Markets & Investing
Automotive Sector Is Vulnerable To The Coronavirus Crisis, Warns GlobalData
29 Jan 2020
As the coronavirus crisis deepens, there are rising concerns over the potential economic impact, including for the global automotive industry
As the Financial Times has pointed out, international businesses from airlines and carmakers to tech and consumer groups have drastically curbed their China operations as the corporate impact of the coronavirus crisis worsens.
In this context, carmakers are among the industries actually suffering the consequences. This Chinese region is the home of several plants, including those from Toyota and Hyundai. Both have had to stop operations while other groups like Honda, Nissan, PSA and Renault have started flying their non-Chinese workers out of the Hubei area.
David Leggett, Automotive Editor at GlobalData, a data and analytics company, offers his view:
“We are still at an early stage in this crisis and the authorities’ focus is obviously on direct human health impacts, but we’re beginning to get a feel for how the economic impacts could pan out. Travel and leisure sectors, as well as associated service and goods suppliers, are being impacted initially, but other industries such as automotive will potentially be impacted by lower demand and disruption to manufacturing schedules and supply chains.
“China is by far the world’s largest car market and the overall demand trend was downwards even before this latest crisis – the country’s 2019 vehicle market was down by 8.2% to 25.8 million units – with the expectation of a further decline in 2020.
“The outbreak could cause vehicle purchases to be put on hold in the coming months, taking the market down further. Manufacturers may reduce planned output levels when it becomes clearer how the market has reacted to the crisis and what, if any, support Beijing may offer the sector if the resultant economic slowdown looks sharp.
“In the short-term, foreign vehicle makers – especially those with joint ventures in the Wuhan area – will be considering pulling their foreign staff out of China operations. Companies with major manufacturing operations in Hubei include Groupe PSA, Renault, Nissan and Honda. The days following the now extended Chinese lunar new year holiday (with a return to work next week) will be key in terms of assessing the impact on manufacturing operations and worker absentee levels.
“In addition, there will be potential knock-on impacts for automotive supply lines if parts companies are unable to fulfil orders.
“Investors are already showing signs of nervousness over this health crisis and its broader economic impacts, which will potentially be felt well beyond China, which is a vital source of global automotive industry profitability.”
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