1. Executive Summary
First and foremost, COVID-19 is a terrible human tragedy and an unprecedented challenge to humanity. It has taken away lives and affected millions of livelihoods in unimaginable ways. It is also a reflection of how interconnected we are as humans and how collective responsibility is the best way to overcome the pandemic and come out of this healthier, happier, and more resilient. As COVID-19 continues to wreak havoc on multiple industries, it has become apparent that automotive industry will be among the worst hit and must brace itself for substantial and long lasting impacts.
The writing on the wall is clear: “COVID 19 isn’t just a pause button. It mandates us to stop, reflect, reset and restart at slower pace”
What started as initial concerns over short-term disruptions in Chinese supplies quickly escalated to a large-scale interruption of automotive businesses globally. Today, the industry finds itself in an extremely complex situation as it faces challenges across multiple fronts:
Unprecedented drop in global demand
Excessive dependency on China not just as a critical sales market but also a key supplier
Potential for complete shift in macro-industry trends
Large scale manufacturing interruptions as more plants shut down in response to lockdowns
Severe liquidity crisis as capital gets locked up across the value chain
Continuous supply chain disruptions
Automakers and suppliers face tremendous challenges as they address employee safety, business continuity and overall economic fallout of the pandemic.
Despite the deep impact, there are green shoots slowly emerging. Initial signs of sales recovery in China and recent decisions by OEMs to resume production are early indicators that the worst may be behind us. While the existing market vulnerabilities and demand challenges may continue to persist, the automotive industry must remain nimble as it traces its path back to normalcy.
There has been a recalibration of priorities across the value chain and it is critical to look inward to reimagine the future of automotive and identify key changes that need to be made across various organizational dimensions to mitigate the impact of the crisis.
Through this blog, we wish to share our ideas and perspectives around how the automotive industry can navigate the current crisis and best prepare itself for the post-COVID world. The blog has key sections that cover the following topics:
Impact of COVID-19 on the automotive industry
How is the industry responding to the immediate fall-out of the COVID crisis?
Imagining automotive industry in the post-COVID world: Potential future trends
Preparing for a post-COVID world: Immediate measures that organizations need to take
2. Impact of COVID-19 on the automotive industry
The auto sector was already witnessing business challenges and growth slowdown over the last 12- 18 months due to strict emission norms, diminishing demand, liquidity crunches and structural regulatory reforms in emerging economies (such as the GST in India). The COVID-19 pandemic has only exacerbated the situation for the industry. The unprecedented pandemic has created ripple effects that are detrimental to auto-businesses globally. While few of these effects are in the context of immediate short-term fall-out of the pandemic, the overall impact will continue to reverberate in the years to come leading to fundamental changes to how the auto industry operates.
i. Tailwinds turning into headwinds and vice versa: Complete shift in sectoral trends
“CASE” was an acronym that had taken over automotive industry in the recent years. Every major OEM and Supplier had devised their business models and product strategies assuming the future of automotive was going to be driven by CASE (Connected, Autonomous, Shared, Electric).
However, with the ongoing COVID crisis, we believe some of these tailwinds may very much turn into headwinds and vice-versa, and create a paradigm shift in the sectoral trends of the industry.
ii. Global sales decline
The auto-industry is closely tied to the overall mood of the economy. It is generally accepted that car sales are usually high in a flourishing economy and drop as the economy turns sour. Given the scale and complexity of the current situation, there has been a significant demand-side dry-up across all regions.
a) China
Being the epicentre of the crisis and one of the earliest impacted countries, China has become the de facto reference for the world as businesses seek to look for early indicators of what the extent of damage and path to recovery may look like.
The first public data released by China (Source: China Association of Automotive Manufacturers) for 2020 takes into consideration the Covid impact.
