Honda has a strong presence in the Chinese market, which accounts for 30 per cent of its global sales. AFP
The spread of the new coronavirus in China is starting to hit the automotive industry hard.
Parts manufacturers around the country have been forced to shut down, which is affecting automakers’ global production systems.
Honda Motor Co executive vice-president Seiji Kuraishi warned at a press conference after the company’s earnings report was released on Friday that “Sales in China have been so strong that we have no inventory. If there’s a slowdown [in production] it will affect sales”.
Honda has a strong presence in the Chinese market, which accounts for 30 per cent of its global sales, a higher proportion than other Japanese automakers.
While Honda’s four-wheeled vehicle business has struggled in Japan and elsewhere, sales in China have grown significantly, increasing by 8.5 per cent year-on-year last year, making sales there a crucial part of the company’s earnings.
Last year, Honda opened its third factory in Wuhan city, and it had been operating at full production with employees working overtime. A prolonged production stoppage will only make the ramifications more severe.
Toyota Motor Corp has also focused on the Chinese market recently.
Last year, sales of new Toyota and Lexus models in China exceeded sales in the Japanese market for the first time.
At a press conference on Thursday on the firm’s earnings report, Toyota executive vice-president Didier Leroy said: “The impact of this new additional problem [the new coronavirus] is really unclear at this stage and can change very quickly in the following days or weeks.”
Koji Endo, who heads the corporate research department at SBI Securities Co, said: “China’s economy is still weak, and the spread of the coronavirus will be an additional blow. New car sales in 2020 could drop significantly.”
Supply chains showing strain
Disruption of supply chains is another concern. As the Chinese automobile market has grown, Chinese firms have been playing a larger role in the parts industry.
Hyundai Motor Group shut down most of its production lines in South Korea on Friday, according to Yonhap News Agency.
Kia Motors Corp, which is part of the Hyundai group, is expected to shut down its factories in South Korea on Monday.
Both companies said the shutdowns are because they have run out of a part called a “wire harness”.
These are bundles of wiring that connects a vehicle’s electronic devices. Each model requires a different type, and factories do not keep large inventories on hand.
Manufacturing these parts requires significant manual labour, which is why reliance on Chinese firms with low labour costs has grown.
It appears the virus will also affect European and US carmakers. The British newspaper the Financial Times reported on Thursday that the giant European automaker Fiat Chrysler Automobiles NV may shut down production at one European plant within a few weeks due to shortages of key parts that are made in China.
Finished vehicle factories in Japan have sharply increased imports of Chinese-made parts over the last two decades, which is causing automakers to scramble to deal with the present situation.
Suzuki Motor Corp announced on Friday that it would consider finding sources outside China for parts for vehicles produced in Japan and India.
Isuzu Motors Ltd said shortages of some Chinese-made engine parts could hinder production at its domestic factories.
Shinsuke Minami, director of the Isuzu board, held a press conference on Friday to announce that Shanghai could serve as an alternative procurement source.
“We were quite apprehensive, but at this point we have inventory and are managing the situation,” he said.
THE YOMIURI SHIMBUN (JAPAN)/ASIA NEWS NETWORK
