Monday, March 9, 2020

The Impact of COVID-19 on the Global Supply Chain of Auto Parts: Repair Your Car Now!

If you’ve been delaying that car repair, Jenni Newman has some advice: Don’t wait to take your car to the shop.
The coronavirus and its growing tally of sick and dead victims around the world have been roiling financial markets, prompting countless hand-washing reminders and ruining more than a few vacations, and that’s before anyone knows exactly how widespread the effect will be on the automotive industry, including your local repair shop.
But Newman, editor-in-chief of cars.com, is among a growing chorus of industry watchers and insiders who say they expect a very real impact in the United States, including on the availability of parts needed for repairs. China, where the outbreak has been most intense, is behind only Mexico and Canada in the amount of imported auto parts sent to the United States, according to the Center for Automotive Research.
And as COVID-19 shows up in even more places, the effects will be felt in other ways, too.
“If you were thinking about doing a repair to your car, and I know for some people they may be delaying, perhaps it’s time to move that to the top of your list,” Newman said. “Better to get moving on this and get your car repaired rather than cross your fingers and hope everything turns out OK.”
The message so far from auto companies to dealers and beyond has been uncertainty about the impact — the Center for Automotive Research notes that most auto parts are still produced domestically — but that appears to be more a matter of timing and total severity. The interconnected nature of the global automotive supply chain and heavy reliance on China in particular for parts production mean the widespread factory shutdowns in an effort to contain the spread of the disease will eventually send ripples  to the United States.Michael Dunne, a top Chinese auto industry analyst, predicts the impact will be felt within weeks.
“China is quietly a source for many replacement parts in American dealerships. Dealers are bound to feel a crunch in mid- to late-March as their inventory dwindles,” said Dunne, who is CEO of ZoZo Go.

U.S. parts imports from China tripled from 2010 to 2018, making production here more vulnerable to problems in China than ever before. However, automakers commonly have a one- or two-month inventory of parts that come from as far away as China, so car production here hasn’t been affected yet.
GM chair and CEO Mary Barra said her company’s North American production is secure well into this month.


But lots of stuff ships from there

China has become a major source for the electronics that control nearly every system in a modern car.
“We have also noticed China's emergence as a major supplier of high volume and relatively low margin components, such (as) brake pads or throttle bodies,” said Matteo Fini, IHS Markit executive director of market research and analysis.
It can take weeks or months to add a second source for a part if the company or country you buy from is incapacitated, Fini said.
One Michigan-based parts manufacturer has already been navigating these troubled waters.
“If anyone here in the United States says they’re not going to be impacted by this, they don’t understand the gravity of this situation,” said Mary Buchzeiger, CEO of Lucerne International in Auburn Hills. 
Lucerne has done business in China since 2003, so Buchzeiger knew this was serious. 
She put together a crisis management team in the United States and Shanghai immediately. The teams are on the phone daily to mitigate the business risks from the virus outbreak.
“Whether it’s a tiny screw or a key component, there are parts that come from far and wide,” said Buchzeiger. “We need to brace for an impact. I don’t think we’ve seen the full effect of it now, but it’s coming.”
Buchzeiger has not traveled to China to oversee operations as she normally does. Lucerne has partnerships in seven production facilities in China where it makes chassis, pistons for powertrains and other structural components. Its customers are the heavy truck industry, Ford Motor Co., General Motors, Nissan North America and Harley-Davidson. 
Only one of those plants is running with a full workforce. It’s in Shanghai and because Lucerne hired local people, they were not affected as much by quarantines. But the rest of the plants are still ramping up with only about half their workforce because of quarantines. None of her workers has gotten the virus, she said.
“We still can’t get into certain areas because of quarantine, so we have to use video conferences with the plant performing quality checks over video,” said Buchzeiger. “On-site audits are replaced with conference calls. You have to get creative.”
That creativity included asking her customer, Harley-Davidson, for help.
“They’ve had to step in by using their power in freight to get us planes to move our parts” to shipping yards, Buchzeiger said. “For a while, we couldn’t find truck drivers and they couldn’t cross borders so it’s very hard to move parts around and get them to the ships. But it’s lessening every day.”
She said shipping was delayed for about three weeks requiring Lucerne to use air freight that it didn’t previously plan for when budgeting.
“Luckily, we didn’t have to move large quantities, just samples so we kept (costs) to a minimum,” Buchzeiger said.

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Jim Seavitt, president of Village Ford in Dearborn, said his service business continues to receive parts and is humming along as usual, but new car sales have slowed and he believes it’s due, in part, to the coronavirus.
Seavitt said new car sales were strong in January, when he sold more than he did in the same period a year ago. But his February sales were flat and March has started out slowly.
“I hate blaming everything on the virus,” Seavitt said. “I think the stock market plunge rocked a lot of people and the virus might have also caused hesitancy. I think people are avoiding certain places.”
To take precautions, Seavitt has hand sanitizer in all the restrooms at his store and has Lysol wipes for his staff to clean their monitors and keyboards with daily. 




The slowed production in China has not impeded Village Ford’s parts flow for repairs, and he “doesn’t think it will, for a while anyway.”
Motor City Buick GMC boss John Pitre said he worries about a potential vehicle supply shortage this summer.
“We might see some vehicle interruption, just like with the (General Motors) strike you didn’t feel it for 60 days later,” said Pitre, whose dealership is in Bakersfield, California. “We might ... see some vehicle interruptions or parts shortages later in the summer. Some of our Buick models are made in China and Korea.”
GM builds the Buick Enclave in South Korea and the Buick Envision in China.

Navigating bottlenecks

Production is only one piece of the puzzle, however.
David Closs, a supply chain management professor emeritus at the Broad School of Business at Michigan State University, said the issue at the moment is less about manufacturing disruption than transportation problems.
After talking with industry leaders, he said there’s a strong indication that “things are starting to move now, improving.” Factories are starting to re-open but now the auto companies must navigate transportation “bottlenecks.”
“The ships are not positioned,” Closs said. “They’ve been moved around and, because of the lack of loads in recent weeks they’ve been held up. It’ll take time to fix that. Ships are starting to leave Asia with products but it still means four to six weeks before things start stabilizing.”
Another issue of concern, he said, is the impact on workers who move containers from ports to rail yards or other facilities. They tend to be private contractors who shuttle materials short distances on their privately owned trucks, and the profit margins are so thin that weeks of unemployment may mean loss of vehicle ownership, Closs said.
“Some of these guys, when business got cut, they went out of business. They operate day to day. You shut them down for two or three weeks, and they can’t make payments on their trucks,” he said. “The margins are very tight for these guys on the coasts, at the ports.”
Finally, port schedules tend to be tight all the time because capacity requirements have been constrained, Closs said. So now the industry is trying to shoehorn additional deliveries. “That’ll make everything worse.”
Contact Eric D. Lawrence: elawrence@freepress.com or 313-223-4272. Follow him on Twitter: @_ericdlawrence. Staff writer Kristen Jordan Shamus contributed to this report.

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