Nationwide car sales slumped 96% in the first week of February to a daily average of just 811 vehicles, the steepest yearly decline on record, as the COVID-19 outbreak hurt demand across the board
Sales of new energy vehicles (NEVs), including plug-in hybrids, electric and hydrogen fuel cells fell for an eighth straight month
The China Association of Automobile Manufacturers (CAAM) expects that vehicles sales will decrease by more than 10 percent in the first half of the year, and around 5 percent for the whole of 2020, if the outbreak is effectively contained before April
The current slowdown in China is significantly more severe than 2008-2009 crisis
Automakers in China are seeking government intervention through fiscal support and regulatory easing to minimize the impact on their sales. While, it may be difficult to directly extrapolate these numbers to different regions, it will be fair to assume that the impact will be similar, if not more in other worse hit countries such as US, Germany, Italy etc.
b) Europe
The European Automobile Manufacturers Association announced that automobile sales fell by 55% in March as lockdown measures went into full effect in most countries. March has by far been the worst for the European market with all countries reporting a drop in fresh registrations by 85%.
All major economies in Europe including France, Spain and Germany are projected to experience an annual sales decline trend that will persist for the remainder of 2020.
Porsche, Volkswagen AG and other major OEMs are revising or retracting their financial guidelines given the uncertainty around consumer demand and resumption of commercial production activities.
c) United States
US automakers reported the sharpest plunge of 43% in new vehicle sales for the month of March as COVID-19 forced millions out of work and decimated consumer demand. Further, the last week of March also saw Ford, Fiat Chrysler, General Motors, Mercedes-Benz, Subaru, Toyota, Volkswagen and others announcing that they would be suspending production temporarily. The general understanding is that 2020 sales in the US will slump by at least 20%.
d) India
While India has managed well to limit the virus outbreak thus far, the automotive industry in the country is reeling under an unprecedented crisis. As per the official industry body, passenger vehicle sales declined by 50%, commercial vehicle sales crashed 88% and two wheelers fell 40% in March and this was during a month that witnessed only limited lockdowns.
Below is a view of global OEM-specific sales-impact during the first quarter of 2020
Source: Company financial reports, announcements, cnet
Given the strict lockdown measures that were implemented towards the end of March, the real impact to global automotive sales will be seen once the official April numbers are released. The industry is bracing for even lower Q2 results. Further, a prolonged truncation of global demand may create an environment of recession that may significantly impact the long-term revenues and profitability of the automotive sector.
iii. Wave of supply chain disruptions
The sudden creation of “COVID hotspots “and ensuing lockdowns globally has significantly disrupted the supply chain. This challenge is being felt by automakers on two fronts:
Excessive dependency on China: More than 80% of the world’s auto supply chain is connected to China
Emerging hotspots globally: As more countries go under lock-down, there is an increasing strain on the automotive supply chain
Customer-demand patterns have evolved significantly over the past couple of months and will continue to change in the post-COVID world. Previous demand forecasts have become obsolete and demand planning teams are reassessing how to scale up their production facilities. The lack of realtime insights into inventory levels and predictability challenges as to how this crisis might end may disrupt smooth restart of production, and access to both components and logistics services in the foreseeable future.
iv. Liquidity crunch for all players in the ecosystem
As economic activity has come to a near stand-still, companies are experiencing high constraints on cash and working capital. With bleak growth outlook across most industries and geographies, we expect to see lower revenue collection, delays in collections and potential defaults on receivables. As raising debt from banks also becomes more challenging, automotive companies will tend to face severe liquidity crisis and will have to develop contingency plans to ensure at least core operations are not impacted again.
v. Production grinds to a halt
Major OEMs [BMW, Daimler, Honda, Nissan and the Big Three (GM, Ford, FCA)] and Tier 1 players (Bosch, Continental, Valeo, ZF and others) have temporarily halted production operations on both sides of the Atlantic owing to sharp upswing in COVID cases.
As per IHS Markit, shuttered manufacturing plants in North America and Europe are expected to seed a production fall of 1.4 million units, with Europe forecasted to encounter a reduction of 880,000 units in contrast to North America’s 478,000 units.
