China’s automobile sector to take big hit from coronavirus - GulfToday

China’s automobile sector to take big hit from coronavirus


Cars for exports near a cargo vessel at Tianjin port, China. Reuters

The new coronavirus epidemic is likely to wreak havoc on China auto sales and production in the first quarter, but it is too early to push panic buttons as ground could be made up later in the year, industry executives said.

Showroom traffic is expected to be sparse when extended Lunar New Year holidays end as much of the population is steering clear of public spaces, while output is set to plunge in the short-term.

That is particularly true of Hubei province, the centre of the outbreak and a major car manufacturing hub that accounts for nearly 9% of China’s vehicle production. Dongfeng Motor Group and its partners Honda Motor, Renault and PSA all have factories there.

“We expect China vehicle production to decline 3% for the full year, with production down 15% in the first quarter, including the extended new year shutdown,” Joseph Massaro, CFO for auto technology supplier Aptiv, told an earnings conference call.

But he said delayed production could be made up in the second quarter. “We don’t view this as a full year issue at the moment.”

Seeking to rein in the epidemic, which has killed more than 200 people, authorities have extended Lunar New Year holidays by three days to Feb. 2 although many areas and companies are telling workers not to come back before Feb.10.

Prior to the outbreak, forecasts for the world’s largest auto market this year had ranged from mild sales growth to small declines after two painful years of contraction due to a slowing economy, the US-China trade war and the chaotic introduction of new emission rules.

Cui Dongshu, secretary general at the China Passenger Car Association (CPCA), said his prediction for 1% growth this year now seems “under some pressure”.

The holiday extension has discouraged dealers from ordering cars at the end of the month as is their usual practice, virtually guaranteeing a decline in sales for January.

“Although sales volumes in the first three weeks of January were okay, there was no ‘sales sprint’ at the end of the month. So it is inevitable that we will see a significant sales drop,” Cui said in a blog post.

The big unknown is, however, just how far the outbreak, which authorities expect to peak in February, will ravage Chinese consumer spending. Industry officials and analysts believe sales will be hit in the short-term but also say the impact might not be too bad over the whole year.

The outbreak could even spur more Chinese consumers to embark on car ownership, given that many are suffering in areas where public transport has been suspended, said Yale Zhang, head of Shanghai-based consultancy AutoForesight.

“Customers who do not have their own car might realise they need one which might help sales this year,” he said.

China has an estimated 170 vehicles per 1,000 people compared to 800 per 1,000 in the United States. CPCA’s Cui also noted the 2002-2003 SARS epidemic had little long-term impact on China’s passenger car market which grew 70% in 2003, albeit from a low base and helped by economic stimulus.

Automakers with plants in Hubei, particularly in its capital Wuhan, where transport links have been cut to curb the virus, will have the most work to do in rejigging production plans. Delays can often be made up later with extra shifts on weekends and at night.

Honda, which has three assembly plants in Wuhan with Dongfeng, said it was assessing how transport disruptions were affecting the supply of parts and that no decision had been made on when its factories will restart. Dongfeng, Renault and PSA also said no decision had been made on when production might resume.

Other automakers with operations in Hubei include Nissan Motor Co which has a plant with Dongfeng and General Motors Co which has a venture with SAIC Motor Co  Nissan and GM did not respond to requests for comment.

Outside Hubei, some automakers appeared more sanguine about their production schedules.

Tesla, which started delivering cars built at its $2 billion car plant in Shanghai last month, has said it expects a delay of just one to one-and-a-half weeks in its ramp up of China-built Model 3s due to the shutdown.

In a sign, however, that the virus impact was not just limited to China, Hyundai Motor said it is suspending some SUV output in South Korea this weekend as parts supplies had been disrupted.

Meanwhile, growth in China’s factory activity faltered in January, an official survey showed, as export orders fell and an outbreak of a new virus added to risks facing the world’s second largest economy, even as trade tensions with the United States eased.


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