Automakers are 'scrambling' for parts and preparing war rooms as coronavirus spreads
Cars wait for shipping overseas at Lianyungang Port on February 14, 2019 in Lianyungang, Jiangsu Province of China. VCG | Getty Images

Automakers are scrambling to find parts and prevent shortages in their supply chains as the spread of the coronavirus rattles markets and threatens to roil manufacturing processes globally. General Motors identified a potential parts shortage and airlifted supplies for its North American truck production, according to United Auto Workers officials. A company spokesman declined to comment on specifics, but confirmed the plants producing the vehicles are operating normally. Fiat Chrysler has said it is seeking alternative suppliers. Others like Toyota Motor and auto suppliers Dana and Aptiv have established teams, task forces and war rooms to closely monitor the COVID-19 epidemic.﻿ "Everyone right now is working hard and scrambling to figure out optionality and assessing the risk on which parts are at highest risk," said Razat Gaurav, CEO of supply chain analytics firm Llamasoft. Moody's Investor Service cut its global vehicle sales forecast earlier this week to be down 2.5% in 2020 instead of a 0.9% drop due to the coronavirus. The virus already has taken its toll on automotive stocks. Both GM and Ford Motor shares are down double digits this year, including roughly 12% declines since last week. Even shares of Tesla , which are up 59.7% this year, have fallen 25.9% since Feb. 21. The World Health Organization declared COVID-19 a global health emergency last month. The virus has spread substantially beyond China and is now confirmed in at least 37 countries. There are more than 85,000 confirmed cases, including at least 2,933 deaths. It also has caused financial markets globally to plummet this week, including the Dow falling more than 12% — its biggest weekly percentage loss since 2008. The S&P 500 declined 11.5% and the Nasdaq dropped 10.5% this week.

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'Working hard and scrambling'

Automotive is a capital intensive industry that attempts to operate without major stockpiles of parts, making it especially vulnerable to the coronavirus' spread beyond China. One kink in the supply chain can cause widespread disruption and can quickly cost millions or billions in lost production, which is why auto companies are hastily searching to find alternative solutions. The analytics firm Llamasoft, according to its CEO Gaurav, has received an influx of calls and requests from customers due to the coronavirus. So much so that it established a "war room" of its own at its headquarters in Ann Arbor, Michigan and a "SWOT (Strengths, Weaknesses, Opportunities, and Threats) team." Gaurav said about 70% to 80% of the company's clients have been impacted from the coronavirus. The company's clients, according to its website, include the Detroit automakers, Toyota, Boeing and Walmart as well as hundreds of others. Nearly every major automaker and supplier has confirmed they're closely monitoring the situation, while others are going to more drastic measures.

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"Depending on how long this crisis continues, the extent of impact will start getting exponentially worse," Gaurav said. "In the short-term, it's really about figuring out what those alternatives options and total cost implications of those options." Llamasoft's coronavirus team recently assisted a manufacturer with finding an alternative supplier of brake pads as their supplies were dwindling due to their typical supplier being impacted by the coronavirus. Within 48 hours, the company identified another Chinese supplier and air freighted four weeks worth of the parts to the automaker. Suppliers such as Dana and Aptiv also have created task forces to monitor their supply chains and operations, including precautions for employees. "One opportunity we identified was to engage our global purchasing team to secure respirator masks, which were requested by the government," James Kamsickas, chairman and CEO of Dana, said in an emailed statement to CNBC. "As early as Jan. 27, our team identified suppliers in North America, South America, and Europe."

Non-China operations impacted

The first production plants outside of China to be impacted by parts shortages were in Japan and South Korea. That meant operations for Nissan Motor , Hyundai Motor , Kia Motors and GM had to temporarily shut down. The problem has since grown to Europe and poses eventual problems for North America. "Based on our industry conversations, we sense growing concern about impact on (North American and European) production, as downtime announcements in these regions from parts shortfalls are likely to represent one of the larger risks to the group over the coming weeks," RBC Capital Markets analyst Joseph Spak wrote in a Friday investor note on potential production stoppages.

FILE PHOTO: The logo of FIAT carmaker is seen on a vehicle in Cairo, Egypt, May 19, 2019. Picture taken May 19, 2019. REUTERS/Mohamed Abd El Ghany/File Photo Mohamed Abd El Ghany | Reuters