Production losses are obviously set to increase if shutdowns are extended or additional plants are brought to a halt.
vi. Brakes on strategic R&D programs
There has been a general shift in strategic R&D spends towards more tactical actions required to ensure immediate business continuity. As per IHS Markit research, COVID crisis is expected to have a significant impact on automotive R&D budgets:
13% reduction in 2020 development budget
17% reduction in 2020 advanced research budget
Delay in technology deployment is listed as the main impact
vii. Severe stress on auto dealerships
Many small and medium sized dealerships are staring at the prospect of either shutting down or merging with large dealerships as the uncertainty around lifting lockdown and future car sales increases. From a financial perspective, dealerships are currently over-leveraged, and liquidity is a critical issue. Early analyst reports indicate that there might be an exodus of at least 10% of dealerships by the end of this year.
viii. Used vehicle pile-up leading to fear of impending price collapse
Used-vehicle auctions are now virtually paralyzed, much like the rest of the automotive industry. The grave concern is that vehicles are starting to pile up in huge volumes at auction houses and that this imbalance will last for months. Further, the sudden glut in used vehicle volumes may lead to a price collapse and force automakers to write down the value of all lease contracts.
ix. M&A stuck in neutral
Major M&A programs (specifically those related to long term digitalization strategies) have been put on hold indefinitely as companies shift focus to address critical operational challenges posed by the pandemic.
3. How is the industry responding to the immediate fall-out of the COVID crisis?
As the automotive crisis deepens, several manufacturers have outlined strategic measures to address critical operational challenges and to overcome the financial distress caused by the pandemic:
i. Placing immediate priority on employee health and safety All major companies have ensured that employee health and safety remain at the heart of their decision-making process. The United Auto Workers (UAW), General Motors Co., Ford Motor Company, and Fiat Chrysler Automobiles (FCA) also formed an auto industry COVID-19 Task Force to implement better protection for manufacturing and warehouse employees. Enhanced visitor screening, increased cleaning and sanitization of common areas, and implementing strict safety protocols are few of the measures actively being taken by the industry.
ii. Revising financial guidelines and revenue projections As uncertainty around the economic situation persists, leading automotive companies are officially coming out and warning investors of the threats that their businesses currently face, with a majority of them anticipating that they would be missing the financial guidance issued for the coming quarters. The current economic environment will remain fluid and it will take a while before business returns to normal. Until then companies will have to prioritize activities such as supply chain reorganization, workforce restructuring and operational adjustments. The extent to which companies miss their revenue and profitability targets will be a function of both how governments respond and how quickly we are able to find a permanent solution to the pandemic (through vaccines).
Ford was one of the first OEMs to warn about lower sales in the first quarter reducing revenue projections from $40 billion to about $34 billion
Volkswagen withdrew its full-year guidance on April 16th, 2020
Continental AG also withdrew outlook for fiscal 2020 stating business impacts due to the pandemic
In the meanwhile, other OEMs such as GM and Tesla are also being encouraged to be more forthcoming with financial information and forecasts given the fluidity of the situation.
iii. Leveraging downtime to manufacture critical medical equipment and PPE
In the early 1940s, big car manufacturers like Ford were tasked with building thousands of jeeps and tanks to help the American war effort. Today, manufacturers around the world find themselves in a similar situation, channelling their resources to supplement the production of much needed medical supplies and ventilators. Auto makers including General Motors, Ford, Tesla, FCA, Jaguar are revamping their production facilities and building dedicated production lines to manufacture face masks, ventilators and disinfectants. Tier 1 suppliers are also partnering with OEMs to ramp-up PPE production volumes. Bosch also developed rapid COVID testing kits to accelerate the pace of testing across countries.
