business

Global automaker supplies threatened by China coronavirus crisis

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By Joseph White

The threat from the coronavirus crisis closed in on the global auto industry on Thursday, as Fiat Chrysler Automobiles NV warned that a European plant could shut down within two to four weeks if Chinese parts suppliers cannot get back to work.

The next several weeks will be critical for automakers. Parts made in China are used in millions of vehicles assembled elsewhere, and China's Hubei province, epicenter of the coronavirus outbreak, is a major hub for vehicle parts production and shipments.

Industry experts said auto suppliers had built up a cushion of parts in inventory and in-transit ahead of the long Chinese New Year holiday in late January. Those will start to run out if Chinese parts factories cannot get back to work next week, or if flights to and from China remain limited.

Chinese auto parts and assembly plants have extended previously planned New Year's shutdowns through Feb 9. But some have pushed the shutdowns out further.

"Almost everybody has some product where they are in trouble," said Dan Hearsch, a managing director for the auto and industrial practice of consulting firm AlixPartners.

Fiat Chrysler Chief Executive Officer Mike Manley said Thursday the automaker could be forced to suspend production at a European assembly plant if parts don't begin to flow within two to four weeks. He did not identify the plant or vehicles at risk.

South Korea's Hyundai said shortages of parts from China would force it to suspend production at its South Korean plants.

Other global automakers have not disclosed details about potential disruptions outside China, but have said they are monitoring the risks. Toyota operating officer Masayoshi Shirayanagi said the automaker is "looking very closely at inventories of components" outside China.

GM has teams working around the clock to head off trouble, the automaker's chief financial officer said.

AlixPartners consultant Hearsch said automakers are more likely than in the past to have backup sources of critical parts. They and their major suppliers took steps after the deadly 2011 tsunami that crippled key auto parts makers in Japan to reduce the risk that a catastrophe at a single factory could shut down assembly lines.

Flexible manufacturing equipment can also be reprogrammed or relocated to produce parts. When a fire at a Michigan supplier plant threatened production of Ford Motor Co's high-profit pickup trucks, Ford moved rapidly to relocate production tools to a plant in Ontario.

Still, not all the production from China's Hubei province can be easily replaced or moved. Hubei is one of 11 Chinese provinces that are responsible for more than two-thirds of vehicle production in China, IHS Markit said in a study last week.

If plants remain idled into March, the production losses within China would become significant, amounting to more than 1.7 million vehicles of lost production during the first quarter, IHS projected.

© (c) Copyright Thomson Reuters 2020.

©2020 GPlusMedia Inc.

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The silliness of all this is the fact these major companies pay big money to "risk assessment" experts, that have put these companies in this position having their supplies coming from the one high risk country in the middle of a trade war - if the management had taken the "hint" when the trade war started and arranged for back up suppliers in other countries this wouldn't be an issue now.

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This is the inevitable result of globalized supply chains and Just-In-Time inventory management. When things are going normally, you can keep stock levels low and improve profit margins. However, whenever there's a major shock to the system, the whole thing grinds to a halt.

There are stopgap measures mentioned in this article but they are either non-realistic for many products or band-aids at best. The entire way of managing like this is inherently vulnerable to major world events.

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