Aside from the human tragedy, the virus poses a real threat to the Chinese economy. The automotive industry will be hit hard, and we expect Chinese automotive production to be pushed further into recession in 2020. The automotive industry is one of the most complex and highly integrated global supply chains. The disruption of China's market has global implications; expect the effects to ripple through the industry.
The Chinese automotive industry, which was already struggling in 2019, will be hit hard by Covid-19. Vehicle sales in China have declined for 19 consecutive months. Now, in many parts of China, particularly the densely populated areas, people are concerned for their immediate safety and have been self-isolating. Few people are thinking about new purchases of high-ticket items, such as a new car. Primarily, due to the early Chinese New Year and also the outbreak, the China Association of Automobile Manufacturers (CAAM) reported January sales declined 18% year-on-year.
The ongoing weakness in the Chinese automotive sector is multifaceted, with causes including depressed consumer sentiment and the introduction of tighter country-wide emission standards that are due to come into effect on 1 May and 1 July 2020. CAAM forecasts China's passenger car sales will decline by 5% year-on-year in 2020, which would mark the third consecutive year of contraction in the sector. CRU believes the outlook for the Chinese automotive market will worsen, particularly without targeted government support.
China's automakers are currently operating at 32% capacity
Wuhan, in Hubei Province where the viral outbreak began, is one of the major auto production hubs in China, hosting production facilities for several major domestic and international manufacturers such as Honda, Nissan, Renault and General Motors, along with many auto parts suppliers. Hubei province accounts for 8.4% of Chinese light vehicle production, of which Wuhan itself accounts for 6.6%. Regions with high infection rates, as shown in the table below, account for 48.4% for auto sales and 48.9% of production, based on 2019 figures. CRU already sees early signs of weak consumer demand and disrupted production flowing back up the supply chain to metals markets.
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