Worldwide automobile sales have fallen by large numbers and countries and automakers are incentivizing purchases. In China, auto sales fell 43 percent in March—after the even larger plunge of 79 percent (1.43 million vehicles) in February. But the sales slump in China started before the outbreak of the coronavirus when the country changed their vehicle subsidization and emissions policies. Light-duty vehicle deliveries in China have now declined for 21 consecutive months. In Western Europe, sales of sedans and SUVs fell more than 50 percent, outpacing the U.S. fall of almost 40 percent, and lower numbers for both are expected for April. In Western Europe, auto sales may be down by as much as 80 percent in April, while U.S. April sales are expected to fall by less—60 percent.
Western Europe
Western Europe’s auto sales declined by 52.9 percent in March to 774,280 vehicles compared with the same month last year, bringing the annual expected selling rate down to 6.6 million—an annual adjustment of 22 percent. In Italy, March auto sales were down by 85 percent, in France by 72 percent, in Britain by 44 percent and in Germany by 38 percent.
United States
Automakers are facing a large decline in sales in the United States—the world’s second-largest car market—after states instituted “stay-at-home” orders forcing dealerships to close. Fiat Chrysler Automobiles NV, for example, extended its shutdown of U.S. and Canadian plants until May 4.
As a result, in March, U.S. sales fell 38.6 percent to 983,174 vehicles, which was slightly less than the 41.4 percent decline in February 2009 after the financial crisis. U.S. auto sales for April and May are set to be worse, bringing full year light-duty vehicle sales down to 14.2 million units—14 percent less than the annual expected sales of 16.5 million. According to General Motors, its first-quarter sales fell 7 percent because of significant declines in March.
With auto showrooms shut during the coronavirus pandemic, Fiat Chrysler and General Motors are trying to reinvigorate sales with seven-year, no-interest loans and by allowing customers to buy vehicles online. Fiat Chrysler’s “Drive Forward” marketing program includes online shopping tools that allow U.S. customers to complete the purchase of a vehicle through a dealer without visiting a dealership. General Motors’ “Shop.Click.Drive.” program also allows customers to find, purchase, and arrange for home delivery of a vehicle.
The online sales and home delivery program is contrary to a U.S. auto sector tradition of manufacturers giving franchised dealers control of sales to consumers. U.S. dealers, for example, fought Tesla’s efforts to sell vehicles directly to consumers via its website.
GM and Fiat Chrysler’s promotions of extended loans are not new. They are similar to the “Keep America Rolling” sales program GM instituted after the terrorist attacks of September 11, 2001.
China
China, the world’s second-biggest economy and the world’s largest auto market, locked down parts of the country to contain the spread of the coronavirus. The travel restrictions contributed to a 19 percent drop in auto sales in January, a 79 percent drop in February, and a 43 percent drop in March.
Showroom traffic at car dealerships in China are slowly returning to normal levels, having remained closed until February 8. With almost 99 percent of franchised dealerships reopened, average showroom traffic is at 66.4 percent of normal levels, according to the latest survey by the China Automobile Dealers Association. The average revenue generated by new-vehicle sales was 63.8 percent of normal levels, according to a survey of 8,721 franchised stores across China.
General Motors’ vehicle sales in China fell 43 percent in the first three months of 2020 compared with the same period last year as the coronavirus pandemic reduced the demand for vehicles. GM, China’s second-biggest foreign automaker, delivered 461,716 vehicles in the first quarter. The first-quarter drop follows a second straight decline in annual sales in 2019.
GM has a joint venture in China with SAIC Motor Corp which manufactures Buick, Chevrolet, and Cadillac vehicles. It has another venture, SGMW, with SAIC and Guangxi Automobile Group, that produces no-frills minivans and has started to make higher-end cars. Sales of GM’s mass-market brand Chevrolet dropped 55 percent for the latest quarter, while sales of the no-frills brand Wuling fell 34 percent. Premium brand Cadillac’s sales fell by 40 percent.
GM launched one new Chevrolet electric model in China this year and plans to offer four-cylinder engines in certain models currently offered only with smaller engines.
Ford Motor Company’s China vehicle sales during the first three months of this year also declined, falling 35 percent from a year earlier to 88,770 units.
China’s Subsidies
The number of New Energy Vehicles (NEVs) sold in China—excluding those from Tesla—fell for the ninth straight month to 53,000—down over 50 percent from a year earlier. NEVs are battery-powered electric, plug-in hybrid and hydrogen fuel-cell vehicles. China set a target for NEVs to account for 20 percent of auto sales by 2025, compared with 5 percent currently.
To make that happen, the Chinese government extended current subsidies and tax exemptions on electric vehicles. The subsidies for domestically built electric vehicles, which were previously to be phased out by the end of 2020, are extended for two more years. Electric vehicles will also continue to be exempt from a 10 percent sales tax through the end of 2022. The subsidies, however, will apply only to passenger cars costing less than 300,000 yuan ($42,376), which is likely to exclude premium electric vehicles such as Germany’s BMW and Mercedes Benz. Tesla’s China-made Model 3 sedans, which are currently priced at 323,800 yuan before subsidies, would have to undergo a price reduction to qualify for the incentives. The government will also increase the requirements for driving range and power efficiency of cars that qualify for the subsidies.
The Chinese government scaled back subsidies for electric vehicles in June 2019, with electric passenger vehicles qualifying for subsidies of up to 25,000 yuan ($3,521) and plug-in hybrids qualifying for a flat subsidy of 10,000 yuan. China plans to reduce these subsidies by 20 percent in 2021 and 30 percent in 2022.
China also cut value-added taxes on used-vehicle sales to stimulate light duty-vehicle demand. The value added tax on secondhand-vehicle sales was reduced to to 0.5 percent from 2.0 percent starting May 1 and will continue at that lower level until the end of 2023.
To reduce vehicle emissions in China’s capital city of Beijing and neighboring Tianjin city and Hebei province, the government is rolling out a bonus program for scrappage of local diesel trucks with emissions standards falling short of State 3 requirements, which are equivalent to the Euro 3 emission rules.
Local authorities have been trying to revive sales, with cities that rely heavily on vehicle manufacturing, such as Guangzhou in the south and Ningbo in the east, offering sales incentives. A survey of 204 manufacturing hubs showed 99.5 percent of plants have resumed output following closures aimed at stemming the spread of the coronavirus and 86 percent of employees have returned to work.
China’s car and light-truck production is expected to drop 12 percent this year to around 21.6 million units and rebound by 7.5 percent next year, according to research firm IHS Markit. China’s Association of Automobile Manufacturers, which expects China’s overall auto sales to drop 5 percent this year if the outbreak is contained by April, called on the government to help after industry-wide sales plunged a record 79 percent in February. China’s light-duty vehicle sales fell 8.2 percent last year, pressured by new emissions standards in a slowing economy as well as trade tension with the United States. The Ministry of Ecology and Environment is considering postponing the implementation of new gasoline emission standards in some provinces.
Conclusion
The automotive industry worldwide is being hit hard during the coronavirus pandemic with auto showrooms closed and auto manufacturers halting production due to stay-at-home policies and lock-down procedures. Auto sales are expected to come back slowly as lock-downs and stay-at-home policies are lifted. Some U.S. auto manufacturers are offering the ability for customers to purchase autos on-line, as Tesla has been doing. China is extending subsidies and tax credits on some vehicles to entice more sales of electric vehicles and used vehicles.
