Chinese auto dealers will recover from the unprecedented disruptions caused by the lockdowns and social distancing measures imposed by the government to manage the coronavirus pandemic, Fitch Ratings says.
The international rating agency expects the deterioration in auto dealers' profitability and leverage in 2020 to be temporary and business recovery will continue into 2021.
The report, "China's Auto Dealers - The Road Ahead" says that China's passenger-vehicle (PV) retail sales fell 41% yoy in 1Q20 before production resumed and accelerated in 2Q20, with the volume decline easing to 3% yoy, followed by an 8% and 9% increase in July and August, respectively.
Fitch believes the recovery in PV demand is likely to persist into 2021 even if some of the government stimulus measures end in 2020.
However, in the longer run, the efficiency and stability of Chinese auto dealers' after-sales service, which consists of the maintenance and repair of vehicles, will be the key differentiator of their performance. Successful dealers have a highly profitable and stable after-sales service business, allowing them to ride through an inherently cyclical automotive industry.
Recovery of sales of vehicles is significant for insurers because motor insurance contributes around 60% of the total premium of the non-life insurance sector.