Impact of coronavirus on the automotive industry

The shift in the pandemic’s epicenter to Europe and North America underscores the need for automotive companies to remain nimble in their responses to the crisis, according to a recent analysis from PwC. “Supply chain disruptions combined with the significant – and growing – macroeconomic uncertainty fueled by COVID-19’s global spread can make formulating the right response a moving target,” observes the report.

The impact on the automotive supply chain may be substantial. Countries that have been heavily impacted by the outbreak, in particular, China, Japan and South Korea, account for a significant share of global auto manufacturing. China’s Hubei province, the pandemic’s epicenter, is one of the country’s key automotive production centers.

”The deeper into the supply chain, the greater the impact of the outbreak is likely to be,” warns PwC. “Automakers with global supply chains are likely to see tier 2 and especially tier 3 suppliers most affected by pandemic-related disruptions. While many major automotive original equipment manufacturers (OEMs) have instant, online visibility into top-tier suppliers, the challenge grows at lower levels.”

The report goes on to suggest that “companies with extensive international supply chains may need to assess critical components that are in short supply and should consider triggering alternative sourcing strategies. While most North American assembly plants depend on China for some auto parts – in particular wheels, brake and steering components, and electronics – many of these parts could potentially be sourced locally or from other markets.” 

In order to cope with this disruption in the supply chain automotive companies will have to consider making significant changes to the way they do business. This includes not only identifying alternate suppliers but also more drastic alterations such as changing vehicle designs and materials. “Companies should also take into account the potential tax and tariff implications of supplier changes as well,” says the report. “These could include customs and duties, as well as transfer pricing considerations if the substitute components or materials are internally sourced.”

Major multinational automotive OEMs and suppliers should also carefully consider their cash, liquidity and working capital strategies in light of the outbreak’s impact on the world economy and credit markets.