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Coronavirus Effects on the Automotive Industry

Coronavirus Effects on the Automotive Industry

by:Will Chen 76 browse Time required for reading:5 minutes

With almost 17 million people already affected by the coronavirus, the automotive industry has also taken a massive hit. The automotive world is witnessing an enormous decrease in sales, with IHS Markit forecasting a possible 22% drop in light vehicle sales year on year.

When the COVID-19 epidemic started in China, few expected an outbreak this big. Lockdowns have led to shutdowns of many car manufacturing factories across the globe. And even when vehicle production resumed in many countries, companies are facing logistical issues. Moreover, we are witnessing a shortfall in demand. 

People still prefer not to visit dealerships and are relying mostly on vehicle history checks. Facing financial challenges themselves, most people are not interested in buying new cars in the current situation.

Decline In Sales

IHS Markit predicts global light vehicle sales will drop from 90 million to only 70 million units in 2020. On the other hand, analysts from Counterpoint reckon that there will be a 24% decrease in vehicle sales in the US this year. New car sales have already fallen by 55% in comparison to 2019. With collapsing consumer demand, supply is dwindling. By March 2020, 93% of US automotive production was offline. 

European countries witnessed a similar fall in sales. IHS Markit has forecasted a 25% drop in light vehicle sales with sold units expected to decrease to only 13.6 million in 2020. Lockdowns in different European countries have hindered trade and transportation, resulting in adverse effects on the production and delivery of automobiles. Recovery for the automotive industry in Europe will vary according to restrictions and sanctions by each government.

In the UK, new car registrations have declined by 44%, a steeper fall than seen during the 2008 global recession and the worst drop since 1999. Countries in Europe suffered the same setback with new automobile registrations falling below even the UK’s percentage.

Many expected China to better absorb the pandemic’s economic impact. However, the auto industry in China also faces steep losses. Especially considering China supplies the world auto parts worth $34 billion (2018 stat). China suffered significant losses during the early stages of Covid-19 in the first three months of 2020. After having dealt with the virus effectively, the recovery process started soon after. However, experts believe the country will still suffer a 15.5% loss in light vehicle sales this year.

Coping With The Pandemic

After a fierce Covid-19 onslaught, the world is learning to adapt to the situation. Many car companies have announced a delay in the provision of pre-ordered automobiles due to pandemic conditions. Auto manufacturers around the world have taken different initiatives to make purchasing automobiles easier during these difficult times.

CarWow, a vehicle comparison site, launched a new program allowing dealers to promote services such as remote purchasing, virtual tours, and even home vehicle testing. Like all other industries, the auto sector has also started taking advantage of e-commerce. Online car videos, virtual tours and comparison tools are accessible for consumers to research their favorite motor cars. 

A survey launched by CarWow shows that 54% of participants are still looking to buy a car soon. Nearly 30% of people who took the questionnaire favored a home test drive and direct delivery of vehicles.

Automakers understand the financial loss that their customers experienced during the pandemic and have accordingly launched programs to help them deal with the difficulties. 

For instance, Ford recently introduced a “peace of mind” offer, allowing consumers to defer payments for up to six months. This offer was only valid for vehicles purchased during April and May. Hyundai has launched a scheme to take responsibility for up to six months of payments if a customer loses their job during the pandemic. Also, an option to defer payments for 90 days is available.

Automotive Industry Bounces Back

The world is easing restrictions and gradually returning to a new normal while following necessary precautions. In the second half of the year, we are expecting to suffer only an 8% downfall in output compared to 35% in the first half. 

China has allowed many auto factories to start production. Manufacturing is set to return to normal according to the demand of consumers. In February, new car registration fell by 92% YoY but in March stabilized to 47%. 

In May, sales bounced back tremendously, but in June the auto sector saw another downfall, with 6.5% fewer sales compared to last year. However, we are expecting a rebound in demand according to the general principles of supply and demand. New practices, including no contact sales, have encouraged customers to improve sales.

For European countries, government restrictions remained strict until May of 2020. Many car manufacturing facilities have resumed production. However, the situation slightly differs in each state, depending on the government’s laws. Motor car sales rose to 1.2% YoY in France to just below 234,000 units. Germany and Spain followed this trend. In Europe, deals for used cars also returned to normal. 

In the UK, sales boosted in June because of the reopening of dealerships. Registrations are now down by 35% only compared to the previous 44% in March. Even though showrooms have been allowed to open in the UK in June, they will only be given permission post-June in Scotland and Wales. Consumers are still skeptical about purchasing vehicles during these adverse financial conditions because they do not know how long the virus will last.

In contrast to its fellow nations, recovery in the US remains doubtful for now. The country still has not overcome the virus; things are likely to stay closed rather than opening up. Analysts plan to hold on to their earlier predictions that the US will suffer a 24% decline in annual light vehicle sales in 2020. Due to its complex supply chain, an effective resumption of vehicle manufacturing will require coordination between US states. 

As we gradually learn to live with the pandemic, a new normality will emerge. While the new normal may be different, with new precautions to keep industries functioning, factories have already restarted operations. These new guidelines may affect how we work with social distancing, better health precautions and different shifts.

Auto companies may expect a rise in average running costs and a fall in supply, but we can hope that top auto-makers will recover. E-commerce may soon become a new way of living, reflecting the new premium on safe distancing during this coronavirus era.

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