Volkswagen is keeping its China production facilities shut over persisting fears of the new coronavirus. Initially, VW and others planned to resume production today. The move comes as analysts try to gauge how hard the virus is hitting carmakers’ business. Now the impact could be particularly severe for German brands, which produce between 30 and 40% of their global sales in China alone. Car sales in China are falling rapidly in the wake of the Coronavirus outbreak the bank UBS expects February total sales to tumble by half a clear threat to popular German brands like BMW and Mercedes .as if that weren’t bad enough extended factory shutdowns and supply chain disruptions are set to lead to a massive drop in production.
China has so far been a success story for German carmakers. The overall market is in recession, but German brands are still growing. Volkswagen notched up sales of nearly 4.2 million passenger cars in China in 2018, the biggest single country for VW by far Daimler also saw success. Its Mercedes-Benz brands delivered over 670,000 vehicles in the same year a new record for the company’s Chinese operations. Car Maker analysts say it’s possible like coronaviruses just prompting Chinese customers to postpone their purchases And that the threat is manageable and buyers of German imports tend to be more affluent and have greater resilience to the economic effect of the coronavirus. But if the crisis goes on much longer the effect on carmakers profits could be more than just a blip.
Production has been postponed
The production has been postponed at the plants which it runs in the joint venture with Volkswagen Group China, some of the plants that it runs as a Chinese joint venture China FAW Group. Have seen the production at these plants have started but still not too full capacity. A spokesman for Volkswagen told me this morning that it’s the delay is primarily a result of supply chain issues and logistical problems and also because of the travel difficulties that its employees at the production plants are facing. In 2017 China FAW sold a total of 3.35 million vehicles, with a year-on-year increase of 7.7% and realized revenue of 469.8 Billion CNY (67.1 Billion USD).
German companies report
But the German companies report that they depend on 30 to 40% of the sales in China. The closed showrooms and even the showrooms, which are still open, are proving to be a significant problem for the German carmakers. Luckily for them, they don’t have many facilities or, in fact, any facility in the worst affected areas, but then it’s a supply chain-related issue, so if the coronal virus outbreak persists longer, then the closed factories are going to start affecting worldwide sales.
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