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Coronavirus Crushes Hopes of Chinese Car Market Recovery

The Chinese auto industry had some great results over the past few decades. But 2019 was a second consequential year in a car sales decline. So, the trend was already going downhill when the coronavirus outbreak started amplifying the downhill slope and crushe

Benzinga · 03/06/2020 14:28

The Chinese auto industry had some great results over the past few decades. But 2019 was a second consequential year in a car sales decline. So, the trend was already going downhill when the coronavirus outbreak started amplifying the downhill slope and crushed some hopes that the Chinese car market will recover in 2020.

Significant Car Sales Decrease

The outbreak caused new problems like low customer interest, supply chain interruptions, delayed motor shows, and production halt in many cars and parts factories. Just in the first half of February, the retail sales of passenger cars in China fell for an incredible 92% comparing to the same period last year. And it goes further. Big Chinese annual auto show planned for April 21st is postponed due to the virus.

Production Problems

The epicenter of the outbreak, Wuhan, is home to many automaker factories like Honda Motor Co., Ltd. (NYSE: HMC), General Motors Company (NYSE: GM), Nissan Motor Co., Ltd. (OTC: NSANY) and its partner company Renault SA (OTC: RNLSY). Many of the car factories are closed, and not only in Wuhan. This has seriously impacted dealerships. The ones which remained opened had to deal with extremely low customer traffic.

All of these factors combined made a severe hit on the Chinese car market. Since the outbreak did not stop at Wuhan, many other automakers have shut down their factories as well. Tesla, Inc. (NASDAQ: TSLA) closed its Gigafactory in Shanghai, postponing the production of its Model 3. The same actions were taken by the German giant Volkswagen AG (OTC: VWAGY), which halted production in all its plants in China. Both companies currently carry a hold rank by Zacks Rank (#3).

Effects Outside China

Even the automakers with factories outside China are being harmed by the coronavirus. Just keep in mind that around 80% of the global car production depends on parts produced in China. So, shortage of supplies and supply chain disruption led to many of those automakers stopping the production in their factories. The obstructed global supply chain is creating many problems for car manufacturers and making it impossible to obtain the required parts for production in time.

For example, Fiat Chrysler Automobiles N.V. (NYSE: FCAU) stated it will be forced to stop the production in one of its European factories if the supply chain doesn't recover soon. The same goes for the British carmaker Jaguar Land Rover, Toyota Motor Corporation (NYSE: TM) and Peugeot-Citroen group. Hyundai Motor Company (OTC: HYMTF) and Kia Motors Corporation already stopped a few assembly lines in Korea.

Conclusion

It will take some time for businesses all over the world to recover. Even with simulative measures by the countries' officials, it is not likely that there will be any visible and significant improvement until the situation improves. Keeping in mind that the auto industry was already facing stagnation and a downtrend, this outbreak caught it a bit off guard. On the other hand, an outbreak like this also makes it hard to have a proper contingency plan.

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