Fragile supply chains will complicate car factory re-starts

As some car manufacturers contemplate strategies for manufacturing plant re-starts over the next four weeks;

David Leggett, Automotive Analyst at GlobalData, a leading data and analytics company, offers his views:

“This will not be an easy process of simply opening the factory gates and quickly getting back to normal. For one thing, the public health crisis is far from over, meaning that facilities have to have protocols in place to manage social distancing and reassure workers over safety. Some areas of plant activity are easier than others to adjust for that due to their natural level of automation or worker density.

“Those things can be quantified and managed at plant level, but there are far more serious problems to be addressed.

“One is the still depleted state of final demand. If the value chain is not being fed at the top by sufficient new retail sales, there is little point in starting up production. Much depends on a broader return of consumer and business confidence in the coming months.

“The second big problem is the condition of supply chains. In a typical vehicle that contains as many as 25,000 component parts, there is an elongated supply chain that stretches to suppliers of varying size across the world.

“During the crisis of furloughed vehicle production, many of the bigger ‘Tier 1’ suppliers will have been able to access sources of credit to maintain cash reserves. Financial problems will be more acute for smaller suppliers further down the supply chain. Indeed, they may turn out to have been much more vulnerable to cash flow difficulties and also lack the resources to re-start operations.

“Past experience suggests that companies at the top of the automotive supply chain often have difficulty identifying and then addressing problems that may arise down the supply chain. A missing part for a critical sub-assembly in short-supply can instantly shut down a vehicle assembly line, especially if just-in-time production means there are no stocks held.

“The international nature of these supply chains also complicates the position still further as plants in some countries may be at a more advanced stage in terms of re-start while others are still closed.

“The reality is that vehicle manufacturing plants will have to slowly calibrate production levels to nascent market needs and do that while assessing the health of supply chains and doing what they can to help key suppliers financially.

“It will be single-shift to start and mean operating way below optimal levels of capacity utilisation. The vehicle manufacturers will be slowly feeling their way out of this unprecedented crisis over a period of months.” 

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