Disruptions caused by the coronavirus outbreak have forced auto makers and their suppliers to idle plants across China, rattling the industry’s global supply chain and posing another challenge for companies already facing slowing sales and declining profitability.
Chinese factories building both finished vehicles and car parts have been on an extended temporary shutdown following the Lunar New Year holiday, as part of a larger effort by the country’s government to suspend business and travel as it tries to contain the spread of the deadly flulike virus.
While many factories were expected to reopen next week, some auto makers and suppliers say they’ll keep their plants idled for longer or are waiting until this weekend to make a final determination. The expected disruptions threaten the ability of auto makers to get key parts and maintain production levels well into 2020.
Honda Motor Co., which has three assembly plants in the city of Wuhan where the outbreak is believed to have begun, said Friday that production at those plants was likely to resume in the week of Feb. 17. The company earlier targeted Feb. 14 for the restart.
Executive Vice President Seiji Kuraishi said the company had planned repairs to its production lines during the holiday but had to stop because of restrictions set by local authorities.
Toyota Motor Corp. said Friday that its joint-venture factories in China wouldn’t restart regular production until Feb. 17 at the earliest, with further delays possible. The company is concerned some employees visiting families during the holiday might not be able to immediately return to work, said public-relations head Masayoshi Shirayanagi.
“Some provinces are ordering people to stay at home for 14 days after they come back from other provinces,” Mr. Shirayanagi said. “We’ll have to take that kind of thing into account.”
The outbreak is yet another challenge for the global car business, already facing slowing sales, falling profit margins and new auto-emissions regulations requiring manufacturers to spend billions on electric cars. Car-industry sales in China have slumped over the past two years, ending a 30-year boom that resulted in auto makers rushing to build more plants in the country.
Car company executives say they are still trying to get a handle on how deeply this could cut into sales results and whether it will affect earnings. Many say it is too early to tell.
The suspended production is already having an impact outside of China. Many Chinese auto-parts suppliers haven’t been able to build and export parts, creating a ripple effect for the foreign car factories that depend on them for critical components.
The intricacy of supply chains in the auto industry—where a typical finished vehicle is assembled from roughly 30,000 individual parts manufactured by hundreds of different companies—makes it difficult for car companies to quickly shift work outside of China or to another supplier, analysts and car executives say.
Fiat Chrysler Automobiles NV chief executive Mike Manley said it might have to halt production at one of its European plants in as little as two weeks because four Chinese suppliers are unable to provide parts.
Hyundai Motor Co. has already suspended production lines at its South Korean plants due to shortages of parts supplied by Chinese factories, a company spokesperson said Tuesday.
France’s Renault SA is also closing a factory in South Korea because of supply shortages from its Chinese suppliers. The shutdown will start on Feb. 11 and last for at least four days, a spokeswoman said.
Even if plants in China are able to reopen next week, there is no guarantee that they’ll have the workforce or parts to restart assembly lines, analysts and car executives say.
Auto forecasting company LMC Automotive expects the outbreak to have a lingering effect on car manufacturing well into the spring before coming under control in June. That scenario could reduce Chinese car production by over 900,000 vehicles this year, shaving around 4% from what had been expected before the shutdowns, the company said in a published note.
In addition to disrupting assembly of finished vehicles, China has thousands of auto parts suppliers, some of whom are already telling clients they won’t be able to fulfill orders, say industry lawyers.
Guenter Butschek, chief executive officer of India’s Tata Motors Ltd., said the situation in China could be unclear for months.
“We can expect the rebalancing of the entire supply chain is effectively going to take more than just a week, because there is a huge backlog in demand domestically and for export,” Mr. Butschek said.
The chief executives for General Motors Co. and Ford Motor Co. said this week that they are still trying to assess the situation. Both car companies have large vehicle-assembly operations in China, all of which have been idled due to the outbreak.
Some of GM’s plants are expected to reopen next week, but it does have one factory in Wuhan that likely will be idled longer, according to a company spokesman.
“Our supply chain and engineering teams are working around the clock to develop and execute contingency plans,” GM Chief Executive Mary Barra told investors during a presentation Wednesday in New York.
It could take some time before China-side work stoppages affect U.S. assembly plants because shipping parts across the Pacific takes weeks and deliveries are still expected to come in, analysts say.
But the longer businesses are closed in China, the more complicated it can get for foreign factories reliant on Chinese-built parts. Hyundai was among the first auto makers impacted outside of China as its South Korean factories are close to nearby China and they can keep leaner inventories on hand.
The disruption highlights both the complexity and fragility of the auto industry’s global supply chains, said Sheldon Klein, a Detroit-based attorney whose practice works with automotive suppliers.
“If anything goes wrong, the whole thing comes crashing down,” he said.
—Megumi Fujikawa, Eric Bellman and Nick Kostov contributed to this article.
Write to Ben Foldy at [email protected]
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