Covid-19 The Automotive Industry is feeling the pain of Covid-19
Cities are reeling as the coronavirus Covid-19 spreads across the world causing shutdowns and disrupting daily life. The automotive industry was also suffering from reduced sales. What can the rest of the world learn from China’s automotive sector and will remedial efforts be enough to reduce the impact of the virus?
With the coronavirus Covid-19 spreading across the world, its impact is being felt across industries. It comes as no surprise that car manufacturers have largely ground to a halt. European manufacturers including Ferrari, Fiat Chrysler, Ford, TPSA, Renault, Volvo, Volkswagen, and Daimler have all ceased operations for the time being.
In the USA, Tesla's Fremont California Factory controversially remains open for reduced service. The sticking point seems to be whether Tesla's services are considered an essential service under Shelter in Place regulations that restrict movement businesses who can stay open which currently include "working for construction projects needed for essential infrastructure, such as building housing, airport operations, and work on water, sewer, gas, electrical, oil refining, roads and highways, public transportation, solid waste collection, internet, and telecom systems."
Not quite business as usual in China
Tesla's Giga factory reopened on February 10 in Shanghai after a temporary shutdown to reduce the spread of the virus. In Wuhan, many key industries such as automotive are already back at work with Honda and Nissan Motor resuming operations at a limited capacity.
In China, manufacturers are working to create incentives to reduce the impact of lost sales. In Hunan, a plan has been issued to over subsidies of up to 3,000 yuan ($428 US) per car purchase. Buyer will be eligible for subsidies of 3 percent of the base cost of the car they purchase, up to the 3,000 yuan limit, for models from eligible brands including domestic name BYD and cars produced by Volkswagen, Mitsubishi, Fiat, and Jaguar. All cars must be manufactured locally in Changsha, and the policy will remain in effect through June 30, 2020.
The City of Foshan (home to a Volkswagon plant) last month announced cash bonuses of 2,000 yuan for purchases of new cars and 3,000 yuan for replacement of existing cars. The government of Foshan is also offering subsidies to offset the marketing costs of auto manufacturers.
Sales figures suggest a falling market
According to the China Passenger Car Association (CPCA), China's auto sales dropped 89 percent in the first 23 days of February this year. In Europe, the European Automobile Manufacturers Association (ACEA) recently reported that EU's passenger car market shrank 7.4 percent in January-February 2020 compared to the same period last year.
Any reductions in sales are problematic considering the role of automotive manufacturing in the European economy. It's an industry already struggling with slowdown attributed to multiple factors including efforts to reduce gas emissions and it's foreseeable sales will continue to decrease as people are required to limit travel. Even before factories reduced or downed tools due to the coronavirus this week, factories were already struggling to get parts due to travel restrictions. According to the (ACEA), 13.8 million Europeans work in the auto industry (directly and indirectly), accounting for 6.1 percent of all EU jobs. 11.4 percent of all EU manufacturing jobs—some 3.5 million—are in the automotive sector.
As to the impact of the virus, Pete Kelly, Analyst and Managing Director at LMC Automotive asserts:
"There would be a continuous significant economic cost to containment measures as locations are quarantined, travel disrupted, economic activity curtailed (sometimes simply lost), industrial production halted, supply chains disrupted, and confidence undermined. This year’s anticipated reduction in global GDP growth would take a further hit. Add in a possible consumer recession in, and widely around, affected outbreak locations, and the effects could be quite damaging in markets for expensive durable goods such as cars.
Ferdinand Dudenhöffer, an automotive analyst at the University of St. Gallen in Switzerland, told Fortune:
“The European car industry is facing three major challenges: first, the corona epidemic and the slump in the European auto market triggered by corona; second, the detrimental effects of the trade wars of U.S. President Donald Trump; and third, the switch to electromobility, which requires high investments. “The trade wars have worsened the cash position, especially for the European premium manufacturers.”
Another use for factories harks back to wartime
However, car manufacturers may find an unexpected use for their factories and skilled workforce, one reminiscent of wartime supply chains. Car manufacturers General Motors and Ford are discussing the use of their vacant car factories to product ventilators with the White House. Elon Musk has offered the use of the Tesla factories to make ventilators if there is a shortage. In the UK, Rolls-Royce, Airbus, and Jaguar Land Rover and other manufacturers are in talks with the UK Government and have been sent a blueprint for making up to 20,000 ventilators to treat coronavirus patients.
We can expect a variety of contingency plans as manufacturers look for ways to entice customers to spend their money despite travel restrictions. It will be interesting to see how the efforts of China to revive the car manufacturing economy will play out in Europe where cities are less afflicted by the coronavirus but equally impacted in terms of daily life.