How Corona Virus is Impacting Global Auto Industry
- on July 29, 2020
- Categories: Car Feature Articles
COVID-19 has come upon us very harshly and brought the global economy to its knees in a matter of days. Amidst this crisis, automobile manufacturing has been one of the hardest-hit sectors, facing significant disruptions in international supply chains. The shortage of parts led the Korean automaker Hyundai to shut down its plants in Korea. Japan-based Nissan also had to temporarily suspend operations in its Japanese factory, and the shocks have been brutal across Europe and America as well with numerous factory closures.
So, what does all this mean for the global automotive industry? Will it ever be able to recover from this crisis? Or are we looking towards a complete overhaul and transformed industry dynamics for the automakers to adopt to? As an automotive expert who knows the industry inside out, here are my two cents on the prevailing scenario and what is likely to come:-
COVID-19: Repercussions for Auto Industry
Generally, the state of the economy has a direct impact on car sales. They are solid in a favorable economy and tend to dwindle as the economy takes a downturn. This is majorly related to the subsequent rise in unemployment or employees facing pay-cuts during a recession. When people lose their jobs, they are highly likely to cut back on luxury items, such as holidays and new vehicles, while saving for necessities.
- US & China: The Two Major Global Players
If we look at the two major world economies, i.e. the U.S. and China, the data reveals that vehicle demand plummeted during the last economic crisis of 2008-2009. This effect is more noticeable in the U.S. figures since vehicle demand did not rise as rapidly as in China afterwards.
US Car Sales (millions)
China Car Sales
Watching the 2020 figures, however, the drastic impact of the pandemic is quite apparent in the Chinese auto industry. As the Coronavirus continues to hurt vehicle demand, car sales in China have fallen by an astounding 79% from last year to only 310,000 units in February 2020, which is also the sharpest yearly decline on record till now. Since more than 80% of the global auto supply chain is connected to China, any production shortfalls due to supply chain disruptions in the country affect global automakers. Although the Chinese auto-industry has majorly resumed production, the pace is slow and it is still too premature to comment on how things will turn out. The second global wave of COVID-19 can cause further disruptions, if not managed properly.
Now coming to our local Australian market, new vehicle sales fell by 17.9% in March 2020 due to the pandemic, the Federal Chamber of Automotive Industries (FCAI) reports. These statistics contribute to the 24th consecutive month of negative growth for the Australian automotive industry. Despite the Coronavirus conditions, many dealerships across Australia remained open to provide customer support, since essential services and first responder vehicles still need to be on the road and remain functional.
What Can We Expect?
- Hope for the Auto-Industry
An alternative perspective to the pandemic’s dire consequences is a favourable one; the impact of COVID-19 on the automotive industry is more likely to be immediate rather than long-term. Presently, social distancing, quarantine, and global travel restrictions mean that people are not commuting anywhere except when necessary. This, however, is certainly not feasible in the long-run, as people need to go out for employment and leisure, businesses need to operate, and economies need sustainability. Therefore, transportation needs are inevitable.
With people attempting to avoid public transportation and ride-sharing to curb the spread of the virus, the only option leaves behind is to own a vehicle. This presents a huge opportunity for auto-finance and leasing companies - with auto-captives in particular. They will be able to capture a larger customer base by offering lenient and attractive credit terms to customers. Consequently, those who could not afford a vehicle in the past will be able to do so, which will likely drive up auto-industry revenues globally.
- Or Difficult Times Ahead?On the other hand, if the global transition to the work-from-home model continues, car sales could take a serious hit. Forced lockdowns are enabling companies and employees to find ways to maintain operations and service levels by working remotely, which may continue even after the pandemic is over.
The Guardian reports that COVID-19 could very well cause a permanent shift towards working from home, and employees may not want to return to the office afterwards. In fact, most of the workforce has already started questioning the need to go to the office in the first place, when they can do the same work from home.
A cultural shift like this one could mean fewer daily commutes and little desire for buying cars or replacing them as frequently as before. Also, while people would still like to own cars, they may opt for cheaper models if they are not using them daily. All of this would affect the automotive industry worldwide, and the automakers would eventually have to come up with new strategies to entice buyers and protect their interests.