Car industry sees bright future – analysts don't

Chinese sales rebound but third year of contraction is forecast as Geely unit predicts losses 

Car industry sees bright future - analysts don't
As One Door Closes...: China’s auto industry is either booming again or destined for losses, depending on who you talk to. 

(ATF) China’s leading motor industry group has hailed the rebound in its sales since the coronavirus lockdown decimated demand - despite analyst predictions the sector is headed for a third year of gloom.

The comments from the China Association of Automobile Manufacturers (CAAM) came hours before Volvo Cars, a unit of China’s largest automaker Geely Holding, said it expected to report a first-half loss. 

The nation’s return to work after lockdowns shuttered the economy for two months promoted second-quarter production and sales in the automobile industry, Fu Bingfeng, executive vice president and secretary general of China Association of Automobile Manufacturers (CAAM) said Monday.

The overall performance was better than expected and the market will enter a relatively stable development process in the second half of the year, Fu said.

CAAM figures show that production in April exceeded two million vehicles and sales rose 4.4% year-on-year. In May, that figure was 14.5%.

That followed a 24% slump in March, at the height of the lockdowns.

Demand was driven by pent-up demand and by generous incentives offered by the local governments and discounts by manufacturers. But as those run out in the coming months, analysis at S&P Global forecast sales will wither again.

"I would prefer to use the word ‘normalisation,' things getting back to normal - it's not exactly a recovery," Benjamin Lo, head of China auto research at Nomura, said during a June webinar, S&P reported.

Volvo Cars said on Tuesday it expects its business to recover in the second half of the year, even as the automaker reported an operating loss for the January-June period.

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The Gothenburg-based company has been hit hard by the pandemic that has temporarily closed plants and strained supply chains in the industry, with lockdowns in many key markets and transport hubs.

Volvo said it had seen a return to solid growth in China during the second quarter, and is expecting a similar upturn in the United States and Europe.

"If the market recovers as we expect, we anticipate sales volumes to return to the levels we saw in the second half of 2019 and it is also our ambition to return to similar profit levels and cash flow," CEO Hakan Samuelsson said in a statement.

Market recovery has allowed the company to resume production in all factories, except the Charleston plant in Ridgeville, South Carolina, Volvo said.

The carmaker, which Geely acquired from Ford Motor Co in 2010, reported an operating loss of 989 million Swedish crowns ($110.2 million), versus a 5.52 billion profit last year, as revenues fell 14% to 111.8 billion.

The firm had warned in March that sales, earnings and cash flow in the first half of 2020 would decline from a year ago as the coronavirus pandemic weighed on its business.

  • Additional reporting by Helena Soderpalm at Reuters

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