FEATURE
THE CENTRE OF THE STORM
Mike Smitka of Seeking Alpha looks at the long-term effect on China’s automotive suppliers
W
hether or not Covid-19 goes global is driving overall market volatility, and auto stocks are down accordingly. However, there has already been an impact on global auto OEMs and Tier I’s, so some decline is justified. Here I provide conservative estimates of the financial losses the industry has already incurred, based on what has already happened in China. Of course, if quarantines extend to auto production regions elsewhere (Daegu in Korea and northern Italy), we could see comparable impacts emerge elsewhere. 36
APRIL 2020
China is the largest economy in the world. Reflecting that, its domestic vehicle market, at 28 million units in CY2018, is one-third larger than either the North American or the European market (each at 21 million units; OICA data). Overall, it accounts for 30% of the global industry. For the auto industry what happens in China matters. A lot. Only in mid-March, did photos from China show people returning to the streets and in subways. Nevertheless, Hubei remains on lockdown (a small relaxing of the rules was made at the end of March to enter but leave the area). However, throughout the major eastern regions of China, those
March is mostly a lost cause, and output reduced in April”
finally able to return from their extended holiday faced two weeks of quarantine. So plants won’t even be able to staff for normal operations until the end of the first week of March, and it will take two to three weeks for output to normalise. For example, while Toyota’s four assembly plants began reopening on 17 February, they are running only one shift, and not always for a full day. That’s just as well, because sales were down 19% in January and 92% in the first two weeks of February. Dealers don’t need additional inventory, and sales will remain depressed. Part will be the anticipated continuation of 20 months of decline meconstructionnews.com
