By Jessica Sier 
 

Italy's car industry is feeling the strain of the nationwide lockdown to curb the spread of the coronavirus, while auto makers elsewhere in Europe prepare to suspend production.

The Italian government's countrywide quarantine comes as a blow to all industries, but especially the automotive sector, already reeling from the closures of Chinese plants earlier in the month and the dramatic selloff in global stocks.

Tire maker Pirelli & C. SpA, which operates three manufacturing facilities in Italy and employs 13,000 people in Europe, was forced to slow production after the company said late Tuesday that an employee tested positive for the virus.

Days after the tire maker said the epidemic hadn't altered operations, the company said its Settimo Torinese factory near Turin would begin operating with a limited number of employees and that a full sanitization of the plant would begin.

"Given this situation, the company has decided to slow down production, with a progressive recovery in the coming days," Pirelli said. "This will permit the factory to operate with a very limited number of employees and guarantee maximum safety in health conditions."

Fiat Chrysler NV, which operates 16 facilities throughout Italy and accounts for 4% of European Union vehicle production, is bracing for plant closures in Pomigliano d'Arco, Melfi, Atessa and Cassino and is already reducing daily production rates.

"To enable greater spacing of employees at their workstations, daily production rates will be lowered to accommodate the adapted manufacturing processes," the company said.

Both companies are encouraging staff to work from home if possible.

Premium car maker Ferrari NV, with its manufacturing plant at Maranello near Bologna, says production continues as scheduled, though the company is also encouraging staff to work from home to alleviate the number of people on the premises.

While Italian auto makers contend with the lockdown, companies in Spain are preparing for similar production limitations.

Volkswagen AG subsidiary Seat, which owns the Martorell plant outside of Barcelona and employs more than 15,000 people, is in talks with union representatives on how to manage a potential shutdown.

"Temporary layoffs are being considered if a lack of supply forces the company to stop production for several days and the flexibility measures in the collective agreement are not sufficient," a company spokesperson said.

"To date, the Martorell plant is working normally, even so, there are various risks arising from coronavirus, which has affected the supply chain."

Global car makers are reliant on an elaborate web of supply chains, from refining raw materials into parts to sourcing internal electronics.

While Pirelli, Fiat Chrysler and Ferrari say they have enough stock to carry on production for now, analysts are starting to forecast further cuts in EU auto makers and their suppliers' earnings for the first half of 2020, and revise their expectations downwards for the rest of 2020.

Evercore ISI analysts have started to price in the chance of a mild global recession, and cut global auto production expectations down 4%, with as much as a 6% fall.

"We have been watching electronic components from Asia as a primary concern and so far there are no supply-chain breaks but the next few weeks remain critical," said Chris McNally, auto analyst at Evercore ISI.

"But like all things in auto, they call it a global supply chain because a single missing link in a chain of multiple thousands of varied components means the chain can temporarily break," Mr. McNally said.

 

Write to Jessica Sier at jessica.sier@wsj.com

 

(END) Dow Jones Newswires

March 11, 2020 11:46 ET (15:46 GMT)

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