Biz / Auto

Chinese auto industry on bumpy road to recovery: report

Hu Yumo
Pent-up demand will likely bolster Chinese car sales in the second and third quarters, with mid- and high-end segments being the first to stabilize, says Bain & Company.
Hu Yumo

Consumer demand shocks are likely to be the biggest managerial challenge for the automobile industry amid COVID-19, according to a recent report from Bain & Company.

The report noted that automakers are taking priority actions including systematically improving operational efficiency, redefining pricing strategy and mastering online sales.

The company said that pent-up demand will likely support sales in the second and third quarters of this year. As happened after SARS, some consumers are likely to buy a car for the first time to avoid public transit and its perceived health risks.

The mid- to high-end segment of the auto market will likely stabilize first. Demand for less expensive vehicles is likely to rebound more slowly, according to the report.

Bain & Company mentioned that if there is no resurgence of the pandemic, production capacity should be back to normal within the first quarter of 2020. The report also noted that inventory already within sales networks ought to cover 30 to 45 days of regular sales.

The consultancy said in the report that COVID-19 could drag Chinese passenger vehicle sales 5 percent below pre-crisis expectations in the mildest scenario; or 10 percent if there is a heavy impact and 23 percent in the worst case.

Automakers in China are also taking measures to fight against COVID-19 and better manage their business operations. Manufacturers have planned or implemented a host of measures to both improve cash flow and cut costs.

Car manufacturers have also provided support to suppliers and relaxed dealer targets. Volkswagen’s luxury subsidiary Porsche has taken measures to help dealers tide over difficulties, including canceling a first-quarter sales assessment and adjusting performance indicators. SAIC-GM-Wuling Automobile Co gives subsidies to its dealers to help them sell cars.

Automakers are also mastering online sales as Chinese consumers have turned to online shopping. OEMs and dealers already are investing more in online marketing as well as pickup and home delivery services. They are redesigning buying and after-sales processes to exploit the full potential of digital technology.

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