China February 2020: Coronavirus hits wholesales down -86%, retail sales down -80%

The coronavirus outbreak has stopped the Chinese car market – and economy.

This is a special update on China.

If you read our recent China wholesales and retail January 2020 updates, this won’t come as too much of a surprise to you. According to the China Passenger Car Association (CPCA), the daily retail sales rate for Passenger Cars in China imploded -80% year-on-year in February to just 7.099 units per day vs. 36.361 in February 2019. Although official monthly figures won’t be available for another week or so, this is equivalent to roughly 205.800 passenger car sales in the whole of China last month vs. 1.02 million a year ago. It is unclear whether Commercial Vehicle sales will soften or harden this picture. The CPCA estimates that wholesales to dealerships (ex-factory shipments) sank an even more ghastly -86% from 1.219.500 passenger cars in February 2019 to just 170.700 in February 2020.

The table above details the evolution of the Chinese market week by week in February. Over 1-9 February (1st column from left) at the worst of the quarantines imposed on many areas of the country, the daily selling rate was down a cataclysmic -96% to just 811. Over 10-16 February, it was down -89% to 4.101, over 17-23 February down -83% to 5.411 before marking a clear improvement over the last week of February at -63% “only” to a much more vigorous 16.500 daily selling rate. With this outlook, March 2020 sales in China could fall somewhere between -35% and -50%.

Indeed car production and sales are far from having returned to normal as of end-February. All car factories located in the Hubei province, the epicentre of the outbreak, are not allowed to open until March 11 – that’s including factories for SAIC, Dongfeng, Honda, Peugeot, Citroen and Renault. Even the factories that are allowed to open, notably those of Volkswagen and Toyota, are unable to operate anywhere close to full capacity because of parts shortage and employee absenteeism. All Chinese workers travelling within the country must still self-quarantine for 14 days upon arrival and cannot therefore start work. All expats returning to China from overseas must also self-quarantine for 14 days, so a return to normal won’t happen before the start of April at the earliest.

Only 37% of Chinese car dealerships have reopened as of March 4.

On March 4, the the Ministry of Industry and Information Technology announced that “84.1% of key vehicle manufacturing facilities from 16 major Chinese automobile groups have resumed production, and 66.5% of the workers that work at these facilities have returned to their jobs”. Many local analysts are skeptical of these figures as they carefully selects the automobile groups and factories (“key”) that have been the fastest to return to work. The real figure is likely to be much lower. In any case, the dealerships are not ready to sell the vehicles currently produced by these factories, as a large majority are not even allowed to reopen yet. The China Automobile Dealers Association (CADA) said on March 4 that the car dealerships work resumption rate is only 37.3% among the 8.155 dealerships from 124 dealer groups surveyed. As such the Vehicle Inventory Alert Index (VIA) reached 81.2% in February vs. 53.3% a year ago. Dome manufacturers such as Geely have started offering online test drives in an attempt to reach homebound potential buyers.

Car factories remain plagued by parts shortage and employee absenteeism.

In 2003, the SARS only registered a blip on Chinese sales (not a single negative month) in a fast expanding context: after March 2003 up 32.2% in line with previous months, April 2003 was up “only” 14.9% and May 2003 up just 5%, before getting back to normal in June 2003 (+29.6%). The coronavirus outbreak has hit the Chinese market at a very different and much more difficult time, just as it was looking to gradually halt a two-year decline, the first such streak in 30 years. It is now assured that 2020 will be the third year of decline in China, but to what extent remains to be seen. Indeed, even though the central government has stressed the car industry’s importance, it has yet to unveil fresh support measures. Instead, it is local authorities that have started putting in place their own incentive plans to stimulate demand: Guangzhou is offering 10.000 yuan (1.300€/US$1450) to new energy vehicle buyers, while a development zone in the city of Xiangtan in the Hunan province has started offering 3.000 yuan (390€/US$430) incentives to those purchasing locally-made Geely cars.

The traditional wholesales and retail sales detailed updates by brand and model will be published as soon as the figures become available to us from mid-March onwards.