'There will be interruptions' but coronavirus impact so far manageable: Magna CEO

Yahoo Finance Canada
Magna is one of the worlds largest automotive suppliers. (Photo by Milos Vujinovic/SOPA Images/LightRocket via Getty Images)
Magna is one of the worlds largest automotive suppliers. (Photo by Milos Vujinovic/SOPA Images/LightRocket via Getty Images)

Despite rising concerns about the rapid spread of the coronavirus, the chief executive of Canada’s largest auto parts manufacturer said production has not been affected outside of China.

In fact, most of Magna International’s plants in China have resumed operations, albeit at reduced capacity, CEO Don Walker told reporters following the company’s investor conference on Thursday. Magna has 54 manufacturing plants located in China employing 18,750 people. Walker said there are still “a couple” plants down in Wuhan, the city at the centre of the coronavirus outbreak. The factories that are back up and running are operating at between 50 to 80 per cent capacity.

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“It looks like it’s not getting any worse,” Walker said in an interview with reporters.

“Most of the car companies are up and running as well, but they are having trouble getting enough people. I’m sure there will still be interruptions in production, but at least it is starting.”

Five Magna employees in China had confirmed cases of the virus. Four have since recovered, and Walker said the fifth is also expected to be okay.

Fears about the widespread impact of the coronavirus caused stock markets to plunge over the past several days, streaks not seen since the 2008 financial crisis. The S&P/TSX Composite Index was down approximately 640 points to 16,071.55 as of 11:33 a.m. ET, a drop of nearly 4 per cent. Magna’s stock is down more than 10 per cent since last Friday.

As of Thursday, there were more than 82,000 cases of COVID-19 confirmed around the world in 46 countries. Approximately 2,800 people have died of the virus globally.

Still, Walker said the impact of the production issues in China has yet to spread to Europe and North America, although he does expect there will be some challenges.

“The impact of the production shutdowns to other areas of the world is unknown, but I’m sure there’s going to be some disruptions,” Walker said.

“If they get back up and running, at least it’s probably relatively manageable. But nobody can quantify at this point in time what impact it has in other areas, whether it’s going to have an impact on the supply chain or production in other countries that are facing it. I think it’s too early to tell.”

Magna’s chief financial officer Vincent Galifi said quarterly sales in China are between US$400 and US$500 million, which amounts to less than 5 per cent of the company’s annual sales of about US$40 billion. The company has so far maintained its 2020 outlook, but may make adjustments based on the impact of the coronavirus when it reports its next quarterly earnings.

“There are a lot of unknowns here, but we’ll just have to wait and see what happens,” Walker said.

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