The coronavirus outbreak is likely to lead to lower new vehicles sales in China and disruptions to global supply chains that will add to auto sector challenges in 2020, Fitch Ratings says. The credit impact is likely to be limited as long as the outbreak is fairly short-lived and its influence is only felt in the next few months with sales and earning rebounding afterwards.

The greatest impact on the sector is likely to come from lower sales during the outbreak. China is the world's largest market for new vehicles (about 30% of global sales). The country's new vehicle sales are likely to be depressed until the outbreak is under control. We expect sales to start recovering from April and accelerate in 2H20. This drop in demand in China is unlikely to be the sole rating driver for automakers in our portfolio, but it adds to the challenges that the sector is already facing.

Car and component production was halted in China due to extended holidays and mobility restrictions amid the outbreak. Most automakers aim to resume production in a few days, but disruptions related to labour or supply chains will continue until end-February or early March. The production halt could last longer in hard-hit Hubei (8.8% of the country's auto production in 2019). Chinese auto production is likely to register a high-single-digit decline in 1H20, assuming that disruptions will end in 1Q20 and production will gradually ramp up from 2Q20.