Dark, Contagious Clouds Gather Over the Auto Industry

With South Korea, Italy and Iran now reporting growing coronavirus outbreaks, it looks like this is going to be one of these long-haul illnesses that sends everyone to the store to stock on up on milk and bread. As you might have guessed, automakers have continued issuing warnings as the virus’ range continues to expand. On Wednesday, Toyota announced that its Japanese plans will undoubtedly be impacted by parts shortages over the next few weeks as Chinese suppliers remain dormant.

The worst of the outbreak is still located in Wuhan, where the virus is spreading out toward China’s coastal cities. Reliable figures for the number of people affected are difficult to come by. The Communist Party of China (CPC) and World Health Organization (WPO) both claim China had this one in the bag, with new cases always reported as “slowing” — an assertion you would be forgiven for doubting. COVID-19 seems anything but under control. This week, the Centers for Disease Control and Prevention told U.S. citizens to prepare for the worst as the stock market stumbled over fears of a global pandemic.

While Toyota says it’s still receiving parts from Asian suppliers, it believes the situation could change by next week. Many Chinese factories are still closed and some of the facilities that are open are operating at limited effectiveness due to workers staying home. Others sites may be forcibly quarantined if an employee tests positive for COVID-19, resulting in weeks of downtime.

Regardless of how bad the virus ultimately gets, Toyota still plans on minimizing all non-essential travel for employees in Japan. Going to China is out of the question unless absolutely necessary, and even travel between Toyota’s domestic facilities will have some limitations. The automaker plans to reassess the situation on March 9th, when it will assuredly take advisement from the New Coronavirus Countermeasures Automobile Council.

Fiat Chrysler Automobiles, already trying to cope with the latest outbreak in Italy, has also sounded the alarm. In a Tuesday regulatory filing, FCA said epidemics pose a legitimate threat to the automotive industry. While it claims it is too soon to predict how hard the coronavirus would be on its business, FCA framed the overall situation as fairly gloomy, saying it could unpleasantly impact FCA’s financial performance. The manufacturer is already reporting supply chain troubles and has begun limiting who it allows inside its Italian facilities as a precaution.

From FCA:

We are also susceptible to risks relating to epidemics and pandemics of diseases. For example, the recent outbreak of coronavirus, a virus causing potentially deadly respiratory tract infections originating in China, may negatively affect economic conditions regionally as well as globally and may disrupt supply chains and otherwise impact operations. Governments in affected countries are imposing travel bans, quarantines and other emergency public safety measures. Those measures, though expected to be temporary in nature, may continue and increase depending on developments in the virus’ outbreak. As of the date hereof, we have temporarily halted production at one of our European plants because of an interruption of critical supplies. The Chinese automobile market has also begun to experience reduced demand. The ultimate severity of the coronavirus outbreak is uncertain at this time and therefore we cannot predict the impact it may have on our end markets and our operations; however, the effect on our results could be material and adverse.

Unless something changes to stifle the coronavirus’ infection rate, expect to see profit warnings and rolling reports of automakers having to contend with parts shortages over the next month. It could be a very exciting spring.

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