iv. Moving virtual through ‘Work from Home’ policies
Large automotive OEMs namely Ford, Volvo, GM and FCA had enforced early work from home policies for non-factory workers and employees in order to ensure business continuity. Asian OEMs such as Honda, Hyundai, Maruti and Tata Motors who had initially refrained from such measures, have also recently introduced remote working policies owing to the prolonged lockdown measures announced by the respective governments.
v. Delaying launch of key car programs The demand for new vehicle ownership has taken a toll owing to the sharp global economic downturn. As a result, several fuel-based and electric vehicle launches have been deferred until further notice. A few such models include:
Fuel-based passenger vehicle models such as PSA C5 Aircross, Hyundai Creta, Renault BS6, Ford Bronco, Chevrolet Tahoe, GMC Yukon and Cadillac Escade, etc. are a few releases being postponed
Tesla CyberTruck, Chevy Bolt, Mitsubishi’s Rivian R11 and R1S and Mercedes Benz EQC are a few EV models being held back due to the pandemic.
vi. Adopting employee austerity measures to reduce operating costs Automotive companies are being forced to adopt austerity measures as means to manage critical liquidity requirements and remain operational in the coming quarters. A few of the employee related austerity measures taken in the face of the current financial crisis include:
Japanese OEM Nissan has adopted the weighty measure of relieving 3000 employees in its Spanish plant, while Chinese EV company NIO has minimized its employee strength from 10,000 to 8,000
The big three have taken the more lenient approach of slashing white-collar salaries, with GM and FCA administering 20% pay cuts for salaried workers, and Ford subjecting executives to 50% salary cuts. Further measures are expected to be announced as the situation continues to evolve
Leading part suppliers Continental and Apollo have enforced top management salary abatements, with senior officials forced to forego 10-25% of their salaries
vii. Deploying safety measures in factories to resume operations OEMs and Tier1s are assessing how best they can prepare their production facilities to resume manufacturing activities. Some of the related activities include redesign of assembly lines to adhere to social distancing policies and installation of worker safety solutions (thermal scanning, movement tracking etc.). While automotive companies await official communication from respective governments, below is a snapshot of the recent announcements they have made as to how they plan to resume production:
viii. Shifting to online sales channels One of the most prominent shifts expected in the post-COVID world is with regard to consumer behaviour, particularly around the increase in demand for virtual showroom experiences. Digital sales channels were always expected to be the way forward, but current norms such as social distancing will only solidify the customers’ decision to avoid visiting dealerships and opt for online virtual showrooms. As a result, the automotive industry is exploring strategies to reduce existing dependencies on traditional physical dealerships and showrooms.
Case Studies from India
In immediate response to the crisis, Hyundai Motor India, MG Motor and Mercedes-Benz are turning to online portals to boost sales, expecting customers to make a slow return to physical showrooms once the lockdown is lifted. As much as a quarter of sales are expected to happen online over the next 5 years.
Tata Motors has launched its digital sales platform ‘Click to Drive’, which allows customers to purchase a car from their portfolio without having to step out of their home. The platform connects customers with over 750 of the carmaker’s outlets across the country and gives them the option of getting their car delivered home at a later date.
Maruti Suzuki, another Indian OEM witnessed a 35% increase in digital enquiries for new vehicle purchases within one week of the lockdown being implemented in India.
Shift from traditional dealerships to online channels the future Vehicle sales in the post-COVID world will also be predicated on the quality of customer experience that brands can enable on these digital platforms. Dealerships are planning to adopting AI tools which will enable their customers to utilize AR technology to attain a real-time 360-degree tour of the vehicle. While BMW, Tesla, Daimler, Toyota, Volvo were some of the early adopters of digital experience showrooms and online channels, this is soon expected to become mainstream.
