The exit also points to rising difficulty faced by carmakers to stay profitable amid increasing competition in China’s car market, which is set to shrink for the third year in a row in 2020, according to analysts.“The announcement reflects the trend in China’s car market over the past few years, which is fiercer competition, lowering utilisation of capacity, and widening losses for weaker brands,” said Ivan Su, an analyst at Morningstar.
On top of weakening demand amid a slowing economy, China’s car industry also faces the grave challenge of excessive capacity. Carmakers were operating at less than 40 per cent of their production capacity last year, according to the China Association of Automobile Manufacturers.Challenges from overcapacity and higher competition will persist, Su said, as state-owned carmakers are unlikely to close down factories that would stoke unpalatable lay-offs and social instability in the economy.
The coronavirus pandemic, first reported in Wuhan in December, proved to be the final nail in the demise of the Dongfeng-Renault venture. The factory was shut for more than two months until the end of March, in compliance with a province-wide lockdown to contain the outbreak.
Hubei province, accounting for as much as 80 per cent of China’s confirmed coronavirus cases at its peak, is also the country’s fourth-largest automotive manufacturing base after Shanghai, Beijing and Guangzhou.
Japan’s Nissan Motor, 43.4 per cent owned by Renault, also makes cars in the city of Shiyan - dubbed China’s Motown - for the outsize contribution of automotive manufacturing to local livelihood.
France has recorded 137,875 cases of infections of the Covid-19, the third-highest number among European nations, while death toll has reached 14,986 in the country.
Dongfeng Motor’s shares fell 1.4 per cent to HK$4.95 after Renault announced its exit, in their biggest one-day decline in five days. They have slumped 32.5 per cent this year, while the Hang Seng Index retreated 13.3 per cent.