Automotive feeding industries to face troubled situation due to Covid-19 fallout

Several factories funnel their production to domestic spare parts market, says Tradeco's El-Sayad

The coronavirus outbreak has forced various economic sectors and industries across the world to stagnate, with one of the most prominent of these sectors being the auto sector. Auto sales have stalled due to the economic uncertainties, forcing the sector's feeding industries either to reduce or stop production.
Although they have not stopped working, Egypt's car factories have reduced their working capacities, which is in turn negatively affected the feeding industries sector. As a result, they have started to undertake several precautionary measures to deal with the situation.
Ali Tawfik, Founder and Chairperson of the Egyptian Auto Feeders Association (EAFA), said the coronavirus has highlighted the importance of deepening local industrialisation and self-reliance. At the same time, he also said that no country in the world undertakes all stages of a production process autonomously. However, the more we localise the auto industry, the less we will be affected with the troubles of external markets.
Tawfik stressed that many car production lines have been suspended due to the ongoing pandemic, but almost all factories producing commercial vehicles, such as microbuses and buses, are still operational due to their dependence on local feeding industries.
He explained that the reasons for stopping the production of passenger cars is due to the low local demand, with Chinese factories, international ports, and freight forwarders also shutting down which affect the supply chain.
Tawfik also said the pandemic has caused a halt in auto factory production in some European countries. The factories that depend on the supply of feeding industries from outside, whether they are producing commercial or passenger cars, are subject to a production suspension for the coming period. This is in stark contrast to those companies that may depend on local industries.
Tawfik stressed that the feeding industry factories that are operating in the current period have taken many precautions to confront the virus. They monitor workers at the factories closely, with any displaying flu symptoms given leave for 14 days.
Factories are also working on reducing contact between workers by lowering production capacity and giving employees the permission to work from home, if possible. Tawfik denied any lay-offs in private sector factories since the start of the pandemic.
He pointed out that the crisis Egypt is going through in the current period is not new for the local economy. As Egypt has, however, faced such conditions more than once before, so many factories already have sufficient stocks of products, including spare parts, to use during periods such as this.
Tawfik noted that there is a decrease in the domestic product given that factories are now working shorter hours. He appealed to the government to exempt car factories from the curfew to raise production levels back up again.
Tamer El-Shafei, head of the Feeding Industries Division at the Chamber of Engineering Industries
He added that the domestic auto sector may enter a severe crisis in the coming period, which will result in prices rising. Tawfik projected that this could be especially in the prices of components and spare parts due to the scarcity of supplies.
Moreover, Tamer El-Shafei, head of the Feeding Industries Division at the Chamber of Engineering Industries, said local factories are working in shifts. The factories have undertaken this to meet the demands of their customers and avoid crowding.
He added that the Division is in contact with the factories to stay abreast of the latest developments, stressing that no employees have been laid off.
Amr Soleiman, General Manager of Alamal Group, the exclusive distributor of BYD and Lada in Egypt, said the company had suspended its production lines for a period of 15 days. The suspension was put in place to protect workers from the coronavirus outbreak, stressing that the workers' salaries are still being paid normally.
He added that the company has resumed its activity, whilst also taking the necessary precautions to curb the spread of the virus. The company has also borne the brunt of a lowered production capacity to avoid crowding at production sites.
Soleiman noted that sales have frozen during this period as of the issuance of new car licences has been suspended. He called on the government to open outlets to licence new, locally made cars only to stimulate the economy.
He pointed out that other government agencies remain working, with the extension of the suspension period to 23 April will have a major effect on factories and car dealers. He also projects a decline in car sales of 50% or more in the coming period, with care sales returning to normal by the end of this year.
Sherif El-Sayad, Vice Chairperson of Tradeco for Engineering Industries
Soleiman also criticised the issues experienced by the auto feeding industries, as Chinese markets have started working again without a problem.
Sherif El-Sayad, Vice Chairperson of Tradeco for Engineering Industries, said the company's production lines are operating at full capacity. The company, however, has reduced production capacity by about 15%-20%, due to reduced working hours because of the curfew and reduced worker numbers.
He added that Tradeco currently focuses on producing strategic stock, as 60% of production goes to automobile factories. The remaining 40% goes to warehouses, in anticipation of any urgent circumstances that may necessitate stopping production entirely.
El-Sayad noted that the current crisis has pushed most feeding industry companies to focus on the local market due to export and import disruptions. Several factories have shifted their production from exporting to manufacturing and selling in the local market as an alternative to importing. The move comes as a way of boosting their sales after reducing the production capacity at auto factories.
He emphasised that manufacturers are focusing on the local spare parts market, which is likely to bear fruit in the long run, as buyers in the Egyptian market will increasingly depend on local product.
El-Sayad hopes that the crisis will come to an end in two months, before companies become insolvent. He noted that most companies are still paying salaries whilst also not being able to sell products, with many companies attempting to avoid lay-offs.
He added that Tradeco has already decided not to lay off any of the staff. The company has developed several plans, including a scenario of imposing a complete shutdown, whilst adding that those on smaller salaries will not face salary cuts, but those on larger salaries may.