Auto industry post the COVID-19 pandemic
The coronavirus pandemic has pushed the global economy into a crisis we haven’t witnessed since The Great Depression. In an effort to curb the spread, governments all over the world have enforced lockdowns that currently have lasted for over a month in Malaysia. As of now, we are in the conditional movement control order phase, like many countries that are slowly easing the lockdown. There is no doubt that the lockdown has helped control the spread of the virus, but we cannot ignore the dent it has caused on the economy - disrupting entire value-chains of the industries. And our beloved automotive industry has borne its burned too.
The automotive sector was already undergoing a considerable slowdown over the last year and a half, and the COVID-19 lockdown has only multiplied the effect. The industry has been on almost a complete standstill since March 18 with car launches getting postponed or carried on virtually, auto shows getting cancelled, and much more. Also, the prolonged fall in consumer demand has significantly affected the OEMs cash flow and revenue.
In response, many automakers are starving their R&D funding to sustain core operations. Also, companies are setting back on the advancements made in mobility technologies and alternate fule by 2 to 4 quarters, and some have even decided to exit unprofitable markets and car segments.
Post COVID-19 world - An analysis
Taking clues from China and South Korea where daily life and manufacturing activities are somewhat back on track gives hope for a U-shaped recovery. Our analysis indicates that the automotive sector will start to see recovery by the third quarter of 2021. The industry demand is expected to be down by 15 to 25% in 2021. With such low numbers, OEMs, suppliers, and dealers with a substantial cash reserve and better access to capital will be in a more favourable position to sail through the tough times.
Changes in the automotive landscape
Again seeing the Chinese automotive market, we suspect a significant change in customer behaviour. The preference has now shifted towards individual hygiene, health, and cleanliness during travel. Therefore, we now expect the customers to switch towards personal mobility. Shared mobility will undoubtedly take a backseat for a while. However, with all not having the resources to buy a car and especially with the cash crunch situation due to lockdown, an increase in the sales of the used car is expected in the next 3 to 6 months. Service-based models like lease rentals and pay-as-you-go may also see an uptake in a few markets. Recently, many OEMs have started online sales channels to digitally connect with the prospective buyers - indicating a new way of doing business.
Talking about the other side of the supply chain, suppliers might face significant operational and financial burdens. Due to domestic and global exposure, Malaysian automotive supplies will face many challenges. Also, lower domestic sales will, in turn, lead to low revenue and reduced capacity utilisation. Lockdowns in Europe and North America will show limitations on both import and export. So, the disruption in the global supply chain will impact the market until the end of 2021.
However, all is not bad as it is predicted that car dealerships will offer great deals and discounts to lure in customers and move their inventory fast. The same positive effect is expected to be seen in the used car market, as many fleets will get downsize as businesses are not going the way they were before. Besides, there’s the added advantage of the low cost of operation as parts and fuel is expected to be sold at hefty markdowns.
These are some of the short-term effects of the pandemic on the automobile industry. The long-term effects are yet to be seen, but regardless of what that might be, one thing is for sure - the auto industry won’t be the same - be it for better or worse.