NEW YORK (NYTIMES) - The coronavirus is providing a lesson in how much the world's car factories revolve around China.
Hyundai, the world's fifth-largest automaker, said on Tuesday (Feb 4) that it was temporarily stopping production lines at its factories in South Korea because of shortages of Chinese parts.
The Hyundai shutdowns - the first factory lines to be idled outside China - could portend much more serious disruptions in the complex networks that supply automakers with essential components and materials.
Hyundai "decided to suspend its production lines from operating at its plants in Korea," the company said in a statement. "The decision is due to disruptions in the supply of parts resulting from the coronavirus outbreak in China."
US President Donald Trump's trade war notwithstanding, the global economy remains highly interconnected and interdependent. Supply chains are finely tuned to deliver parts just as they are needed, so companies don't need to waste money on big warehouses.
The systems are efficient but also vulnerable. The coronavirus is testing these supply chains in ways they have never been tested before.
Automakers are especially susceptible to interruptions in the flow of goods because the industry is global, and cars are complex products with many precision parts. The scope of the damage is impossible to measure because no one knows how long the coronavirus emergency will last and how bad it will get.
So far, factory closings have not affected the production of autos and parts in North America, where almost all vehicles include at least some Chinese components.
Many manufacturers have inventories of parts to use or expect new shipments that left China before the outbreak, said Dan Hearsch, a managing director in the automotive and industrial practice at AlixPartners.
"Everybody planned to be down for a week, but nobody planned to be down for a month," he said. "The manufacturers are concerned about depleting their inventory of parts, but the question is how long is it going to go on? If it becomes six weeks, eight weeks, 10 weeks, that's a real problem."
In China, many auto plants have already shut down because of the virus, including factories run by Hyundai, Tesla, Ford and Nissan. Companies like Volkswagen, Daimler and Continental, a German supplier of electronics and other components, said they planned to reopen their factories in China next week if they received government authorization.
"The supply chain is on track to be fully functional in time for start of production, and planned deliveries to customers remain unchanged," Volkswagen said in a statement. Ford, which has two joint ventures in China, plans to resume production there early next week, a spokesman said.
But in the meantime, companies are paying workers to stay home and maintaining idle factories. The closings could last beyond next week if the virus spreads further and the death toll rises.
"It's simply too early to comment on the impact," Ford's chief executive, Jim Hackett, told analysts on an earnings call on Tuesday. "It will take weeks to understand the implications of the outbreak."
The extra costs and lost sales hit the auto industry at an especially bad time. Sales in the United States, Europe and China slumped last year because of trade tensions, and the industry is in the midst of a costly shift to electric cars with autonomous driving technology.
Daimler issued a profit warning last month, citing legal costs in the US and other jurisdictions where authorities are investigating possible emissions cheating.
The virus has also demonstrated how much automakers have come to depend on China for sales and growth. China has become the biggest car market by far and until recently the most dynamic. But even before the virus hit, an economic slowdown in China had depressed sales.
German carmakers are particularly sensitive to what happens in China. Volkswagen sells more cars there than anywhere else, and it is also a critical market for BMW and Daimler, the maker of Mercedes-Benz cars.
Generic explainer on Wuhan virus:
"The biggest problem in Wuhan is that nobody is buying a car," said Ferdinand Dudenhöffer, a professor at the University of Duisburg-Essen who follows the auto industry. "The Germans have the biggest risk portfolio in China."
European automakers and suppliers surveyed on Tuesday said they were not experiencing disruptions to factories outside China but acknowledged that the situation could change.
"We are watching closely, but at the moment there are no effects," said Saskia Essbauer, a spokeswoman for BMW. "Currently supplies are assured."
A spokeswoman for French carmaker Renault, Rié Yamane, said in an email: "At this stage we have no impact but the supply chain teams are closely studying the subject."
And Hyundai "is reviewing various measures to minimize the disruption of its operations, including seeking alternative suppliers in other regions," a spokesman said via email. The company said suspension schedules would vary by assembly line.
Hyundai and its affiliated automaker, Kia, produced 7.2 million cars last year. Hyundai has a worldwide network of factories, including plants in Russia, Turkey, the Czech Republic and Montgomery, Alabama, which can probably make up for lost production in South Korea.
But the longer that Chinese factories remain shut, the greater the risk that shortages will affect other manufacturers.