Global car industry bracing for huge shock from China
For decades, China was the promised land for American, European and Japanese carmakers.
Now, the coronavirus outbreak threatens to prolong a slump in vehicle sales, derail production in the country and snarl global auto supply chains.
Volkswagen (VLKAF), Toyota (TM), Daimler (DDAIF), General Motors (GM), Renault (RNLSY), Honda (HMC) and Hyundai (HYMTF) are among the global carmakers who have invested heavily in China, forming partnerships with local companies and building vast factories.
China makes more cars than any other country, and is also the world’s biggest market.
Car plants across China
When car plants across China shut last month for the Lunar New Year holiday, the industry was already under huge pressure: sales had been falling for two years due to the loss of tax incentives for electric cars and the slowing economy, and officials were expecting an unprecedented third year of stagnation.
Many of those plants have since been ordered to remain shut at least until next week as the Chinese government scrambles to contain the virus that first appeared in Wuhan, a major autos hub, before sweeping across the country, infecting thousands of people and killing hundreds.
Automakers are bracing for even longer shutdowns and a deeper recession in global sales.
Sales and production to suffer
Close to 60 million people are still living under lockdown in China, with three cities reporting over a thousand confirmed coronavirus cases each.
Meanwhile, the virus continues to spread, keeping huge numbers of potential shoppers at home until the outbreak peaks.
“We assume consumers will tend to avoid purchasing cars in dealer shops until then to reduce contagion risk,” analysts at S&P Global Ratings said in a report published Wednesday.
Factory closures
The extended factory closures are expected to make it much more difficult for the industry to emerge from its recession.
The auto industry is particularly exposed because the virus originated in one of China’s “motor cities.” General Motors, Nissan (NSANF), Renault, Honda and Peugeot owner PSA Group (PUGOY) all have large factories in Wuhan, which has been on lockdown since late January.