Supply chains brace for coronavirus impact

North American purchasing and production managers spent this week attempting to prepare for the coronavirus as it spread worldwide.

The worsening health crisis stirred concerns over China as a source for critical auto parts used around the world. Two weeks ago, industry executives worried about the coronavirus' impact on domestic vehicle production in China. Last week, those worries escalated to the possibility of a production impact outside of China — including in North America.

Hyundai Motor Co. last week said that a shortage of Chinese-made components is already forcing it to temporarily halt production at its South Korean factories.

Others moved into contingency planning without yet knowing the extent of the virus.

"Our supply chain and engineering teams are working around the clock to develop and execute contingency plans, and we are doing everything possible to mitigate the impact of the virus," General Motors CEO Mary Barra said at the automaker's Capital Markets Day last week. "It's a very fluid situation."

Fiat Chrysler Automobiles CEO Mike Manley told the Financial Times that four of its Chinese suppliers have been affected by the coronavirus outbreak, one of which Manley called a "critical" supplier. He said the situation could halt supply to one of FCA's European plants in the next two to four weeks.

Tony Sapienza, ZF North America Inc. spokesman, told Automotive News that ZF is in dialogue with all of its suppliers on how to keep supply chains stable and "production downtime as low as possible."

"In some cases, we can compensate for bottlenecks by making deliveries from other plants," Sapienza said. That contingency had not yet become necessary as the week ended.

Sapienza expressed confidence that the maker of safety systems, transmissions and chassis components would be able to make up any resulting lost production during the course of the year through added production schedules. But he added: "Whether this outlook remains realistic will depend on how events continue to unfold."

The illness — originally identified late last year in Wuhan, China, a major auto industry center — had infected more than 32,000 by week's end, mostly in China, with more than 600 reported deaths, according to health agency reports.

The Chinese government has quarantined some 50 million people in several cities in an effort to halt the spread of the virus. Travel restrictions have been imposed to limit movement in and out of China, and multiple international airlines have suspended flight service into the country.

Chinese authorities also previously ordered many cities to remain on national holiday until Feb. 3, and until Sunday, Feb. 9, in other cities.

Last week, Beijing extended its stay-home orders to Monday, Feb. 10 — and Toyota said it will keep its plants in China closed through Feb. 16.

Some suppliers said last week that they also will keep some plants in China closed for an extended time, although most are preparing to resume production in a few days.

But the longer facility closures and production delays are starting to take a toll.

Julie Fream, president of the North American auto supplier trade group Original Equipment Suppliers Association, warned in a statement last week that "because of the global nature and depth of the automotive supply chain, Tier 1 suppliers and vehicle manufacturers' production continuity could become a concern as the virus impacts companies deeper in the supply chain."

The Anderson Economic Group consulting company called the coronavirus a "serious risk" for auto suppliers and automakers dependent on Chinese-sourced parts.

Mike Wall, automotive analyst at IHS Markit, said it will be difficult to estimate the effect of the production halts, given the magnitude of different components produced in China, as well as other factors such as buffer stock and the volume of inventory already in transit.

Wall added that automakers and suppliers are now planning for an impact from the illness by looking at alternative sources of parts and the possible temporary use of alternative suppliers.

"The bad news for the auto industry is that it only takes one component to take down the production of a vehicle," Wall said.

Daron Gifford, a partner with consulting company Plante Moran, said the coronavirus could have a more lasting effect on global supply chains, even after the crisis passes.

"It'll be interesting, after this is done, if it starts to alter some of our suppliers' plans on how they structure their supply chain," Gifford said.

"The longer these things go on and the more disruption that occurs in the supply chain, you start diverting your production."

Hannah Lutz contributed to this report.