Overview

While China is progressing toward recovery from the COVID-19 with a strong bounce-back seen in some vehicle sales, other regions are seeing a daily worsening of the crisis. This will lead to a downward revision of estimates for the industry in 2020.

USA

U.S automakers, who until now relied on drawing-down existing inventories, are faced with parts stockouts and labor lockdowns. The eventual production loss is expected to have a significant impact on the US economy and auto sales. It is estimated that for a week's loss in vehicle production and sales, the U.S. economy loses over 90,000 jobs and over $7 billion in earnings.

Looking to intervene and urgently mitigate the negative impact of the virus outbreak to the US economy, the Trump administration has agreed a deal with Senate Democrats and Republicans for an unprecedented recovery package of US$ 2 Trillion. A share of these funds is expected to be focused on, directly and indirectly, supporting the auto sector.

Given the sudden rise in COVID-19 cases in the country (see Counterpoint’s weekly COVID-19 update), most automakers are expected to continue plant shutdowns until mid- or late April. Assuming the coronavirus outbreak starts stabilizing during Q2, and the recovery package helps boost consumer demand, Counterpoint expects the market recovery to start in Q4 2020. With these assumptions, US new-car demand for 2020 is estimated to drop by around 3 million vehicles to 14.6 million from 17.6 million vehicles in 2019.  

Europe and RoW

With lockdowns progressively being announced around the world to prevent the spread of the virus., auto OEMs have also suspended operation across Europe and parts of Asia. In Europe, Fiat has temporarily closed its factories in Italy which produces about 600,000 vehicles annually, representing nearly 4 percent of Europe's total output. While Volkswagen too has shut down most of its European assembly plants for two weeks, its main plant at Wolfsburg continues to be running for the time being. Most other OEMs too, despite the suspension, are working with their supply partners to ensure parts availability as per earlier planned volumes, in readiness for production resuming.

As the resultant unemployment rises rapidly across the world, earlier global GDP growth expectations have been wiped out and a global economic recession declared. Discretionary purchases, particularly of passenger vehicles, are expected to slow down significantly around the world.

On a brighter note, with new cases of the virus having significantly declined in China, some automakers and suppliers have resumed operations. Toyota, for example, has reopened one of its plants in Guangzhou.

Revised Global Vehicle Forecast

It is evident that all the leading automotive markets are facing negative economic impacts from the virus outbreak. Counterpoint estimates close to 8 million units being dropped from the leading 3 markets of China, North America and Europe.

Following the 2008-2009 recession, policy makers used vehicles as a way to stimulate the economy by offering cash in exchange for old cars – the so-called scrappage schemes. The timing of the COVID-19 crisis aligns with Europe’s introduction of stringent emission controls. There is potential for the financial stimulus packages being implemented by many states to again be used to remove older, more polluting vehicles and support the recovery in vehicle sales.

While China does appear to be recovering, the situation remains fragile. Considering interventions to stimulate demand, the authorities are reviewing policies and possibly easing restrictions. Industry bodies have suggested purchase tax cuts on smaller vehicles, temporary credit lines and moderating emission rules. China's automakers and dealers have already started promotional activities to revive interest and retails. However, with low to no inventories currently at dealerships, and stocks expected only by mid-April, we expect sales in China to recover gradually as customers regain confidence with business-as-usual likely only by Q4 2020.

This latest round of revisions also considers a significant proportion of over 600,000 vehicle units from India (included in RoW), the world’s 4^th largest automotive market, which has announced a 3-week national lockdown.

Exhibit 2: COVID-19 to Lead Global Automotive Industry in Recession

Conclusion

With a highly probable scenario that the global COVID-19 impact will now continue into H2 2020, Counterpoint Analysts have revised the global vehicle sales outlook to fall to about 81 million units, a decline of more than 9 million units from 2019.

(As the situation remains fluid, further revisions and updates will continue to be made as new developments happen around the world)