Coronavirus "Likely To Wreak Havoc" And Decimate February China Auto Sales

Just days ago, we reported about a major inventory glut in the Chinese auto market due to the effects of the coronavirus on an industry that has already been mired in recession for months.

Now, auto industry executives are admitting that the virus could "wreak havoc" on sales and production for the first quarter, according to the Asia Times. Automakers across the country have been forced to cancel sales targets and offer subsidies to hold over dealers during the outbreak.

The coronavirus has now killed over 1,000 people (if you are to believe the CCP's likely understated numbers) and more than 40,000 people are now confirmed to be infected in China.

Wuhan has become a ghost town

Accordingly, traffic to showrooms has collapsed across the country since late January. A China Automobile Dealer's association poll shows that dealers predict a drastic drop in sales of 50% to 80% this month, compared to February 2019. 70% of dealers have said they have seen "almost no customers" since the end of January. 

Volvo has announced same day subsidies totaling about $1.42 million and BMW has cancelled dealers' sales targets in February. It has also said targets for March will be "flexibly set". Ford and Hyundai have simply decided not to assess the sales performance of their Chinese dealers in Q1. 

The CADA said auto sales "show a cliff-like decline". 

Recall, we also reported just days ago that average inventory levels were at 62.7% for January, according to the China Automobile Dealer Association. These numbers are far above the standard 50% level that is considered normal in the industry. 

This follows China's Miao Wei, Minister of Industry and Information Technology, saying in mid-January (prior to the coronavirus outbreak becoming severe) that the industry still faces "big downward pressure".

At the time, he predicted sales of just 25 million units for the year. We obviously think that this number could wind up being materially lower. 

Recall, sales for 2019 totaled 25.769 million units. Sales of just 25 million units - an optimistic prediction in our eyes - would mark a third straight year of declines for the world's largest auto market regardless.  

The MIIT also said at the time that it would further study and review its NEV vehicle subsidies. Recall, Beijing backing away from these subsidies caused NEV sales to taper off toward the end of 2019, sullying what was an otherwise consistent silver lining for the country, even amidst the overall recession in autos. 

With no signs of the country recovering from its ongoing epidemic, there doesn't seem to be any silver linings left. 

We noted in December that NEV sales plunged 42% in November after Beijing backed away. The government is ostensibly dedicating all of its efforts to deal with the country's ongoing outbreak, and so Beijing has not revisited its comments about EVs yet, and we are already halfway through Q1 2020. 

China did say, however, it is going to "maintain support" for NEVs, without getting into too much detail. Miao also said he's confident that the country will ensure "stable industrial production in 2020" while phasing out "zombie firms". 

There may have been some spooky foreshadowing in those words from mid-January, as almost every business in the locked down major cities of China now looks like a "zombie firm".