When the world stops making cars

As COVID-19 pandemic tightens its grip around the world, city streets have become almost empty. There’s nowhere to go as schools, public institutions and most businesses have closed their doors, public gatherings banned and most people trapped in their houses because of curfews and roadblocks.

If people can’t leave their homes, they can’t buy cars—even if the dealerships remain open.

The effect is indeed, catastrophic for auto manufacturers as they have to take the difficult decision to cease or scale back production for a period of at least four weeks. A stoppage like this was the last thing the industry needed.

After the virus intensified in China last January, Chinese auto sales plunged 79.1 percent the following month, marking their biggest-ever monthly decline, according to the China Association of Automobile Manufacturers (CAAM).

Significant and scary

This is significant—and scary—considering China is the world’s biggest car market with over 21 million cars sold in 2019. Hubei province, where the outbreak began, is a large car manufacturing hub responsible for nearly 10 percent of China’s output. Dongfeng Motor Group Co Ltd and its partners Honda Motor, Renault SA and Peugeot SA have all said they are delaying the restart of production.

Elsewhere in China, many auto companies were also forced to close shops including Tesla’s Shanghai factory, delaying the production date of its Model 3, as a result. Even Volkswagen halted temporarily its production of all its manufacturing plants that it runs in partnership with Chinese automotive design and manufacturing giant, SAIC.

The CAAM said China’s first semester is expected to a steep decline in car sales—by more than 10 percent—if the outbreak is not effectively contained before April.

Disruptions

Indeed, COVID-19 pandemic is producing disruptions not seen in decades, and major auto industries across the globe are already feeling the impact.

As China recovers from the worst impact of COVID-19, the disruptions have shifted to Europe and the United States. In both markets, the situation is rapidly evolving from just a problem of securing parts supplies in January and February to that of reduced demand and manpower shortage as auto workers are forced to stay home.

Every major automaker in the United Kingdom and Continental Europe is suspending or cutting production as the disruption from COVID-19 pandemic intensifies. Brands like Jaguar Land Rover, Bentley Motors, Volvo, Volkswagen, Mercedes-Benz owner Daimler, Fiat Chrysler Automobiles and Renault are now temporarily closed. Only lower-volume manufacturers such as Aston Martin and Geely-owned Lotus, kept their factories open.

Despite shutting down their manufacturing plants in continental Europe, Ford decided to keep its three UK factories that make engines and transmissions, operational.

Because of these stoppage, it is estimated that overall sales in UK and Continental Europe will decline by around 7 percent.

In the United States, Detroit-based Big Three also announced similar closures. Ford was the first to issue a statement informing of stoppage in all of the company’s US, Canadian, and Mexican manufacturing facilities until March 30, at a minimum.

Meanwhile, General Motors has finished its systematic orderly suspension of manufacturing operations, which it said, will last until at least March 30.

Fiat Chrysler Automobiles also announced the shut down of all its plants across North America until March 31.

Supended operations

Toyota also suspended operations of all its North American manufacturing facilities while Nissan’s US plants are now closed until April 6 while made no announcement regarding its facilities in Mexico.

Honda also halted its North American production until March 31. The decision applies to vehicle manufacturing and assembly as well as to Honda’s engine and transmission plants in the region. According to Honda, the company will see a production loss of about 40,000 vehicles.

Similarly, Hyundai Motor America idled its plant in Montgomery, Alabama, after a worker tested positive for the COVID-19 virus. Hyundai said it will continue to evaluate the situation although it has not indicated how long the plant will be shut. There have been no announcements regarding Hyundai’s affiliate, Kia that operates a plant in West Point, Georgia as well as in Mexico.

Subaru in Indiana also suspended its operations.

Following a one-day shutdown of its facility in Chattanooga, Tennessee, Volkswagen has extended its closure until March 29 while affiliate Audi has suspended production of its Mexico plant until April 13 .

It is estimated that in the US, 2020 sales will decline by about 6 percent, increasing to 8 percent in case of a prolonged outbreak of the virus.

As auto plants in Europe, North America and Latin America temporarily suspended production, the hiatus, which could last three weeks or more, would create an immediate cash crunch to automakers through lost vehicle production.

According to new research from IHS Markit, these shuttering of auto plants, even if temporary, could already reduce global production this year by more than 1.4 million vehicles.