COVID-19 ISO Insights

Examining How COVID-19 Could Impact Auto Parts Supply Chain

March 30, 2020

By: David Geller, CPCU

In addition to health risks, there are a wide range of potential supply chain impacts that may topple because of the continued spread of novel coronavirus.

One impact that is reportedly beginning to develop—and could worsen over time—revolves around auto parts.

According to the Detroit Free Press, China only trails Mexico and Canada in terms of auto parts that the United States imports (in 2019, U.S. auto parts imports totaled $155.8 billion, per the article). Of this total, about 25% of these are aftermarket parts.

The rampant spread of novel coronavirus in China reportedly led to a vast closure or disruption of manufacturing facilities across the country. And according to NBC News, as of mid-March, even as the virus has shows signs of being contained in China, “those plants are operating at a fraction of their normal rate, if at all.”

Compounded with the issue of slowed production, per the Detroit Free Press, are bottlenecks that are arising even as factories in China are re-opening. A supply chain management professor at Michigan State University noted that “‘because of the lack of loads in recent weeks [the ships] have been held up. It’ll take time to fix that. Ships are starting to leave Asia with products but it still means four to six weeks before things start stabilizing.’”

While not mentioned in the article, potentially exacerbating this issue may be the more rigid quarantine measures that are reportedly taking effect in the United States, which could slow down or complicate import activity as well.

The Detroit Free Press notes that dealers, service stations, and part shops may be particularly vulnerable to these disruptions, as these companies may only have enough parts to last for up to a few days, at most.

Conversely, the article notes that auto makers typically have enough parts to last them at least 1-2 months. Nonetheless, the Detroit Free Press reports that new vehicle sales still may very well slow down in 2020, due to the supply chain disruptions and potential economic impacts that may emerge as well.

The Detroit Free Press also notes that China had “become a major source for the electronics that control nearly every system in a modern car,” a dynamic may also serve to increase auto repair costs.