ix. Ensuring liquidity and protecting the balance sheet The current crisis is life threatening to the industry. High financial leverage, high quantum of fixed costs and committed inventory means companies can’t scale down easily during learn times. With cashflow drying up due to slow sales activity in key markets and little signs of an imminent “return to normal”, automakers and suppliers are looking to protect their balance sheet and financial flexibility by preserving cash and avoiding non-critical expenses. Some examples of the proactive measures to increase cash position include:
GM intends to draw-down $16Bn from its revolving credit facilities
Ford raised $8Bn from corporate debt investors to shore up cash reserves
Motherson Sumi Systems Ltd (MSSL), a leading auto components supplier, said that its board of directors has given an approval to raise up to $130 Mn crore to secure liquidity
Mahindra and Mahindra (an Indian OEM) is planning to issue non-convertible debentures worth $130 Mn to manage current liquidity crunch
x. Extending special customer financing and lease extension programs: Several companies have rolled out payment deferrals, special financing programs and other relief measures to help customers affected by the coronavirus outbreak and to also stimulate new sales.
Hyundai is one such OEM which is offering customers a six-month deferred payment program upon losing their sources of income, while Ford, GM and Mitsubishi Motors are permitting highly qualified employees the benefit of interest free, 120 day-deferred payments upon vehicle purchase
Ford, last month, announced its "Built to Lend a Hand" program. The program applies to those ready to purchase a 2019 or 2020 model year Ford vehicle and will provide up to six months of payments on Ford
Further, Toyota and Hyundai have extended the duration of their customer care programs, where car warranties and paid connected services (which include roadside assistance, collision detection alerts, SOS emergency assistance etc.) have been extended in response to the prolonged lockdown
Other automotive titans, Honda, Kia and Volkswagen have introduced payment deferral programs ranging from 2-3 months along with fee waiver programs for those impacted by the crisis.
xi. Tightening travel protocols Given the recent developments, it is quite natural to expect that business travel, at both international and domestic levels, will take a backseat and approvals will be made more stringent. Ferrari, Hyundai, Toyota, Continental, etc. are among the companies that have formally restricted employee travel in order to comply with the regulatory announcements. Companies will soon roll out formal policies instructing employees to refrain from any form of business travel unless necessary in the short to medium time frame. Additionally, as people quickly transition from physical meetings to digital mediums of meetings, there will be a multiplier effect on how people communicate and collaborate at work.
xii. Extending financial assistance to dealers Toyota, Volkswagen and few others have come forward to support their dealers to potentially build solid, lasting business relationships. A few of the benefits offered include 100% upfront pay-outs and infrastructure support in order to combat the long-term effects of the pandemic and compensate for large stocks of unsold inventory.
xiii. Moving from ‘sales’ to ‘branding’ Automakers are currently leveraging the downtime to make investments in branding and to create a more personal relationship with their customers. In addition, they have also taken up the social responsibility to convey the message of staying safe in difficult times. Volkswagen, Audi and Daimler are a few organizations that have designed innovative marketing campaigns to raise brand and social awareness among consumers. They have also temporarily revamped logos to creatively convey the importance of social distancing.
As per surveys conducted, 7 out of 10 consumers among G7 countries do not see a reduction in discretionary spending once the lockdown measures are lifted. As a result, OEMs are making sure they continue staying engaged with customers and creating a strong brand positioning.
4. Imagining automotive industry in the post-COVID world – Potential future trends
Post the 2008-2009 financial crisis, automakers enjoyed a near decade long period of consumption boom. The advent of emerging technologies (AI/ML, Blockchain), rise of autonomous capabilities, emergence of new-age players (Google, Lyft, Uber, Tesla) and proliferation of connected mobility (IoT, Over-the-Air) were perceived as the new value enablers for the automotive industry. Players across the value chain attracted large ticket investments as they competed to redefine the world of mobility. However, the COVID-19 crisis has thrown a spanner in the works and disrupted this growth curve. Both OEMs and Tier-1s across the globe have lost anywhere between 20%-40% in market value. While automakers are still assessing the extent of short term impact and making operational adjustments to ensure business continuity, there are also major concerns about how the current context of social distancing, travel restrictions and lockdowns will impact customer preferences as well as the future of automotive sales.
