Impact of COVID-19 on the automotive industry
The coronavirus or COVID-19 outbreak which started in December 2019, is now spreading across the world at an increasingly alarming rate and has already been declared a pandemic by the World Health Organization (WHO). The coronavirus has already had a huge impact on all walks of life. The automotive industry is no exception to this deadly pandemic. Automotive OEMs and their respective suppliers have been grappling with the disruption that this crisis has brought about all through the months of January and February. Through a series of blogs, we will take a look at how the automotive industry has been impacted and the course of action in the near future as recommended by the experts.
Impact on the auto industry
However, the month of March has brought the automotive industry to a screeching halt, with automotive OEMs around the world shutting down operations and manufacturing facilities as well as dealers shutting shops owing to complete lockdowns announced by the governments of countries all around the globe. Temporary shutting down of plants have already been announced by most of the members of the European Automobile Manufacturers’ Association (ACEA), who are also coming up against instances of infections and quarantines among their employees. Naturally, as a result of all this, vehicle sales have also nosedived. Events such as the 2020 Geneva Motor Show, 2020 Detroit Auto Show, The Battery Show Europe 2020 have either been cancelled or rescheduled. The COVID-19 pandemic has left the automotive industry reeling and staring at unprecedented losses.
Roland Berger have assessed the potential disruption to global business with their analysis focused on economic growth in key regions, i.e. China, the United States and the European Union. According to Roland Berger, different business sectors are impacted differently due to the variations in supply and demand patterns. As a result of the slow growth rates in 2019, the already depleted automotive industry, is on the verge of the biggest slump. With vehicle sales significantly below their forecast numbers and no boost likely due to supply chain problems, Roland Berger states that there could be a drop of 10.6 percentage points in Gross value added (GVA) in 2020 in the worst-case scenario compared to the base-case scenario without a COVID-19 impact. In the moderate Delayed Cure scenario, by cause of component shortages and supply chain issues, the first half of 2020 is expected to see a considerable dip in sales which is then followed by a rise in the fourth quarter of the year, thereby lessening the full-year effect. In the Fast Recovery scenario, a small tumble in sales volumes in the first half of 2020 is followed by an offsetting ascent in the second half.
Measures and Recommendations by Industry Experts
When the going gets tough, the tough get going. Strong leadership is critical in this time of crisis. Deloitte has recommended some practical measures to combat the impact of COVID-19 on the automotive industry. Those include identifying, prioritizing and accelerating cost-out measures; optimizing working capital and identifying measures to deliver fast and tangible cash flow benefits; revising forecasts and prioritizing downside scenarios keeping in mind the market uncertainty; identifying potential collateral sources to ensure access to additional borrowing solutions; and finally an engaged workforce to focus on safety and care of employees.
According to McKinsey & Company, companies in advanced industries should respond in a quick and decisive manner to the COVID-19 threat. They have offered certain recommendations to aid such companies in planning for the long haul and their efforts on the path of recovery. Firstly, they recommend establishing a ‘nerve center’, which is a dedicated team responsible for creating a threat-map, establishing a risk log and developing an integrated plan. The nerve center serves as an information center, manages risks and responses and aligns all stakeholders. Protecting the employees comes next. The companies should make employee health their principal concern and alter production as required. Screening and safeguarding the supply chain is the next recommendation. The companies must understand the supply chain risks and take appropriate action to tackle the disruption. McKinsey & Company further advise adapting marketing and sales. It is important to recognise and alleviate the risks of sinking sales while meeting customer needs. Finally, it is recommended to maintain the financial health of the company by improving liquidity, cutting down costs and taking care of other members of the ecosystem.
OEMs and suppliers to the rescue
Despite the massive setback, automotive OEMs and suppliers around the world are doing their bit and contributing in the fight against COVID-19. Manufacturing facilities and production lines are being rejigged to join the resistance. Contributions have also been coming in the form of donations of medical supplies such as face masks, protective suits and hand sanitizers. Carmakers in the United Kingdom, such as Vauxhall, Nissan and McLaren are ready to act when the government demands it. Fiat Chrysler is endeavouring to help in the production of respirators, which are desperately needed for patients in Italy. Additionally, Fiat Chrysler has also confirmed plans to produce 1,000,000 face masks a month and distribute them to emergency services in North America to help the fight against coronavirus.
The leading automotive OEMs in India as well have pledged and taken action to support the government in its fight against the coronavirus. The Mahindra and Mahindra group has taken the lead by offering to produce ventilators at their production facilities as well offered their hospitality resorts as care facilities for the infected patients. The Tata Group comprising of the Tata Trusts and Tata Sons, has announced the combined donation of approximately $200 million towards coronavirus relief fund.
Automotive suppliers have also put their hand up in providing relief measures against the COVID-19. Coming to the aid of healthcare professionals, Valeo donated 30,000 masks whereas Faurecia donated a whopping 100,000 masks to local hospitals in France.
To sum up, regardless of the forms of donation, it is evident that automotive OEMs and suppliers are displaying their incredible sense of social responsibility. Despite the problems and losses the companies themselves are facing, it is heartening to witness the human race come together to put an end to this suffering and resume normal life.
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