Several European car makers would be severely affected this year if the spread of the SARS virus holds back China’s booming new-car market, according to Automotive News Europe.
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Volkswagen, PSA/Peugeot-Citroen, Fiat and others have benefited enormously from last year’s unprecedented sales surge of 360,000 passenger cars to 1.1 million units in China. And the Europeans are counting on China for dramatic growth in 2003.
Volkswagen group last year sold 513,000 passenger-cars in China, compared to 338,000 in the USA. VW expects to sell 600,000 in China this year.
Citroen sold 85,000 cars in China last year and is targeting about 112,000 sales this year.
Fiat plans to more than double China sales from 23,000 cars last year and plans to boost production capacity to 200,000 units annually.
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By GlobalDataBut if the SARS epidemic cripples the local economy, these European car makers would be highly exposed.
Chinese officials last week claimed the rise in new cases of severe acute respiratory syndrome has “been checked.” As of Friday China reported 3,638 cases of SARS and 181 deaths. But the World Health Organization and China’s own citizens are uncertain how credible China’s leaders are after they concealed the seriousness of the outbreak from November to mid-April.
Car makers are trying to gauge how SARS will affect car sales, the Chinese economy in general and Chinese consumer confidence. One concern is that even a small ripple could blunt the pace of growth in car sales, which rose 53% last year.
“I don’t think there’s a threat to China’s potential growth but I think the acceleration of the Chinese economy that we have seen risks [falling] to a lower level,” said Nissan CEO Carlos Ghosn.
Car makers are taking precautions. Ford closed offices in China for two weeks until at least May 6. Others evacuated foreign employees and their families. Some also report delayed projects.
“When someone comes back from China, we have to put him in quarantine because his colleagues don’t want to work with him,” Ghosn said.
Last week, the mood was one of panic in Beijing and other hot spots of SARS infection. Other parts of China are going about business, though not as usual.
Retail sales in general are plummeting in cities like Beijing, which is reporting new cases daily. Showroom traffic at car dealerships has virtually disappeared.
Even in cities like Shanghai, with only two reported cases of SARS, the government is urging people to stay home — and it closed the Shanghai motor show on April 24, three days early. Areas like Huaihai Road, usually packed with eager shoppers, were virtually empty last week. The Golden Week holiday is usually China’s biggest shopping time but the Chinese government shortened it to five days including a weekend. And shoppers aren’t buying.
Qi Jinmei, an economist with China’s State Information Centre, predicts retail sales growth for the year would drop by 2 points to 8.2% if the SARS outbreak is not controlled.
Analysts have revised downward forecasts of China’s economic growth this year by 1 to 2%. They now see gross domestic product growth of 6% to 7% for the year, down from 8% in 2002. That would be China’s slowest growth rate since 1990.
Tom Doctoroff, CEO China of advertising agency J. Walter Thompson, flew last week from Shanghai to Chongqing, the home of Changan Ford. Though airline employees took his temperature six times during the trip, Doctoroff says the mood in Chongqing, and at Changan Ford, is calm.
“My sense is it is definitely calm. I didn’t see any masks, I didn’t feel any anxiety at all,” he says.
Changan Ford frequently disinfects the cafeteria and tells employees what precautions to take, alerts them to the warning signs of SARS, and what to do if symptoms appear.
Other reactions vary widely.
Many expatriate employees at automotive joint ventures are fleeing China under the guise of taking a vacation or going to a meeting.
Paul Alcala, president of Beijing Jeep Corp., left for the USA last week. Volkswagen’s public relations staff in China appear to have left.
But Volkswagen denied that it had withdrawn all of its 100 expatriate staff at two Chinese joint-venture works, Shanghai Volkswagen (SVW) and First Automotive Works (FAW-VW).
“These plants are not situated in SARS-affected regions,” said Hans-Peter Blechinger, a Volkswagen spokesman in Wolfsburg. “Both plants are working full time and employees do not have to wear mouth protection.”
Citroen, although it has warned European managers against unnecessary travel to affected areas of Asia, sent Managing Director Claude Satinet, head of telematics Kate Zhang and other senior managers to the Shanghai motor show.
Said Citroen spokeswoman Myrthe de Boer in Paris: “We have not asked our local expatriate staff to come back to France.”
