For Immediate Release
Chicago, IL – January 28, 2020 – Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include: General Motors
GM, Ford (F, Fiat Chrysler FCAU, Honda Motor ( HMC Quick Quote HMC - Free Report) and Nissan Motor NSANY. Here are highlights from Monday’s Analyst Blog: Will Global Automakers Feel the Heat of Coronavirus Crisis?
The spread of the deadly coronavirus in China may soon take a toll on global automakers’ business in the country, in turn, weighing on its already slowing economy. Panic surrounding the contagious disease has triggered automakers and suppliers to limit business travels in and out of China.
Wuhan, identified as the epicenter of the deadly coronavirus outbreak, is a major business hub for various global corporations. The city, with a population of around 11 million people, is under lockdown. As worries surrounding coronavirus heighten, authorities are making efforts to prevent a pandemic by locking down nearly 18 cities, in which around 56 million people are affected. The virus outbreak has crossed national borders as cases from Singapore, Taiwan, Japan, Vietnam, South Korea, Malaysia, Nepal, France and the United States have also been reported.
China’s President Xi Jinping has warned that the accelerating spread of the deadly coronavirus is escalating the health crisis, claiming 42 lives with almost 1,400 getting infected. The World Health Organization has warned that the situation in China poses a very high risk, even on a global basis.
Virus-related shutdowns are anticipated to dent spending in the Lunar New Year holiday, when consumers typically spend more on travel, entertainment and gifts. While stocks linked to airlines, cruise operators, casinos, hotels and luxury items have already started faltering, it seems that the coronavirus scare is also trickling down to automakers.
Automakers Take Precautionary Measures
Various international corporations including major auto companies having operations in China are restricting travel and forgoing long-held traditions around the Lunar New Year amid the coronavirus outbreak, which shows no signs of abatement. The coronavirus can pose concerns for various global auto biggies including Groupe PSA, General Motors, Ford, Fiat Chrysler, Honda Motor, Nissan Motor and Renault, all of which have large manufacturing plants in Wuhan, China’s motor city.
French automotive firm Groupe PSA, the maker of Peugeot and Citroen brands, will repatriate expatriate staff and their families from the Wuhan region. The company is mulling potential evacuation options for 38 expatriate employees in full collaboration with China’s authorities and the French general consulate. The firm will also take appropriate measures with its Chinese partner, Dongfeng Motor Corporation, to take care of their joint venture’s employees in China. Notably, PSA has three plants in Wuhan in the Dongfeng Peugeot-Citroen Automobile joint venture (JV). As it is, PSA vehicle sales in China were117,084, down 55% year over year amid macro-economic headwinds.
Another French carmaker Renault has its factory in Wuhan, wherein it manufactures flagship SUVs —Kadjar and Koleos. Renault’s Wuhan factory has around 2,000 employees and an annual capacity of 300,000 vehicles. Renault and Honda’s manufacturing plants were already closed for the Chinese New Year holiday at the time of outbreak. Honda has advised its employees to suspend any non-urgent business trips to Wuhan.
General Motors’ JV with SAIC Motor — which engages in the manufacture and marketing of Cadillac, Buick and Chevrolet cars along with light trucks — has a large manufacturing facility in Wuhan with employee strength of around 6,000. General Motors has temporarily restricted all business travels to China and asked the employees to take necessary protective measures suggested by medical authorities. The company, which commands a strong presence in China, had witnessed sales decline in the country in 2019 and expects the headwinds to continue this year as well. General Motors currently carries a Zacks Rank #3 (Hold). You can see
the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here .
While Ford does not operate in Wuhan, the firm has suspended all business travels to the city. Ford’s operations in China are located in Chongqing and Nanjing. The company is closely monitoring the situation to determine the necessary course of action. Vehicle sales in China — which happens to be Ford’s second-biggest market —fell for the third consecutive year in 2019, by 26.1%, amid the country’s lackluster economy and long-standing tiff with the United States. The company expects these challenges to prevail this year as well.
Per U.S. Automotive News, Fiat Chrysler has banned corporate travel in 11 cities in China. The company is implementing a travel advisory for China and issuing precautions for its employees in the country.
Coronavirus Adds to the Persistent Auto Sales Woes in China
The massive lockdown in the country, with widespread economic impacts, will jeopardize normal economic activities. China has been suffering from a nearly two-year long tariff war with the United States. The recently signed interim trade deal was viewed as an opportunity to revive the sagging economy of the Asian giant. Fears that the coronavirus would disrupt travel and commerce, further dragging down the China economy, has already spooked global markets.
As it is, global auto companies that command a strong presence in China and rely on the country’s gigantic market for profitability have started witnessing sales decline lately. Auto sales in China — which is the world’s largest car market — witnessed its second consecutive annual decline, by 8.2% year over year, in 2019. After recording growth for decades, the wheels are coming off China’s auto market since July 2018 owing to tighter emission standards, trade tensions, increasing popularity of ride-sharing platforms and economic downturn.
According to CAAM projections, China auto sales are likely to fall 2% in 2020, which would mark the third straight year of sales decline. The World Bank forecasts China's growth to decelerate to 5.9% this year. In addition to a weak economic outlook, tighter terms for vehicle financing and the possibility of re-escalation of global trade tensions may impact consumer sentiment, which is crucial for the sale of big-ticket discretionary items like automobiles. Amid all these headwinds, the coronavirus outbreak is also likely to intensify near-term business concerns.
As China is essentially off work for the New Year holiday, the extent of impact of the ongoing health crisis on automakers can be gauged only when most firms resume operations in the first week of February. Projects under construction and new model launches, which especially have a timeline, draw special concern. The scope of this crisis on automakers will become clearer only when the Lunar New Year holiday ends.
Today's Best Stocks from Zacks
Would you like to see the updated picks from our best market-beating strategies? From 2017 through 2019, while the S&P 500 gained an impressive +53.6%, five of our strategies returned +65.8%, +97.1%, +118.0%, +175.7% and even +186.7%.
This outperformance has not just been a recent phenomenon. From 2000 – 2019, while the S&P averaged +6.0% per year, our top strategies averaged up to +54.7% per year.
See their latest picks free >>
Zacks Investment Research
800-767-3771 ext. 9339
Past performance is no guarantee of future results. Inherent in any investment is the potential for loss
. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit http://www.zacks.com/performancefor information about the performance numbers displayed in this press release.