Global Light Vehicle (LV) production had declined for the second straight year in 2019 to 89 million units, down by 6% year-on-year (YOY). Aside from notable falls in Iran and India, China’s drop made the most significant contribution to the global decline. China will again be instrumental through 2020 with the impact of COVID-19 exerting downward pressure on the demand. We currently forecast global LV output to contract by 1% YOY to 88 million units in 2020, but the gravity of COVID-19 will continually influence our forecast for most part of this year. As a worst-case scenario, a drop of 3-4 million units from last year’s output might not be out of the question. Apart from the ongoing impact from COVID-19, uncertainty in Europe (following new emission regulations) poses a further risk to our full-year 2020 global LV forecast.
Not surprisingly, the greatest risk to our forecast lies in the Asia-Pacific, as we continue to assess the impact of not only the disruption to supply chains in China and regional markets but also on the implications of a slowing Chinese economy on the rest of the world. While most vehicle manufacturers in China resumed partial production in the second half of February, those located in the eye of the storm in Hubei province may have to wait until for some more time to restart their operations. Once the infection is contained, we anticipate a rebound in vehicle consumption, although this may not be as strong as the industry would wish, given that China’s macroeconomy is bound to suffer from the nationwide halt in production activity.
In Korea, the rising number of COVID-19 cases and containment measures could hamper the economic activity. The supply shortages of components from China had already forced all Korean vehicle makers to close their plants for at least two days in February. Additionally, Hyundai shut production at one of its plants in Ulsan in end-February after a worker tested positive for COVID-19.
The direct impact from supply disruptions on LV output in ASEAN, Japan and India is foreseen to be limited at the time of writing, unless there is a significant deterioration in the situation in China beyond the first half of 2020. But the ripple effect on the economies of these markets cannot be ignored. It is particularly worth bearing in mind that the tourism industry is a key driver of economic growth in ASEAN; and any negative impact on tourism in the region will have a serious knock-on effect for a large proportion of the working population, while simultaneously eroding consumer spending and confidence.
The spread of COVID-19 in Japan has similarly started to disrupt economic activities beyond the travel and tourism sectors. In India, the cases of COVID-19 are currently very limited, but the potential impact of the outbreak on the economy will not be negligible as the country imports a wide range of both, inexpensive and technical items from China, including automotive parts.
In North America, just as the weakness in business activity appeared to be bottoming out, the COVID-19 outbreak has brought back high levels of uncertainty. Assuming immediate disruption to tourism activity, supply chain constraints for the frail manufacturing sector and heightened uncertainty restraining business and consumer outlays, GDP growth could be impacted further. There is not a good read on the implications of COVID‐19 on North America LV production at this point, given the enormity and expansiveness of the global supply chain.
Meanwhile, automakers in Europe are reluctant to ramp up production in the face of growing uncertainties: aside from soft markets and tough new CO2 regulations, the recently growing impact of COVID‐19 not only threatens automotive supply chains but the wider spill‐over effects could undermine the global economic activity and tip some vulnerable economies into recession. Unresolved trade tensions between the US and China, as well as the UK and EU, have also combined to threaten the global economic growth and demand-led European LV production. With the above uncertainties in mind, global LV production may not surpass its peak of 95 million units, achieved in 2017, before 2023.
A report based on facts until first week of March 2020