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Chinese auto sector faces February ‘havoc’

By Lawrence Gash

China’s Automobile Dealers Association stresses the impact of coronavirus

Chinese auto-sector faces February havoc

China’s Automobile Dealers Association (CADA) has signalled that the coronavirus epidemic threatens to “wreak havoc” on vehicle sales and production in the first quarter of 2020.

The coronavirus epidemic has hampered Chinese production and upset commodity markets, particularly oil and copper prices. Hopes that the coronavirus outbreak had peaked have been dashed by recent data with total infections now standing at 60,000 and the death toll rising to at least 1,350.

A poll conducted by the industry body shows that car dealers are predicting a fall in sales of between 50 and 80 per cent in February when compared with the previous year. Among the dealers polled, 70 per cent have admitted that they have had “almost no customers” since the end of January.

The “cliff-like decline” that CADA found will add to the Chinese automaker’s swelling inventory. By the body’s own statistics, average inventory levels for January were far above the normal 50 per cent level at 62.7 per cent.

While Covid-19 has dealt a severe blow to the Chinese auto industry, manufacturers were already in a perilous state before the outbreak. China’s Minister of Industry and Information Technology, Miao Wei, said in early-January that the sector faced “big downward pressure” and predicted a third consecutive year of declining sales.

The devastation in the world’s largest car market is widely expected to have a knock-on effect on European manufacturers, particularly in Germany. The German auto sector, struggling to emerge from the emissions scandal of recent years and the consequences of the US-China trade war, had hoped for a post-trade deal boost.

However, with the likes of Volkswagen forced to close their Chinese factories and export orders to China expected to fall, such an upswing is not expected to materialise. The Munich-based Institute for Economic Research has recently estimated that a potential 1 per cent slowdown in Chinese growth triggered by the epidemic could translate to a 0.6 per cent fall in German GDP.

Like Germany, China’s auto sector has also struggled to balance the rising demand for new electric vehicles (NEV) with economic feasibility. NEV sales have plunged in recent months, thanks in part to China’s government cutting subsidies to Chinese manufacturers. Instead, the government has invited American firm Tesla to build its first giga-factory on the Chinese mainland.

FURTHER READING: Chinese auto-executives hope for rebound in electric vehicle market

FURTHER READING: Coronavirus prompts OPEC to cut forecast for 2020 oil demand growth

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