- Daily Zen
The U.S. is projected to see a 26.6% fall in domestic vehicle sales U.S., the lowest volume of sales since 2010 after the 2008-2009 recession.
The outbreak of the Novel Coronavirus (COVID-19) is having a major impact on all business and manufacturing, including the automotive industry. Following the lockdown and state-at-home orders in most nations, industries shut down assembly lines and factories to keep their personnel safe. Automobile and component manufacturing plants are closed around the world, consumer buying has fallen sharply, vehicle sales are dropping dramatically, and almost every major industry event is canceled or going the digital way.
IHS Markit said that it expects global vehicle sales to decline 22% this year to 70.3 million. The U.S. is projected to see a 26.6% fall in domestic vehicle sales U.S., the lowest volume of sales since 2010 after the 2008-2009 recession.
“The unexpected and sudden nature of the impacts of the pandemic are hitting the autos sector hard, with unprecedented levels of uncertainty around prospects for meaningful global recovery,” said Colin Couchman, executive director, global autos demand forecasting at IHS Markit. “Market fortunes are expected to be mixed, as delayed and destroyed demand interacts with massive global supply disruption.”
The biggest concern is China, which is the largest consumer buyer of vehicles and also forms a large part of the supply chain. It is said that the auto industry in China employs some 40 million people directly or indirectly.
IHS forecasts China, the world’s largest auto market, is expected to decline by more than 15.5% to 21 million units this year, with concerns on secondary impacts from the global contagion, which could further disrupt the recovery. Across Western and Central Europe, IHS forecasts a 24.9% drop in sales, to 13.6 million units for the year. European markets, the firm says, “will experience mixed recovery cycles, based on local restrictions and guidance, together with varied economic support and stimulus provision.”
Considering the numbers, the auto sector needs some drastic changes to survive this crisis and some handholding from the governments to see it through. The biggest concern is to be flexible and agile in the face of an uncertain economic outlook, supply chain disruptions and decline in sales. All automakers will have to revise their production targets and schedules. Consumer buying going down means less demand, and supply chain disruption will lead to the inability to produce more vehicles. The answer would be to reduce production for the time being.
Employee welfare should be a priority. Clear communication of what measures will be adopted to meet the challenges. Many roles and tasks will be moved off-site. New ways of conducting business will need to be taught to the employees. A tighter security network will need to be employed. Remote access and upgrading systems to give access to the core systems of the processes involved will be needed.
Maneesh Pant, vice president at Capgemini India and providing automation services to auto companies, said that the auto industry is looking for—, “One is continuing the broken supply chain, and another is making manufacturing more agile. Focus is shifting from pure production performance to surviving in an environment of unpredictable change by being able to react quickly to changing market conditions.”
According to analysts at brokerage firm Dolat Capital, some other technology trends that may be seen are virtual tours of vehicles or negotiations over video calling services at dealer outlets. Full safety measures for the physical well being of factory employees and contingency plans for any need for factory shutdown in the future should be put in place.
The supply chain line that is majorly outsourced to China and some other South-East Asian countries will have to be reconsidered. A major trend toward local sourcing may be seen. Economic considerations and a global trade outlook led to auto parts manufacturing being outsourced, but the pandemic has thrown up many new factors, majorly the economic downturn and shut-in down of small businesses that are the second-tier and third-tier suppliers of goods.
A supply chain that is within manageable distance and can be controlled makes more business sense now. Additionally, it will add to income generation and employment opportunities in home countries.
There will be a liquidity crunch with financials stuck, most companies may have had their accounting in an abyss and will take some time to sort out. The answer is to reassemble and strategize and reallocate. Companies need to move to an agile dynamic mode and use data and analytics to address core needs and realign productions accordingly. Raw material prices will be forecast by using AI deep learning, which will help in better allocation of budget and planning production. This means not stopping growth and investments and creating redundancies but getting more flexible. Consider mergers and acquisitions in newer markets.
Another trend will be moving to an agile, dynamic planning mode, a key ingredient of which is leveraging the power of analytics to build a profitable cycle around the core objectives.
As an analyst put it succinctly, earlier when he talked to manufacturers about realigning their supply chain and the total cost ownership of their vehicle, they would answer that we are upgrading our steering wheel or infotainment system. The pandemic has changed the meaning of the total cost ownership of a car to packing the least expensively down the chain of manufacturing.
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