The reality of the Corona Virus situation is beginning to set in, its threatening to push several countries into recession and crippling global supply chains. The virus itself is not a serious threat to the global economy, it is the measures that the Chinese authorities have put in place to try and control the virus that are the real threat. Hubei province remains the most affected, with its capital city Wuhan, inhabited by more than 11 million people remains on lock-down. Its train stations, public transport, roads and airports remain shut.
According to the World Health Organization data, infections have been reported in more than 27 countries. There has been a growing concern about the integrated global supply chains: China now plays a much bigger role in the global supply chains as it has grown to be a major manufacturer of critical equipment and parts for most industries around the globe. This is a sharp contrast from when China first experienced a major health epidemic SARS some 17 years ago. The SARS- Severe Acute Respiratory Syndrome outbreak lasted for around eight months and claimed about 800 lives out of the about 8100 cases reported.
China is the world’s largest car market with about 21 million new cars sold in 2019, with the USA coming second. Wuhan is a major manufacturing hub and is critical to global car supply chains; General Motors, Honda, Nissan, Renault and Peugeot all have major component facilities in Wuhan. Car production has been has been adversely disrupted with many of the world’s largest automakers warning delays in their production schedules as most of the industries in Wuhan remain closed. Fiat Chrysler says the impact of the Coronavirus epidemic could hurt production at one of its plants. Volkswagen Group, the world’s largest automaker through Volkswagen is said to own about 40 production plants in China. It has also sent warning calls. Jaguar Landrover, UK’s largest automaker has warned of production shortfalls at its three UK plants due to disruption in components supply from China. Hyundai, the fifth largest automaker has been forced to halt production at its plants due to shortage of parts from China. A car manufacturing plant may have all other car components, but a critical missing part from China is enough to stop production.
In Europe, the outbreak of the virus has added to the ever growing list of woes from the German automakers. Enforcement measures have seen much of China remain under lock-down and this has presented its share of problems; China is the largest global market for BMW, Volkswagen and Mercedes. Sales for February are expected to fall by more than 50% as car dealerships remain closed and consumers also giving them a wide berth as precaution.
The big German car manufacturers have been struggling with reduced global demand for vehicles weakening economic growth prospects, pollution and environmental concerns, higher tariffs as a result of the USA and China trade wars and the costly transition to electric autonomous cars.