Automotive Industry Reviving Mobility’s Future with COVID-19 Aftershocks

October 2020

Automotive and transportation is the backbone of industrial revolution, progress, trade, and soaring economies, aiding transportation for billions across the globe for varied reasons and purposes.

The industry has witnessed sweeping changes in employment patterns, social interactions, infrastructure and distribution of goods. It has birthed trade and tourism, fostering globalization.

Several economic aspects are associated with the industry as it fairly support supply chain, logistics, and movement of imperative materials such as petrol, rubber, metal, oil and pharmaceuticals in various corners of the world.

The devious spread of Coronavirus (COVID-19) has impacted the automotive industry in grave ways. Keeping safety norms in consideration, automobile and component manufacturing plants stopped production early on, compounding the slow down that had already set in late 2019. This has significantly aggravated the demand and supply issues, making business sustainability questionable. Austerity measures during COVID-19 have impacted businesses, restricting growth in the auto sector.

According to the International Monetary Fund, global trade has suffered by 30% this in 2020. Headwinds against automotive supply and demand are set to persist beyond 2020 as car parc peaks in wealthier regions and sales struggle to pick up the slack in developing markets. With new cases of COVID-19 flaring up, the industry is worried  about its long term recovery prospects, rather than pent-up demand. Spike in COVID-19 cases could result in restricted movement and lockdowns, in worst-case scenarios, delaying economic recovery and undermining consumer confidence.

It is highly predicted that virus originated in Wuhan, China, causing deep ramifications on the worldwide trade. The automotive industry has been at the receiving end of this significantly  as China has been the largest raw material and component supplier for automotive parts. The supply chain network of most of the multi-million dollar companies is distributed globally, with China being at its center.

According to UNCTAD, China’s share in the global trade in the export of intermediate goods is around 15% and in capital goods is around 23%. However, the percentage of import is much less than the export for all the class of goods. This in turn helps China to be more self-reliant.

China’s share in global automotive industry exploded from 2000-2019, growing seven fold, according to OICA. China is one of the major auto component parts suppliers across the globe. For instance, India and U.S. imports 20% – 27% auto components from China. Evidently, China plays a critical role in the automotive industry development.

Globally, the automotive industry is expected to witness the differential impact on each stage of its value chain. Affected workforce at industrial level, raw material supplies, trade and logistics, demand-supply volatility and uncertain consumer demand are some of the many factors. Production, distribution, and inventory levels too are likely to be impacted.

Workforce and Altered Productions

Workforce in manufacturing plants and distribution networks is the most impacted. They run the risk of spreading the virus at different stages of the supply chain has resulted in a labour shortage. The travel restrictions and ban imposed has also affected business plans and industrial production of automotive products.

Auto companiesare diverting capital to shore up continuing operations, starving the R&D investments. Automakers switched their vehicle productions for breathing machines. For instance, Ford, GM, and Tesla dived into the design and development of ventilators. While Asian OEMs like Hyundai, Mahindra, Ashok Leyland and Tata extended their support too.

Raw Material Supply

Factors such as poor logistics due to traffic control and restrictions on public movement in the affected state of China can lead to supply disruptions. Prolonged trade restrictions can lead to a significant impact on the industry of importing countries, motivating businesses to explore alternative sourcing partners both in terms of geography and manufacturer.

Trade and Logistics

Trade restrictions have substantially affected global logistics and transportation. Tightening of transportation and port capacities led to increase in shipping and freight costs. Choked production led to short supply and affected availability of automobile products at retail level. These challenges will likely have a significant impact on the revenue of automobile businesses.

Demand-supply Volatility: Manufacturers, Suppliers, Retail and Service Outlets

While the manufacturers & suppliers are most likely to be affected by the shortage of labour and raw material required in the production process, retail and service outlets are also expected to experience more intense challenges right from the get-go. While on one hand, the challenge for retail outlets is possibility of the irregular footfall of consumers, shortage of labour and supplies, on the other hand there is stockpiling of products at showrooms.

Uncertain Consumer

Major qualms about the virus has inflicted scare among consumers and has prejudiced their perception towards spending. The uncertain employment status and income earning capability is leading to fall in spending. Consumer sentiment too is dented with many psychological and mental issues, which does not augur well for the industry. However, the insecurity of virus infections shall bolster the demand for personalized vehicle or two wheelers over car sharing and public transit.