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Fears over auto parts scarcity as Coronavirus rages 

The global auto industry has begun to feel the impact of the coronavirus outbreak as factory shutdowns in China threaten a vital source of parts.

With the factories of spare parts  shut down as part of the severe measures taken to combat the coronavirus holocaust, there are fears that the global  scarcity of supplies of parts may set and prices of it looking northwards.

The shutdown reportedly is to extend at least a week, though labour and management are still negotiating the duration. Facing parts shortages, South Korea’s Hyundai Motor is suspending operations at its three domestic auto assembly plants.

South Korea may have suffered the first blow, but U.S. and Japanese automakers face similar risks to their supply chains, to varying degrees, industry insiders say.

China, on top of its status as the world’s largest car market, has become an important supplier of auto parts. Wuhan, the source of the coronavirus outbreak, is a key hub for this activity.

As Chinese production of finished vehicles has grown and nearly doubling over a decade to 25.7 million last year, auto parts factories have popped up around assembly plants. Much of their output goes to other markets.

One-quarter of China’s auto parts exports in 2017 went to the U.S., with 10 percent going to Japan, 5 percent to South Korea and 5 percent to Germany.

The U.S. imported $11 billion in auto parts from China in 2018 and second only to its imports from Mexico spanning a wide range of products including engine and drive components. American companies also often import Chinese parts indirectly, via Japan or Mexico.

Japan imported about 347 billion yen ($3.2 billion) worth of auto parts from China in 2018, Japan External Trade Organization data shows which is a roughly tenfold increase from when the outbreak of severe acute respiratory syndrome, or SARS, occurred in 2002 and 2003.

As the quality of local labour has improved, Toyota, Honda and Nissan have increased their use of Chinese-made components even at domestic plants. A prolonged supply interruption could leave their operations in limbo.

Toyota supplier Toyota Boshoku imports seat covers from Zhejiang Province into Japan, and it supplies seat belt webbing produced in Shanghai to compatriot Tokai Rika. Toyota-affiliated CHK Spring Industry sells made-in-China cables for auto door locks to Japanese customers.

“There are parts that we can’t make elsewhere right away,” a CHK representative said.

Auto parts manufacturers on average keep a month’s supply of inventory on hand, and many maintain an additional cushion when cross-border transactions are involved.

Given stockpiling ahead of the recent Lunar New Year holiday, any disruption from the virus would take about two months to hit Japanese auto production, a securities analyst predicts.

But “there’s only a week’s supply of items for which we’re short on stock,” said Masaki Oka, a director at Toyota-affiliated parts maker Toyoda Gosei. The company, which ships Chinese-made products such as car grilles and air bag components to Japan and the U.S., is checking its inventories and considering alternative production plans.

A company that makes parts for vehicle interiors has issued a warning to customers.

“If the shutdowns in China go on for too long and parts don’t come in, we may not be able to keep up production in Japan,” said a representative from the manufacturer.

Stoppages at Hyundai, South Korea’s biggest automaker, intensify the stress on a slowing industry that accounts for around one-fifth of the country’s gross domestic product, including related sectors.

Hyundai affiliate Kia Motors is considering a hold on production, depending on supplies. Midtier South Korean automaker SsangYong Motor, owned by Indian group Mahindra & Mahindra, has suspended factory operations as well.

Many Chinese cities besides Wuhan have extended their Lunar New Year holidays through Sunday in an effort to curb the spread of the virus. Even after production resumes, exports might not pick up immediately, as transportation companies and customs offices may be short-staffed.



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