Beyond the immediate question of ‘how long’ is the more existential question of ‘what next’?
WILL SALES PICK UP AGAIN: THE JURY IS DIVIDED
Most of the analyst reports project that global vehicle sales is bound to decline anywhere between 10-20% in 2020 influenced by a combination of factors such as:
Covid-19 outbreak and lockdown measures
Overall economic slowdown
Reduction in discretionary large ticket purchases by customers
Long term shift towards remote working
Risks are heavily skewed to downside; especially how low the market could go and for assessing recovery prospects. However, on the other hand, there is a contrasting opinion based on emerging glimmers of hope from China. Car sales in China fell 92% in the first half of February as the coronavirus shutdown took its toll, according to an industry trade body. But since, dealers have gradually restarted operations and production volumes are also scaling. Surveys indicate that new car purchase intention is increasing more among consumers and their decision will be further expedited by the lack of trust in public transportation. For example, Volkswagen expected its vehicle sales in China to quadruple in March, pointing to a recovery following the coronavirus pandemic. If one were to apply this trend globally, the expected long-term damage to sales may be lower than expected.
It is equally also important to reflect on how Sales might pick-up when it does...
Earlier efforts aimed at getting “back-to-normal” are now giving way to “adapting to the new normal”. It is difficult to predict how automotive industry will recover as it is not a monolithic structure. Auto industry is sensitive to geographies, government policies, customer preferences and cultures. Hence, any recovery when it happens will be in a staggered manner across different verticals and geographies largely depending on:
Approach taken by different governments in lifting lockdowns
Quantum of relief measures rolled out by respective government
Time taken for economies to recover
Extent of shift in people’s purchasing habits
Extent of adoption of social distancing norms
Regardless of how sales may actually pick up, there are certain other trends that will appear as enterprises prepare themselves for the post-COVID world.
i. Reprioritization of strategic initiatives The boardroom discussions today are changing: COVID-19 has brought about a redefinition to what constitutes “mission critical”. Today’s focus is on addressing the immediate dangers posed by the virus. Long term digitalization initiatives may take a backseat as short-term tactical measures such as restarting production and ensuring business continuity become more pressing in nature.
ii. Reduced dependency on China As the world fights the spread of the pandemic, at stake is China’s global reputation as well as the potential for a fundamental shift of supplies and manufacturing away from China. Expert bodies are already advising large enterprises to diversify their sourcing and manufacturing base given the disruption caused due to current dependency levels on China. While there may be a cost impact associated with shifting manufacturing bases and obtaining regulatory clearances, automotive OEMs are still expected to take this path as it would help de-risk their supply chain and increase preparedness for similar disruptions in the future. Japan and US are already contemplating moving their current manufacturing bases away from China. Further, this transition will also be accelerated by the emerging phenomenon of reverse globalization. It is expected that governments will resort to lifting lockdowns in a gradual manner and it will take time for international borders to open up fully. In accordance with this, automakers will also seek to pursue increased localization of their manufacturing and assembly processes until the global supply chain is re-established.
iii. Strategic decisions to exit unprofitable markets and business segments We may see large global automakers exit from unprofitable markets or business segments to reduce their proportion of fixed operating costs and enhance their operational resilience. These budgets will be diverted towards either doubling down on newer emerging markets (as Kia did earlier with India) or expand in existing markets.
iv. Re-evaluation of supply chain The true issues of a crisis are usually not the root cause of it, but rather the consequences and the organization’s ability to actively respond to them. In this context, the crisis has brough to light the complexities and fragility of existing supply chain ecosystem. Automotive supply chains are the most complex in the world partly because leading OEMs have outsourced most parts to suppliers to optimize costs and focus more on marketing and sales. Large OEMs sometimes have a complex system of thousands of suppliers contributing to a single program. Going forward, automakers will seek to create transparency in their supply chain. As a result, OEMs may directly start interacting with Tier2 and Tier3 suppliers while simultaneously reducing their dependency on Tier1 suppliers. We will also witness many automakers following the path of Tesla as they attempt to create a more integrated supply chain.
