The automotive sector is not likely to return to the way it was before the pandemic. What have the effects been so far and how will this change the structure of the sector?
A year of unpredictability
The coronavirus pandemic has created a global chain reaction of events that’s had a swift and significant impact on the automotive industry. According to KPMG, 80% of the automotive sector, OEM, and supply companies report that the pandemic will have a direct impact on their 2020 revenues. In the UK, MotorTrader.com has reported new car sales for April fell 97% as the market was effectively frozen under lockdown rules that closed dealerships across the nation.
UK car sales in April are the lowest since 1946. SkyNews.com
China and the automotive sector
There have been concerns over disruption in Chinese parts exports that have caused serious interruptions across Europe. This concern is echoed in the U.S. as more than 80% of the world’s auto supply chain is connected by some degree to China. The automotive sector in the European Union is expected to see a decline of 2.5 billion U.S. dollars due to a reduction in automobile and parts exports from China. The supply chain has also been heavily impacted by countries that include Japan, and South Korea, as they also account for a significant share of global auto manufacturing.
Assembly plant closures are adding to the intense pressure on an increasingly distressed global supply chain. In the U.S. 78% of plants currently do not have enough staff to run a full production line (Nasdaq). With continuous lock-down restrictions in place, widespread consumer confidence could significantly impact automakers’ revenues and profitability.
78% of U.S plants do not have enough staff to run a full production line. Nasdaq
Automakers and their suppliers employ about one million people in the U.S., according to the Bureau of Labor Statistics. A significant number of those people work in factories where components and vehicles are assembled and there are no options for remote working. This creates the challenge of remaining in business and keeping workers safe and healthy.
With such a difficult set of pressures facing the industry, how will it begin to adapt?
The purchase process has started to see some acceleration in change with online-based home delivery sales now increasing. A Cars.com spokesperson says, “Car shoppers will begin to see e-commerce collide with the in-store experience. We anticipate most of the vehicle transaction will move online in the next decade, but shoppers will still be working with dealers, it just may look different than it does today. We may see a world where we’re going to the local dealership to check out the latest in-car tech, much like we go to the Apple Store to experience the latest smartphone.”
Convenience versus safety
While U.S. auto retailers have sold 800,000 fewer vehicles than forecasted the pandemic may very well slow down the growth of ride-sharing companies like Uber and Lyft, as they could potentially pose a health risk. Across the world, people may start to question whether they want to use ride-sharing vehicles, cabs, and mass transit. This could provide some comfort to the auto industry by boosting the use of personally-owned vehicles. It may only be a short-term boost for automakers, but people’s desire to control their own destiny or at least the part of their destiny that allows them to stay six feet away from strangers could be a big opportunity for manufacturers.
93% of people are using private vehicles more. Autonews.com
With the long-distance supply line carrying more risk of disruption, sourcing materials and components closer to final assembly plants may also become more attractive. The opportunity for domestic manufacturers to fill the gap left by the international market may be a once in a generation chance to regain a foothold in local markets.
However, many homegrown parts suppliers may not be able to survive long enough to take the opportunity. Suppliers to leading car, black cab, and bus manufacturers, Arlington International, have called in administrators for its operations in UK and Germany. It’s U.S, South American and Asian operations remain, but as they restructure to survive the downturn, their automotive customers must be prepared to find alternative supplies if further cuts do come.
With the increase in financial uncertainty, owners may choose to keep their current vehicles for a longer period of time. The increase in the length of ownership is likely to lead to more ongoing maintenance as vehicles are kept on the road for longer. The complexity of modern autos means we’ll never go back to tinkering under the bonnet for hours, but aftermarket consumables will remain in demand.
What does the post-pandemic future look like?
The auto industry was expected to go through some dramatic changes over the coming years, with the intense focus on autonomous vehicles and electrification, but more immediate changes may happen because of the pandemic.
One area we expect to feature in the immediate and mid-term evolution of the sector is the role of technology in sales and communications. Repositioning sales and marketing efforts with a focus on being data-driven will deliver a clear value add story for B2B and B2C businesses. Under the threat of the worst depression a generation has ever seen, proving the benefit of a product or service has never been more pivotal to closing a sale.
Whatever the results of the coming months’ automotive sector leaders and companies will need to look ahead and ask what tools will be essential and most effective in supporting their business. sales-i has already processed 10 billion U.S. dollars worth of transactions over the last 12 months, taking automotive customers to the next level by putting fast, efficient automotive sales intelligence software into the hands of salespeople. Real-world results have shown that when sales managers have innovative analytics tools such as sales-i, they can understand their margins better, mitigate risk more effectively, and make better strategic decisions faster. Essential in a sector that is going to look very different in the coming months.