The economic impacts created by the coronavirus outbreak in China are rippling through the global supply chain. Curbing the spread of the disease, the Chinese government ordered the shutdown factories. It’s an order rippling through Michigan’s automotive industry. WGVU spoke with an attorney advising auto parts suppliers.
“If just one part in one assembly isn't delivered on time that could delay deliveries of products to a Ford or a Chrysler or General Motors and that could slow down production or a potentially stop production for a period of time.”
Attorney Michael Brady is a partner and co-chair of the Auto Industry Group at the law firm Warner Norcross and Judd.
Are all the automakers vulnerable in this case?
"Essentially yes, everybody touches China in some way. Either they have their own facilities in China, or JVs in China where they're producing cars within China, or they have Chinese suppliers who are part of the global supply chain. We've been seeing some public statements from some of the OEMs giving warnings that this is going to impact their production in the coming weeks and I think it's, it's across the board.”
Brady tells us most automotive contracts include language for what’s called a “force majeure” event. A superior force or an “Act of God” event.
“And this would be that as well. This is essentially a government directed shutdown, a labor shortage, an act of God, so most supplier should have some sort of risk mitigation plan in place. What suppliers should do in this situation is be transparent with their customers in constant communication, give them notice that this is impacted their plant, their facility, and give them continuous updates to the extent they can…Your customers are going to want to know what do you have in inventory? What do you have in terms of parts that are already in transit that were shipped before the shutdown occurred? What's the plan in place or alternate sources of supply? Do you build a similar part in China maybe out of Mexico that you could supply from that location? Things like that you want to really be talking through with your customer and try to be as proactive as possible.”
Brady speculates if China’s production shutdown continues into next week, Original Equipment Manufacturers will need to implement mitigation plans with their suppliers agreeing to alternate sources for supplies outside of China.
Patrick Center, WGVU News.