China Car Sales Crash 80% As Virus Paralyzes Auto Industry

Car sales in China fell 80% YoY in February, the sharpest monthly decline in nearly two decades amid the Covid-19 epidemic kept consumers away from dealerships, according to the China Passenger Car Association (CPCA).

The outbreak of the virus has had a significant impact on China's automobile industry as it has been cycling down for the last two years. Global automakers have been pouring money into China, such as Tesla, to capture a robust consumer. Still, it could be seen as the wrong move at the moment, due in part to a collapse in consumption starting in mid-January. 

A twin shock has plagued the automobile industry in China, one where a supply shock has hit manufacturers, who can't produce automobiles at full capacity because of labor shortages and lockdowns, along with a demand shock that has kept people away from dealerships. While supply woes could be resolved with near term factory restarts, demand woes are expected to linger through the first half of the year.

To illustrate the plunge in business activity, Caixin China Composite Output Index plunged to 27.5 in February from 51.9 in the previous month, one of the quickest drops on record. The virus outbreak has led to company closures and travel restrictions that have ground China's economy to a halt. 

As we've noted on several prior occasions, China's "alternative," high-frequency indicators have demonstrated traffic congestion across 100 major cities in the country is significantly below trend since the virus outbreak began, suggesting overall trade and commerce is at a standstill.  

Since China is the world's leading car producer and one of the top markets for sales, a continue plunge of such magnitude will not only be felt around the world, but could very well tip the global automaker recession into an outright depression.