[ET Net News Agency, 3 February 2020] The coronavirus outbreak in Wuhan, one of the
largest auto production bases in China, and the speed of the disease spreading all over
the country will affect the operational and financial stability of Chinese auto original
equipment manufacturers (OEMs), S&P Global Ratings said in a report titled, "Coronavirus
In China: Domestic Auto Industry, Car Rental Companies Likely To Feel Impact In First
Quarter."
Although it is too early to predict the overall impact, China's auto production is
likely to materially decline year on year in the first quarter. This is on the back of an
early Chinese New Year (2019's Chinese New Year was in February) and extended production
suspension due to the outbreak.
According to the China Passenger Car Association, Hubei province produced 2.2 million
units of auto in 2019, ranking fourth among 31 provinces and municipalities in China and
accounting for about 9% of the country's total production. Wuhan alone contributed
approximately 70% of the province's auto output, based on S&P's estimate.
Chinese auto OEMs suspended production for around two weeks in January, consistent with
the practice during Chinese New Year periods in previous years. Production resumption has
now been delayed from early February to 10-14 February for some provinces and cities, in
accordance with the governments' latest directives to control contagion.
By S&P's estimate, these places collectively control about half of China's auto
production capacity and the total volume loss could be 1%-2% of China's annual production.
Moreover, production resumption may be delayed further, depending on the development of
the epidemic.
"In our view, auto sales will likely decline in the next one to two months," said S&P's
credit analyst Claire Yuan. "Auto dealers are delaying business resumption. At the same
time, people are trying to avoid going to public places. On top of this, an early Chinese
New Year in January 2020 brought forward some purchases into December 2019."
"However, we believe the worries about use of public transport and the sense of security
from one's own vehicle may lead to sales recovery after the epidemic stabilizes," Yuan
said.
For car rental companies, the coronavirus outbreak during Lunar New Year will likely
weigh on their first-quarter results in 2020. Travel restrictions and health fears caused
total traffic in China (including rail, road, water, and air) to decline year-on-year
since 23 January 2020, and plummet by over 80% on the fifth day of the 2020 Spring
Festival's Golden Week.
Until the outbreak is contained and travel fear abates, the agency believes car rental
demand will likely continue to face pressure given consumers' reduced willingness for
leisure travel, company efforts to curb non-essential business trips, compounded with
travel restrictions imposed by local governments. (KL)