FEATURE: CNY – not NCP – hits China’s auto sector in Jan
Source: Mysteel
Feb 14, 2020 17:00
According to an association release on February 13, auto sales last month were thought to have decreased by 18% on year or by 27% on month to 1.94 million units, while vehicle production in January was seen plunging by 24.6% on year or 33.5% on month to 1.78 million units.
CAAM did not say when the final January figures would be published, and calls to the association’s Beijing offices on Friday went unanswered. Last year, the industry group announced its January 2019 output and sales data on February 18, as Mysteel Global reported.
Last month according to the prediction, production and sales of new-energy vehicles tumbled by 55.4% on month and 54.4% on year to just 40,000 units and 44,000 units respectively, CAAM’s release showed.
The association attributed the declines in sales and production to fewer working days in January as this year the Chinese New Year break – spanning January 24-February 2 – was observed earlier than in early February last year.
Significantly, in its release CAAM declared that the impact of the Novel Coronavirus Pneumonia (NCP) virus on the industry’s January performance “was very limited” as the virus started influencing the market no earlier than January 20.
However, this month and for some time to come, the NCP outbreak will give a jolt to domestic auto production and consumption, with some medium- and small-sized component suppliers likely to face financial pressure, the release indicated.
Manufacturers see difficulties in production
The rapid spread of the virus and the government’s response to extend the CNY break this year to reduce travel numbers meant that all regions across China had encouraged companies and organizations to delay resuming work. CAAM’s survey among 300 auto makers and component producers found that those enterprises resumed operations some 7-11 days later than planned (and longer in Central China’s Hubei province, the worst virus-hit region). Hubei province contributes 8-9% of China’s total vehicle output, Mysteel Global notes.
As of February 12, among some 183 car manufacturers that had already revealed their operation resumption plans to the association, only some 59 or 32.2% had resumed production.
Besides Hubei, other seriously virus-hit regions such as South China’s Guangdong province and East China’s Zhejiang province are also major car producing bases, and there are many component producers in the three provinces too.
Even if car makers in other areas can resume production, a shortage of even a single component will still largely affect production across the whole supply chain, CAAM noted.
And even if all components are readily available, the practice of companies to request that workers returning from home voluntarily isolate themselves for several days to avoid transmitting any affection – plus the shortages of protective supplies such as masks and gloves – had resulted in comparatively low operating rates among enterprises, CAAM explained. On the other hand, transportation delays in many regions had interrupted deliveries of finished cars and spare parts, too.
Given all the negative factors, CAAM calculated that production of over 1 million vehicles would be affected if producers delayed operations for ten days.
Exacerbating the problem, vehicle-related enterprises are facing severe financial pressure from the resumption delay as their revenue streams as well as cash flows were broken yet they continued to bear costs such as rent, salaries and interest charges, CAAM noted.
In the meantime, the operation interruption could result in contract violations, further aggravating the difficulties in capital turnover, the association said. Thus, some medium- and small-sized enterprises (mainly component producers) with high risks may face the real threat of bankruptcy.
Consumer demand and consuming capability seen crashing short-term
The NCP virus will have a huge influence on China’s Q1 auto production and sales, the association indicated. Once the contagion is controlled, vehicle demand will increase and the auto industry will enjoy a short peak-consumption period. Nevertheless, for the whole year of 2020, prospects for the industry are not promising, it admitted.
Appeals issued by the central and local governments that citizens protect themselves securely against the virus and opt to stay at home for as long as possible will reduce vehicle purchases in the near term, a fact already borne out by closed dealerships. A survey conducted recently by the China Automobile Dealers Association among 3,997 vehicle sales, spare parts and service outlets under 60 dealers nationwide showed that less than 9% had reopened for business as of February 12.
Meanwhile, reverberations from the NCP virus are disrupting other industries too such as transportation, catering services, tourism and general retailing, with the declines in salaries of people employed in these sectors also discouraging them from purchasing cars, CAAM observed.
“Even though car producers will resume production gradually, steelmakers will still see fewer auto sheet orders in the near future as consumers are showing little interest in purchasing cars currently,” a Shanghai-based official with a steelmaker in East China told Mysteel Global.
Demand for cars might increase after the virus is contained, given that consumers will still be nervous about taking buses or subways – even after the contagion is ruled officially over – and it’s possible that some transport authorities will continue to operate reduced public transport services for a while, the steelmaker office suggested.
But the small rise in demand for vehicles would not offset the virus’s impact on the wider economy, consumer sentiment and spending, and it’s very hard to see positive growth in steelmakers’ auto sheet orders this year, he admitted.
Written by Anna Wu, wub@mysteel.com
Edited by Russ McCulloch, russ.mcculloch@mysteel.com
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