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Impact of covid-19 on auto mobile industry

The COVID-19 has been declared pandemic as its outbreak is an ongoing global situation. Besides the human tragedy, it is severely impacting economies and industries all around the world. The coronavirus pandemic is causing disruption and economic hardship around the globe. From Asia to Europe to North America, no country has been spared by the virus effects and especially from its economic fallout. Almost every sector was affected by the pandemic. The globally integrated automotive industry is no different. Factory closures, supply chain disruption and diminishing demand have all taken their toll. And, as a result, some auto dealers will close forever, causing the floor plan lending market to contract.

Before this pandemic, vehicle sales were rising and even in some sectors, it was setting new records. In US alone, the forecast for year 2020 for auto sales was around 17 million units. But unfortunately from March 2020, the manufacturing and other economic comes to almost a standstill. Layoffs occurred throughout the industry. Production hindered due to temporary shutdown of plants. The nature of the auto industry being heavily dependent on global supply chains made the entire scenario worsen. Supply chains are often scattered across multiple regions of the world and each country imposed their own version of COVID regulations.

Due to widespread job losses, people started saving more instead of making big transactions like vehicle purchases, which further brought down demand. Although gasoline prices plummeted across North America, this was not associated with any positive trend in vehicle sales. New vehicle sales in the United States fell 23.9% in July this year as compared to 2019. In Europe, sales dropped by about 25.7% during the same period.

While many key markets saw signs of improvement in August on monthly basis, it remains difficult to ascertain the actual market situation as the repressed demand may be covering up a lower inherent level of market demand. The industry is expecting nearly 20% decline in 2020 as compared to last year; with global passenger vehicle (PV) sales estimated at around 71 million units.

Auto manufacturers around the globe
United States

Vehicle sales in August declined close to 20%, reaching 1.33 million units. Total January-August 2020 sales reached around 8.8 million units, down 23%. During the month, Toyota saw a sharp decline of 24.6%, followed by Honda (-23%). Hyundai, on the other hand, performed comparatively better with only an 8.4% decline.

China

China automotive sales continue their fast recovery. Vehicle shipments reached close to 2.2 million units in August, up 11.6%. Total shipments during January-August 2020 were down 10%. It is expected to recover to continue in coming months driven by improving car-buyer sentiments.

Europe

With stimulus packages to support economic revival seems to have started benefitting the region’s automotive industry. Vehicle sales in August crossed 1.2 million, declining 16%, as compared to sales in August 2019.

Japan

Vehicle sales in August crossed 326,000 units, declining 16% on YoY basis. Market experts are cautiously optimistic for coming months.

South Korea

New vehicle sales in the country from top five automakers — Hyundai, Kia, Sangyong, Renault and GM — declined close to 6%, reaching around 112,000 units. In June, the government extended the 30% cut in consumption tax on passenger cars till December 2020, benefiting sales.

Thailand

Thailand revised its production forecast to 1 million to 1.4 million units in 2020. The range was widened from its previous forecast in May of a 33.8% fall to 1.33 million units.

India

India’s manufacturing remained in contraction for a fourth consecutive month. Vehicle output for April to June, which marked the first quarter of the Indian financial year, collapsed 79.4% year on year to 1.49 million vehicles. A recovery in India’s car industry is likely to be further delayed as the country deals with a fresh surge of coronavirus infections.

European Union

The impact of the COVID-19 crisis on the European automobile industry is unprecedented. The sector has suffered EU-wide production losses amounting to 3.6 million vehicles, worth around €100 billion, during the first half of 2020 alone.

Pakistan

Pakistan auto sector is already into deep crisis. The production in all subsectors of automobiles (tractors, cars, motorcycles) declined by 15-50 percent in 2018-19 and by another 50 percent in 2019-20. There was almost no production in the month of May and June. Due to competition they were operating on low margins.

Auto sector ended 2019-20 on a dismal note as production and sales of various vehicles suffered declines in the range of 23-55 percent. Production and sales of cars plunged 55 percent and 53.5 percent to 94,325 units and 96,455 while those of two/three-wheelers by 23 percent to 1.370 million, respectively. The low annual car figures were led by sales and production grinding to a halt during April on account of lockdown to prevent spread of coronavirus even as the sector staged a recovery in volumes during May at 3,800 units and June 7,325. Output and volume of trucks were down by 51 percent and 47 percent to 2,945 and 3,088 units in FY20 while bus production and sales dipped by 42 percent and 40 percent to 3,477 and 3,647, respectively. Farm tractors’ production and sales fell by 35 percent each to 32,608 and 32,727 units in FY20. Total output and volume of jeeps tumbled by 53 percent and 55 percent to 3,564 and 3,459 units while pickups saw corresponding decrease of 51 percent and 52.5 percent to 12,068 and 12,048 units, respectively.While many assemblers had started rolling out vehicles from May after easing of lockdown, Pak Suzuki Motor Company Ltd took a late start. As a result, the production of WagonR remained “nil” from April to June, while that of Suzuki Swift, Cultus, Alto and Bolan also stood “zero” from April to May. Despite closure of units during lockdown and thin demand, car assemblers pushed up prices of Toyota Yaris, which came down in the assembly line on Indus Motor Company (IMC) from May with output and volumes of 389 and 167 units, before rising to 1,033 and 1,160 in June. Yaris had replaced Toyota Corolla 1,300cc.IMC also raised prices of various Toyota vehicles by Rs110,000-500,000 while Honda Atlas Cars also jacked up rates by Rs60,000-120,000.Pak Suzuki Motor Company pushed the Alto 660cc VX model price by Rs63,000 to Rs1.198m. Prior to lockdown (from July 2019 to mid-March 2020), car assemblers continued giving multiple shocks to consumers by raising rates multiple times on rising cost of imported components due to rupee devaluation.

Future coercions

Despite the opportunities outlined above, there are still plenty of reasons to be concerned. The auto industry was already facing financial headwinds before the pandemic, and the impact of Covid-19 has only accelerated many of those worries. Companies in the automotive industry may need to batten down the hatches for a second wave or cold weather spike in Covid-19 cases.

A few of the changes which were a result of the pandemic might stay. To regain steady sales figures, manufacturers and dealers have to be creative, flexible and innovative in their approaches. Apart from changes companies and dealerships will likely continue providing the incentives on reduced interest rates, discounts and other offers to give potential buyers more reasons to buy vehicles at this time. This could also be an opportunity to increase research on autonomous vehicles as people practice social distancing. In addition, automobile industries should improve and invest in supply chains, using machine learning tools and big data analytics. This will ensure that the supply chain efficacy does not compromise and production can be invigorated rapidly. Blessing in disguise, we have new learned new lessons. New ideas and research that could set new standards in the industry for the years to come. Together with integrated digitization, rising interest in electric vehicles and work-from-home standards, the future could bring systemic changes to the existing supply chain model and the industry as a whole.

The author, Nazir Ahmed Shaikh, is a freelance columnist. He is an academician by profession and writes articles on diversified topics. He could be reached at [email protected]

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