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Is there a new corona shock ?: Supply chains are the automaker's Achilles heel

VW, Daimler and BMW are hard hit by the pandemic: because important parts are missing, their tapes stand still. The risks in the supply chains have meanwhile decreased significantly. But the danger is not averted.

When the new type of corona virus spreads to Europe in the spring, the German carmaker is alerted to red: more and more countries are closing their borders, imposing curfews and putting their economy on the brakes. VW, Daimler, BMW and Co. hit the pandemic particularly hard. The ligaments from Wolfsburg to Munich stand still long before the lung disease arrives in Germany.

As early as mid-March, when there are officially fewer than 10,000 confirmed corona cases across the country, they have to drastically reduce their production or shut down plants completely. Not just for fear of infecting their employees. But because the parts for the German factories come from all over the world – and there are massive replenishment problems in the global corona shock.

In the pandemic, the supply chains are the Achilles heel of the German auto industry. The Cologne Institute for Economic Research (IW) therefore analyzed how large the dependency on foreign countries and thus the corona risk in the most important German industry is: "In addition to the loss of demand, disruptions in the value chain also played an important role in the extensive plant closings "says the study, which is exclusively available from ntv.de.

Replenishment from high-risk corona countries

In order to record the susceptibility to faults in the supply chains, IW Cologne has assessed the supplier countries of the German automotive industry (see graphic) according to their respective corona risk in the past few weeks. Countries of origin are considered to be high-risk areas in which at least 0.1 percent of the population is ill and the number of corona cases increases by at least ten percent within two weeks. If only one of the two criteria is met, IW Köln assumes that the supply chains are at medium risk. If neither of the two threshold values ​​is exceeded, it is only minor.

On the basis of this classification, the IW Cologne gives a cautious all-clear – at least for the time being: "The restrictions in the value chains are still not to be underestimated, but they have relaxed considerably." Because while at the beginning of April around 41 percent of the supplies for German car manufacturers came from high-risk Corona areas, only about 9 percent of wholesale imports now come from countries in which the virus is currently spreading rapidly. The greatest potential supply risks for the German auto industry are currently dormant, especially in the USA, Sweden, Great Britain and South America.

So the German auto industry is far from having just one China problem. The People's Republic was the biggest concern of the car giants when the pandemic broke out. Because infection rates in the Middle Kingdom have declined significantly, it is now only considered a medium risk. "The core problem was not that the Chinese hadn't delivered," says study author Hubertus Bardt ntv.de. "But that the borders in Europe were closed. They didn't stop the bands simply because of a lack of supplies from the Far East."

Car giants have to tremble before the new corona shock

The more the pandemic progresses, the more other countries become the focus. Because China is an important supplier, especially for electronic components. The most important source countries for deliveries are the Czech Republic, France, the USA, Italy and Spain. The situation there has eased – apart from the USA. But that can change quickly. Overall, the vulnerability of the supply chains remains a major problem for the automotive industry.

After digesting the first shock in March, car makers initially focused on ramping up production again. Many have looked for alternative suppliers as far as possible, says Bardt. "But with the complex preliminary work that is usually not possible. And short-term rescue measures are of little importance for long-term planning."

In the medium term, however, the pandemic could certainly give thought to alternative delivery routes: "Manufacturers have to rebalance between cost advantages and security of supply. Of course, they weigh up how they can protect themselves through warehousing or diversification of their suppliers and what the whole thing costs."

However, this does not necessarily mean that in future there will be much less deliveries from abroad due to the corona crisis. Because the question is how independent the international automotive industry can really be from a century-long event like a global pandemic. If the entire global economy is locked down again, the previous security measures will probably not be enough: "This does not eliminate the risk of a second corona shock. But I also know of no measure that could really prevent this."

The entire economy, not just the automotive industry, must therefore tremble before a second wave of viruses. Not only because then there may be no parts crossing the borders and the belts stand still. But because in a future economic crash, fewer cars will be bought in the future. And the car giants may then be able to lock their works entirely.

. (tagsToTranslate) Economy (t) Corona crisis (t) Auto industry (t) German car maker (t) Economic outlook (t) BMW (t) Volkswagen (t) Daimler AG (t) Pandemic (t) Institute of German Economy Cologne