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Automotive Sector: Navigating successfully in the post-pandemic market

This is not a drill: the automotive sector is urged to be more adaptable and innovative in the post-pandemic global economy, according to Angelica Buan in this article.

Tough year for the sector

Historically, the automotive industry, although not entirely immune to market volatilities, has always rebounded from setbacks. But it seems to have run out of luck.

the automotive industry in 2020

In a quandary even before the first cases of coronavirus were reported, the industry witnessed a major decline in revenue, akin to 2007 and the global financial crisis.

In 2019, vehicle demand and sales were affected by the economic slowdown in China, the US and Europe. Looking back, it seems like the warnings from experts of a looming automotive downturn was a prediction of a major upheaval to come. Then the coronavirus pandemic happened.

In a matter of four months, the coronavirus pandemic has resulted in the contraction of the market, with disrupted supply chains, reduced capacities, production suspension, and shrunken workforce.

Stripped to its bare bones, the industry has also had to contend with delays in model launches, plant investments, and cash-strapped companies, especially during the first quarter of the year.

A Frost & Sullivan report on the global automotive industry, covering 2020 to 2025, vis-à-vis the pandemic, stated that this situation spilled over into the second quarter with unfulfilled orders due to ongoing production lockdowns.

Citing a latest report from Meticulous Research, the global economic trade impact of the Covid-19 pandemic on the automotive industry in 2020 is pegged at US$5.7 billion or a 12%-15% drop in the market.

Europe suffered a production shortfall of over 1.2 million units, due to lockdowns. New car registrations in five key European markets also tumbled. Germany, Italy, Spain, UK, and France dropped 11%, 9%, 6%, 3%, and 3%, respectively.

In India, according to the Society of India Automobile Manufacturers (SIAM), passenger vehicle sales declined 51% to 143,014 units in March 2020. Also, sales of commercial vehicles declined 88% to 13,027 units, while sales of two-wheelers fell 40% to 866,849 units.

Sharp started producing face masks in February

There is no doubt that the Covid-19 outbreak has seriously dented the automotive industry, with the US anticipated to witness a decline of 27% in sales in 2020.

VynZ Research, in its report on the Covid-19 impact assessment of the automotive industry, echoed similar findings of major automotive makers, including Fiat, GM, Hyundai and Honda. It said these companies posted sharp declines in sales and production in the US.

Even with the contingency plans and financial reliefs that are being rustled up by governments, production in the region may not resume soon, according to Meticulous Research. But it expects recovery to take place as the pandemic starts to run its course.

Survival of the fittest: retooling manufacturing spaces

The post-pandemic, “new normal” era could play out differently for different sectors and for the automotive industry it will not be a breezy drive.

Nick Castellina

“The pandemic has exposed cracks and vulnerabilities across all areas – everything from supplies to justin- time production strategies, on-site operations and financial liquidity will need to be strengthened as the economy recovers and production starts back up again,” according to Nick Castellina, Senior Director of Industry and Solution Strategy for the New York-headquartered Infor. He infers that automotive players need to review and revise the automotive value chain for crisis-proof resiliency.

In other words, adapting to the changes may be key to dodging further contractions. One strategy for automotive makers to ride out the pandemic disruptions is to “re-purpose their factories”, which Castellina explained is a way for companies to approach this (crisis) through innovative ways “to stay afloat”.

Recently, a number of car makers have converted their manufacturing or assembly spaces, entirely or in part, into personal protective equipment (PPE) facilities to boost the supply of PPEs.

Ford Motors produced a ventilator,

Car companies like Škoda Auto Volkswagen India Private Limited (ŠAVWIPL), Ford and Tesla Motors, General Motors, Seat, and others have produced a range of PPEs from face shields and masks to ventilators and respirators from their factories.

According to Castellina, a measure to redirect production and development facilities and capabilities of car makers to support the fight against the virus is a strategic move.

“Many of these businesses who have pivoted their operations have done this so willingly. As a result of staying agile and being responsive to market demands, they have been able to keep production lines running and workforces employed in the current downturn.”

He also noted how the world’s biggest players in the automotive space have already made this shift, including the likes of Kia Motors, Ferrari, and Toyota, to cite a few that have repurposed their production lines to manufacture PPEs, which has helped ease the strain on manufacturers of medical supplies.

He also gave other examples: electrical products maker Dyson that has gone from manufacturing vacuums to ventilators, and Sharp from electronics to surgical masks as well as luxury house LVMH that has redirected its perfume and fragrance capacities to produce hand sanitisers instead.

“In addition to providing an alternative way to protect both people and profits, (this strategy) also strengthens brand reputation and recall amongst consumers, and can be a valuable addition to a company’s corporate social responsibility efforts,” he added.

Nevertheless, re-purposing is no easy feat, he said, and certain variables such as material sourcing, regulations, production cycles, and other considerations may pose challenges to the already complex process (of re-purposing).

“The key to successful repurposing, thus, lies in identifying where there are similar materials and production processes, matching them with a need, then plotting the roadmap to production. A digitally-enabled supply chain that provides end-to-end visibility is key. Manufacturers who have not started this process are likely to find it daunting, but it is an effort worth undertaking,” Castellina noted.

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(IMA)


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