Parts supplier warns of rough road ahead for China’s car market

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The coronavirus crisis is still weighing on demand for vehicles a month after production resumed in China, according to the chief executive of Nissan parts supplier Yorozu, as the industry braces itself for a slow and painful recovery.

Following weeks of factory closures in China from early February, the automotive industry is now grappling with shutdowns in Europe, the US and other parts of Asia.

While supply chain disruptions and parts shortages are an issue, the bigger challenge is the lack of consumer demand, even as the pandemic increases the appeal of using privately owned cars over public transport.

“Originally we couldn’t produce because of supply chain issues, but we [resolved] that through back-up plans,” said Akihiko Shido, chief executive of Yorozu, which supplies suspension systems to the world’s biggest carmakers including Toyota, Honda, Daimler, General Motors and Volkswagen. 

“Now consumer sentiment is depressed, and that’s actually causing production to be reduced in places like Japan,” Mr Shido said in a telephone interview. 

Output has also been curtailed at Yorozu’s factories in Thailand and Indonesia, while all of its plants in the US, Mexico, Brazil and India are shut. 

In contrast, Yorozu’s two car parts facilities in the Chinese city of Wuhan, where the outbreak started, are now running at 80 per cent capacity and more than 90 per cent of its 580 workers are back on manufacturing lines. But that production is mainly to recover lost inventory and has not spurred “actual demand”, Mr Shido said.

Car dealerships in China, too, have mostly resumed operations and Wuhan ended its 76-day lockdown last week. Analysts at Goldman Sachs projected that dealer traffic might have already returned to previous year levels on the back of new car purchase subsidies from regional governments, noting that declines in weekly sales had narrowed in March.

But Tang Jin, senior research analyst at Mizuho Bank and an expert on the Chinese car industry, forecast a fall of 10 per cent for new car sales in China for 2020 compared with the previous year. “Coronavirus has not yet left the minds of consumers,” he said.

Drawing on lessons learnt from the coronavirus crisis, Mr Shido said Yorozu would accelerate the standardisation of its parts. Already, 91 per cent of its 152 components made in Wuhan can be produced at its plants in other parts of the world but the other 9 per cent proved critical during the China factory shutdown. 

In February, while its plants in Wuhan were closed, Yorozu covered for the lost production by having staff from Daimler and Nissan visit its factories to retrieve in-stock components. The company said that had the shutdown lasted longer, it was considering importing parts into China from Mexico.

With China production restored, the company is now shipping some parts made there to the US in response to requests from carmakers.

Mr Shido said Yorozu did not face any immediate funding shortage because it had a four and a half month buffer of cash and bank loans. “We’ve made sure to make our balance sheet strong since you never know when the company could fall into a crisis,” he said.

Still, the company plans to reassess all of its business continuity plans once the outbreak is under control: “Including the question of how much inventory to keep. We will need to debate new ideas with our clients as well after what we have learnt from this crisis.”

Editor’s note

The Financial Times is making key coronavirus coverage free to read to help everyone stay informed. Find the latest here.

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