Plant closing costs China auto firms 1.7m cars

Bloomberg

Forget about clinging to hopes that China, the world’s largest car market, will recover from its unprecedented two-year slump anytime soon.
Expectations were already bleak as the year began, with IHS Markit predicting a 10% drop in first quarter production. Now, the influential research firm sees a scenario in which the coronavirus spreading rapidly across the country triggers a cascade of plant closings that lasts into mid March and reduces output by more than 1.7 million cars — a decline of another 32%.
China’s car sales already were heading for the lowest in at least five years before the outbreak forced authorities to lock down the epicentre city of Wuhan. Now, it’s unclear when consumers will come back to showrooms as 14 provinces and cities that accounted for almost 70% of the country’s gross domestic product shut businesses and factories until at least the second week of February.
“The risks are enormous because of the sheer weight of China in the global market and its importance to trade,” said Jean-Louis Sempe, a Paris-based analyst at Invest Securities. “Predicting the seriousness of the epidemic is very difficult, but there’s no doubt the impact could be huge on factories, supply chains and domestic car sales.”
Though concrete estimates on the financial toll of the coronavirus outbreak are still scarce, it’s clear the final cost will far outweigh that of the 2003 Sars epidemic, when China’s auto market was one-sixth the size it is today and smaller than that of Japan. Companies from Tesla Inc to Volkswagen AG and Toyota Motor Corp have warned they anticipate disruptions.
Should passenger-vehicle sales in China fall 20% from last year’s 21.4 million units, that would threaten to end the country’s run as the world’s largest auto market, a rank it’s held for more than a decade.

Trauma Ahead
General Motors Co and Honda Motor Co are among the manufacturers with factories in the Wuhan region, while state-owned Dongfeng Motor Corp is headquartered in the city of about 11 million people.
Nissan Motor Co and Peugeot-maker PSA Group also have assembly plants in Wuhan or the broader Hubei province and are partners with Dongfeng. Robin Zhu, an analyst at Sanford C Bernstein & Co, singled out Dongfeng PSA as “by far the most exposed” because of the high proportion of vehicles it makes in the area.
“Investors will need to brace for a slowdown in broader activity levels in China,” Zhu said in a Jan. 27 note. “We expect the Chinese auto industry to endure a traumatic next few months.”
Automakers probably will dial back production by 15% in China this quarter after extending holiday shutdowns because of the virus, supplier Aptiv Plc said. Aptiv, whose customers include GM and Volkswagen, expects its own production to be down 11% from a year ago.
The government extended the annual Lunar New Year holiday break by several days to curb potential exposure.