The Coronavirus Is Hitting China's Car Market Hard

Illustration for article titled The Coronavirus Is Hitting China's Car Market Hard
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The coronavirus evidences the truly international nature of the automotive industry, some virus-related Hyundai woes and air quality concerns in Beijing. All that and more in a very China-heavy The Morning Shift for Thursday, Feb. 13, 2020.


1st Gear: Things Not Looking Good In China

The Chinese car market is already facing a two-year sales slump after seemingly endless growth. And as the coronavirus epidemic persists, things don’t seem to be getting any better for the auto industry there.

Chinese car factories find themselves idled because of the virus and automakers are trying to reopen them. Estimates put January sales down by 18 percent from this same time last year to 1.94 million cars, according to the Wall Street Journal. The report comes from the government-backed Chinese Association of Automobile Manufacturers. Even if buyers start going to dealerships again later this year, automakers are “now facing a collapse in first-quarter sales that could blight their entire year.”

It’ll probably get worse, though. From the story:

But the worst likely has yet to come: Sales will decline by around 40% in the January-to-March period from a year earlier, with production volumes falling by up to 60%, research firm Jefferies said.

The setback finds the industry still reeling from last year’s 8% sales drop. Auto makers sold 25.8 million vehicles in China in 2019, a decline of more than three million from 2017, the industry’s best year to date. Even before the coronavirus crisis, the manufacturers’ association said sales would fall again this year, by 2%.

Wuhan, the capital city of Hubei province and the epicenter of coronavirus contains about 10 percent of China’s car factories. Today, Hubei’s provincial government further delayed all nonessential work (that is, work that isn’t directly related to manufacturing medical equipment or providing infrastructure, food and basic needs) until Feb. 21.

The Journal reports a Honda spokesperson saying the automaker has plans to “resume operations” tomorrow at its three Wuhan plants, but didn’t have an immediate response to the Hubei government’s newest decree.


The global sales slump and the virus are a one-two punch to the Chinese auto industry that could take it a very long time to recover from.

2nd Gear: The Virus Is Screwing With Hyundai, Too

It’s not just Honda that’s feeling the pinch from coronavirus. Hyundai, which bet big on China by sourcing car parts from there to its manufacturing plants in South Korea, is seeing problems as well.


Hyundai’s multiple suppliers that used China to boost capacity are being hit hard, according to Reuters. Kyungshin, one of the automaker’s main suppliers, is one example. From the story:

Hundreds of workers failed to turn up for work last week at two of its four plants, in Jiangsu and Qingdao, following a Chinese New Year holiday that was extended due to the outbreak, according to a source familiar with the matter. In Jiangsu, only about 300 of the 600 employees who were due to return showed up, the source said.

Now Kyungshin, which supplies almost half of the wiring harnesses for Hyundai’s auto electrical systems in the carmaker’s South Korean manufacturing hub, is scrambling to make up for production shortfalls. It has increased output at its factories in the United States, India, Cambodia and South Korea, according to three people with knowledge of the measures, who told Reuters the company was running its Korean plants around the clock.

As it falls behind schedule, the company plans to use planes as well as ships to speed up the transport of its parts to South Korea, added the sources who declined to be named due to the sensitivity of the matter.

Kyungshin said it was doing all it could to normalize parts supply.

Hyundai’s South Korean operations account for about 40 percent of its global production, Reuters notes. The cars built there are exported to the United States, Europe and Middle East.


Other automakers that have experienced operation disruptions because of the virus include Volkswagen, Fiat Chrysler, Daimler and Ford. If anything, the virus shows a reliance in China, and the international nature of the car manufacturing business.

3rd Gear: Air Quality In Beijing

Beijing, meanwhile, wants to reduce smog levels even more aggressively in 2020. Clean air is good! Clean air leads to a healthier and happier society.


Beijing wants to improve its air quality by cutting down the number of diesel-powered trucks, trying to reduce petrochemical industry emissions and increasing supervision on vehicle emissions and refined oil products, reports Reuters.

Here are some of the air quality numbers Beijing is working with:

The Chinese capital recorded an average concentration of tiny airborne smog particles known as PM2.5 at 42 micrograms per cubic metre last year, the lowest level since the country began an anti-air pollution campaign in 2016.

Nevertheless, that PM2.5 level is still more than four times the World Health Organization’s guideline of 10 micrograms per cubic metre of air.

“Beijing will make its best effort to improve air quality, with annual PM2.5 concentration and three-year average concentrations continuing to fall,” the Beijing Municipality government said in a statement on Thursday.


