VOW Volkswagen AG

By Trefor Moss 

HONG KONG -- Volkswagen AG said Monday it would postpone production restarts at some of its Chinese plants until next week, while the organizers of China's biggest car show said the event would not go ahead in April as planned, as the outbreak of a new coronavirus continued to weigh on the world's biggest automotive market.

Volkswagen's delay, by an additional week until Feb. 24, highlights the difficulties that companies are facing amid the virus epidemic. The German auto giant, which has extended Lunar New Year holidays at its plants, blamed "national supply chain and logistics challenges as well as limited travel options for production employees."

Volkswagen, which operates 33 plants in various locations in China away from the outbreak's epicenter, ceased production on Jan. 23. Some of its plants have already resumed production.

The virus, which causes an acute respiratory illness called Covid-19, has killed 1,770 in mainland China and infected more than 70,000. The outbreak is further denting growth in an economy that was already slowing.

The quarantine of nearly 60 million people in Wuhan and surrounding Hubei province, the center of the epidemic, means that workers who visited family in the region over the Lunar New Year holiday can't get back to their jobs.

On top of that, many Chinese cities, including Beijing, the capital, and Shanghai, its main financial center, are asking most people entering from elsewhere to quarantine themselves at home for 14 days before going to work.

In a trade group survey of 109 companies with manufacturing operations in Shanghai and nearby areas that was released Monday, 41% said a lack of staff is their biggest challenge over the next month or so, while 30% said logistical problems are their greatest headache.

Among the respondents to the survey conducted by the American Chamber of Commerce in Shanghai, 78% said they don't have sufficient staff to run a full production line.

Meanwhile, Auto China, which is one of the global industry's marquee events and draws more than 800,000 visitors, is being postponed amid efforts to curb the virus, the organizers said Monday. The Beijing vehicle expo was the latest among the many business and political events to have been delayed indefinitely.

Also at risk is the annual conclave of China's national legislature. The National People's Congress, comprising nearly 3,000 members, typically gathers in early March to set out China's policy agenda for the coming year. The standing committee of the Congress will weigh plans to postpone the meeting, the state-run Xinhua News Agency reported Monday.

In a sign of how deeply concerned the government is about the economic fallout from the virus outbreak, President Xi Jinping urged local authorities to step in to help revitalize sales amid the continuing epidemic.

In remarks to the Politburo Standing Committee -- China's top political body -- published Saturday by a Communist Party periodical, Mr. Xi said officials should counter the economic impact of the outbreak by supporting household consumption, including automobile purchases.

In particular, restrictions on vehicle purchases designed to fight traffic congestion in several of China's biggest and wealthiest cities, including Beijing and Shanghai, should be eased, Mr. Xi said. He made the remarks on Feb. 3, according to the periodical, Qiushi.

Auto makers in China expect their first-quarter performance to be decimated by the viral outbreak, with sales set to fall 40% and production to slump by up to 60%, according to research firm Jefferies. Only around one-fifth of car dealerships are currently open nationally.

The unfolding catastrophe at home will only push Chinese auto makers to double down on plans to develop new markets abroad and limit the risk of being too dependent on domestic sales, said Jing Yang, corporate research director at Fitch Ratings.

For years China's auto makers were largely content to ride a decadeslong domestic boom in auto sales, but two straight years of sputtering sales at home, a reverse compounded by the epidemic, have added a new sense of urgency to efforts to develop foreign sources of growth.

On Sunday, General Motors Co. said it would sell its plant in Thailand to Chinese auto maker Great Wall Motors Co. The move comes a month after GM said it was selling its last remaining India plant to Great Wall, one of a group of Chinese car companies aggressively targeting sales in overseas markets to offset tough conditions at home.

"The global strategy of Great Wall Motors has begun to take shape after more than 10 years of development," Liu Xiangshang, Great Wall's vice president, said in a statement, outlining the company's plans to use the Thai plant to produce vehicles for sale in Southeast Asia and Australia.

Alongside Great Wall, the global push has been led by Zhejiang Geely Holding Group Co., which owns Volvo Cars and has operations spanning Europe and Asia; and state-run SAIC Motor Corp., which owns another former GM plant in India as well as factories in Southeast Asia.

GM also said it would wind down its operations in Australia and New Zealand, moves that would complete the company's full retreat from Asia-Pacific markets with the exception of China. The Detroit-based company also pulled out of Europe in 2017.

"We are restructuring our international operations, focusing on markets where we have the right strategies to drive robust returns," Mary Barra, GM's chief executive, said in a statement. The Thai deal will be completed by the end of this year, subject to regulatory approval, the companies said.

--Raffaele Huang contributed to this article.

Write to Trefor Moss at Trefor.Moss@wsj.com

(END) Dow Jones Newswires

February 17, 2020 07:18 ET (12:18 GMT)

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