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As communities worldwide deal with the growing
Coronavirus implications, besides the human tragedy, it is starting
to severely impact the Chinese economy and in light of that, the
automotive industry as well.
This report has incorporated the most recent information
available at the time of publishing.
Over the last few days, IHS Markit has been evaluating and
analyzing announced vehicle assembly plant shutdowns (and impacted
daily production rates) in direct response to the containment
directives of national and provincial governments and measures
taken by individual OEMs.
This started with a national announcement of a three-day
extension of the Chinese New Year holiday period. Since then, each
day this week, the number of plants announced to be idled for an
additional week in early February has increased markedly, as more
provinces have decided to delay businesses returning to work.
Almost all nonessential business, and not just vehicle plants, are
included in the government directives.
The automotive team at IHS Markit offers the following overview
of two scenarios: a current state of play and a potential
escalation scenario where the downtime flows into mid-March. This
report is current as our team sees the situation today.
These are framed around the very uncertain near-term spread of
the virus, which clearly has the potential for other provinces to
announce similar return-to-work delays and/or for possible
extensions to the downtime period (to more than the first week of
February) so far announced.
11 of the 31 provinces in mainland China had announced that
return to work for all nonessential business would be delayed an
extra week after the already extended Chinese New Year holiday
period. These provinces (Hubei, Shanghai, Guangdong, Chongqing,
Zhejiang, Jiangsu, Anhui, Yunnan, Fujian, Jiangxi and
Shandong) alone are normally responsible for over two thirds
of vehicle production in China, with projected crisis-induced first
quarter production loss of around 350,000 units (-7%) if they're
only idled until February 10, 2020.
However, if the situation lingers into mid-March, and plants in
adjacent provinces are idled, we could see some more substantial
impact. In this scenario, we might expect the potential of a
China-wide supply chain disruption caused by parts shortages from
Hubei, a major component hub, and adjacent province closures for
the majority of the month of February as a result. If this scenario
comes to fruition, IHS Markit predicts potential lost production of
more than 1.7 million units for the first quarter, or about 32.3
percent decline from our initial expectations before the crisis
began.
It's important to note that the IHS Markit pre-crisis assessment
had already included a 10% reduction in first-quarter build volume
versus Q1 2019, so the crisis-induced scenario impacts would be on
top of that baseline expectation of a production decline.
Please note that this is only intended as a direct short-term
impact assessment under different scenarios in a fast-moving
situation, and our team is analyzing the situation with every
announcement. At this early stage, we have not attempted to outline
the possible view of any production recovery as the crisis abates
and work and commercial schedules normalize. How this plays out
will be determined by the even more opaque second-round indirect
effects on the economy, income growth and consumer confidence, and
thus on the severity of impact on auto sales in coming months. This
will itself depend on which scenario plays out and will take longer
to assess.
