicle specifications where a certain part may be in short supply.

Ford Motor Co. has extended its restrictions on non-essential domestic and international travel for employees to April 17 from March 27. It remains on track to unveil its highly anticipated Bronco off-road SUV this spring.

"I'll acknowledge we've been imaginative in how we've managed the issue so far, including the supply side in terms of specific forms they've taken," Ford spokesman T.R. Reid said. "We can fulfill the needs of our customers. Second to keeping our people safe, that's the top objective for us."

About three-quarters of the dollar value of auto parts made in China that are imported to the United States are used to make vehicles, according to the Center for Automotive Research. The largest categories of imports were wheels, brakes and brake parts.

But "it doesn't matter what we get from China because everyone else gets things from China," said Kristin Dziczek, vice president of the Center for Automotive Research. "It's a very layered and integrated global supply chain."

The outbreak in China began just before the Lunar New Year holiday, a build-up in production prior has helped to reduce disruption for now, Dziczek said. It can take a month for two for shipments to reach North America — about as much inventory as automakers typically have on hand. That is compared to just two weeks to Japan and South Korea, causing early shutdowns at Hyundai Motor Co. and Nissan Motor Co. Ltd. there.

"That buffer is drawing down," Dziczek said. "It's going to start to bite really soon."

And with greater consolidation of vehicle platforms, more factories are reliant on the same suppliers, causing a greater multiplier effect.

The result, experts predict, will be a reverse in trend of suppliers moving global production to China. In the 1990s, suppliers pivoted to China from producing in Southeast Asia as China's economy continued to grow in the 2000s and 2010s. But trade tensions and two consecutive years of decreasing demand for automobiles there are changing the picture. Coronavirus is accelerating the change, ZoZo Go's Dunne said.

"The urgency around that has just been amplified as manufacturers and suppliers have found with the events unfolding in China," Dunne said. "Without sources outside of China, they’re extremely vulnerable."

That likely means China production is moving up the value chain with what is made there staying there, said Paul Stepanek, owner of Complete Manufacturing and Distribution, an Asian consulting firm. Global parts production could return to other parts of Southeast Asia like India, Malaysia, Thailand and Vietnam.

"That," Dunne said,  "is a big new strategic direction for them."

Detroit News Staff Writer Kalea Hall contributed.

Twitter: @BreanaCNoble