v. Relaxations around impending regulatory reforms There are likely to be delays or relaxations related to CO2 and fuel economy regulation specifically in Europe and United States. Governments may extend these relaxations to help the automotive industry as it faces major financial challenges and sales slumps.
vi. Redesigned shop floors Low contact technologies, modified assembly line layouts to ensure social distancing and co-bots to reduce dependency on manual labour will become commonplace in the redesigned automotive plants in the post-COVID world.
vii. M&A as a route to recovery and growth Since the onset of COVID-19, deal activity has dropped. Marsh estimates that 25% to 30% of live deals in the Pacific region have been shelved as a result of COVID-19 concerns. But this significant drop in deal volume was mainly due to temporary business uncertainty associated with the crisis. However, in the longer run, automotive enterprises will look towards M&A as an attractive route to bridge their supply chain gaps, enhance operational capabilities, or even explore market synergies as they tide over the impact of the crisis. There may also be consolidation in the vertical value chain as Tier1 Suppliers acquire smaller suppliers who will not have the financial bandwidth to recover from the impact of COVID.
viii. Collaboration over Competition CLEPA (the European Automotive Suppliers’ Association), which represents 3,000 companies supplying state‐of‐the‐art components and innovative technology, and ACEA (the European Automobile Manufacturers’ Association), which represents 16 major Europe‐based card, van, truck and bus manufacturers, have jointly adopted a ‘Code of Business Conduct in view of COVID-19’ to support a rapid and smooth restart of operations. This indicates that well-coordinated, collaborative efforts will be the most optimal route to mitigate the impact of the COVID crisis. The post COVID world will witness coming together of organizations through consortiums and joint ventures to jointly collaborate new products and accelerate their journey to recovery.
ix. Shift away from shared mobility The outbreak is likely to have a long-lasting impact on personal mobility choices. As people lose trust in public transportation, they are likely to find personal vehicles a safer option. Additionally, due to social distancing requirements, the popularity of the ride hailing, and shared mobility will hit an all-time low in both developed and developing economies. Hence ride sharing, which was earlier deemed to be a key growth engine for the overall automobile market, will most likely take a hit.
x. Drop in commercial vehicle sales In the midst of a global health emergency, retail, industry and commercial regions have enforced temporary shutdowns. This has played a major role in the decline of long-haul road transportation that includes heavy duty, medium duty and multi-purpose vehicles. There has already been a sharp 83% sales dip in the global VECV market in peak months of the outbreak and this may not completely recover in the near future.
xi. Self-driving vehicles – renewed demand Robo-taxis and delivery robots are anticipated to witness a surge in demand due to the flexibility of attaining on-demand rides and goods while simultaneously providing the benefit of social distancing.
xii. Surge in spare-component demand Majority of the automotive components, including critical parts are internationally sourced in order to enhance production efficiency. However, a dearth of such components can disrupt the automotive supply chain on a global level, as witnessed during the peak of the COVID outbreak. Hence, a surge in demand for additional critical components seems plausible post the recommencement of operations.
5. Recommended Actions in the face of ambiguity
The automotive sector should prioritize the health and welfare of their employees over business growth. Nevertheless, for OEMs and suppliers to stay afloat during these times of turmoil, it is critical to adopt key short-term measures across key organizational dimensions.
Critical short-term measures that organizations can adopt
Long Term Approach
It is now the right time for automakers to double down on digital transformation to create an agile, connected, and autonomous enterprise that will be resilient in the face of such disruptions in the coming years.
If you are looking to identify additional measures that your organization needs to adopt to overcome the crisis or to build a robust strategy blueprint for the post-COVID world, feel free to reach out to us. FutureFactor360 stands ready to help.