The city will do this through aggressively pushing for new-energy vehicles. That means more plug-in hybrids, battery-electric vehicles and hydrogen fuel-cell vehicles. At the end of 2018, there were 225,000 on the roads, according to the outlet. There needs to be more.

Beijing, per the story,

... aims to speed up the elimination of high-emission cars and replace diesel-fuelled trucks with NEVs, which it will use for all its postal, intra-city delivery, environmental sanitation departments and for its airport and public bus systems.

Meanwhile, Beijing said it will strengthen its supervision of in-use vehicles by carrying out checks on at least 1.5 million heavy-duty diesel vehicles. It will set stricter standards on gasoline and diesel, with lower olefin, aromatics and polycyclic aromatic hydrocarbon (PAH) contents.

Emission levels at petrochemical firms will have to be cut by more than 30% in 2020 from the 2017 level, while industrial coating and furniture companies will undergo emission assessments by local authorities, according to the statement.


Good! These are all good things.

4th Gear: Debt, Debt, Debt

If you regularly read this site, you’ll be familiar with the U.S. auto loan crisis. And it doesn’t seem to be getting any better.


The last quarter of last year saw the biggest rise in people applying for new loans in the U.S. in four years, reports Bloomberg. It was driven by demand for SUVs and light trucks. Bummer.


Loan originations for new and used cars increased by 7.5 million accounts, which is a 4.3 percent quarterly rise, to total 83.8 million. Per Bloomberg:

A majority of the increase came from the purchase of new trucks and SUVs — a category which now accounts for 71% of the new financed vehicle market compared with 68% a year earlier, according to data released Tuesday by TransUnion, a consumer report provider.

Borrowers have been increasing the time needed to repay. The average pay-back period for new vehicles grew to 69 months in the third quarter compared with 68 months the same period a year earlier. Additionally, consumers taking out car loans increasingly purchased used vehicles. Used vehicle financing accounted for 53.3% of the loan-origination market, up from 52% four years earlier.


Sixty-nine months! On a car loan!

Mostly, buyers are paying for the fancy features so many new cars now come with, such as voice-activated infotainment systems and semi-autonomous driver assistance functions. Those systems are expensive.


Two other sad things Bloomberg included in its report are that U.S. buyers added $18 billion overall in car debt in Q3 and the average monthly payment for a new car loan grew about $20 a month from a year earlier to $561.

Deep sigh.

5th Gear: Model X Recall

Do you have a Tesla Model X? Do you live in North America? Then pay attention, because this next recall announcement could apply to you.


Tesla is recalling 15,000 Model Xes over a potential issue that could cause a loss of power steering assist, reports Reuters. The National Highway Traffic Safety Administration and Transport Canada say the aluminum bolts that connect the electric power steering gear assist motor to the gear housing could corrode and break. That might lead to reduced or a complete loss of power steering.

From the story:

The recall applies to 2016 model year X vehicles. Tesla said the vehicles being recalled include most Model X vehicles built before mid-October 2016, but the move does not affect vehicles built after that date.Tesla issued a similar recall in March 2018 for 123,000 Model S vehicles worldwide built before April 2016 that called for replacing steering assist motor bolts.

NHTSA said there are no known crashes or injuries associated with the Model X recall. The recall covers 14,193 U.S. vehicles and 843 in Canada. Tesla will arrange for the replacement of the mounting bolts and will also replace the steering gear if needed, Transport Canada said.


Tesla reports it’s “observed excessive corrosion on the bolts that attach this component to the steering gear in affected Model X vehicles” and typically in cold areas that rely on road salts.

Road salt! The bane of driving in the winter.

When parts become available, Tesla says it will contact owners to schedule an appointment.


Reverse: Swiss Neutrality


Neutral: Would You Ever Apply For a 69-Month Car Loan?

That seems excessive.

Writer at Jalopnik and consumer of many noodles.


Ash78, voting early and often

Neutral: Would You Ever Apply For a 69-Month Car Loan?

NICE question, Kristen.

Of course. We just paid off our 72-month loan in 63 months. The flexibility of making lower payments for a couple years in the middle was a huge boost to our budget, and far more valuable to us during those periods than simply saving a few hundred in extra interest expense over a few years.

You have to align your debts to your asset life, as well as figure out how to best manage you balance sheet vs. cash flow (bad consumers ONLY look at cash flow, ie payment amount; and also tend to trade/sell before the payoff).

I will absolutely do it again because my local credit unions all have very little difference in rate between 48 and 75(!) months. Like 2.5% vs 3.5%.

You can always pay off a long loan more aggressively, but you can’t pay off an aggressive loan more slowly.