Now well into the second quarter of this year, the challenges that lie ahead for the automotive industry are becoming alarmingly clear, and quarterly earnings illustrate the difficult position from which the automakers will be operating.
Much is being made of car and truck factories starting up again in Europe and the US, but automakers are approaching any restart in very different ways, from the bullish to the sheepish; just as China’s restart has been slow, those factories now turning the lights back on are still far from getting back to normal production and will rely heavily on a number of factors, including sufficient demand, supply chain readiness and supplier survival.
The sudden and unplanned suspension of production and sales has seen automakers and suppliers haemorrhaging cash as reserves quickly dried up—it turns out the sums involved in not producing and not selling cars are eye watering, and automakers are doing all they can to secure the credit lines that will help them through the crisis. Liquidity is key, and cash is king; as time goes on, companies that had already begun bolstering the core aspects of their businesses will have some difficult decisions to make.
The need to prepare for a new era of mobility has been usurped, for the foreseeable future, by a need to get back to something resembling the old era of mobility
Challenges are coming from all angles. At a macro level, stock market volatility and the oil price crash have added considerable uncertainty to markets already confused by mixed messaging about essential and non-essential business. At a factory level, management faces the complexities of balancing vehicle assembly with social distancing, and the question of how to put more vehicles through already blocked finished vehicle pipelines, with imported cars stacking up in European and US ports.
The gradual reopening of car dealerships in key markets such as the US and Germany provides a vital lifeline to automakers desperate to see sales restarted, but demand will need to be stimulated, and it looks increasingly likely that various markets will opt for some kind of scrappage scheme to generate interest in new vehicles.
Producing a confident outlook for 2020 at this time is challenging at best. No-one wants to put a number on a global forecast for the full year, but automakers and analysts have begun suggesting a decline in global vehicle sales of around 25%. Writing in the latest issue of ‘The automaker data book – Q1 2020’, Automotive World’s quarterly review of automaker business operations, Jonathan Storey notes: “At this stage of the pandemic, it is already clear that the automotive industry will take a major hit in 2020. The major automakers are all likely to report a loss for the year and global sales will be substantially below the 2019 level. Without government assistance, some automakers could go under as a direct result of the pandemic, and there will be material disruption to the automakers’ ability to develop and launch new models and technology.”
There will be a time after the pandemic, but succeeding at CASE means first succeeding at COVID, and that means making and selling cars
Reports of a recovery in US sales are encouraging—but any sales that follow no sales are by their very nature a recovery. There’s never a good time for a crisis, and the automotive industry has been particularly hard hit at a particularly challenging time. Already financially stretched as they scramble to reinvent themselves for a new era of mobility, automakers now need to justify continuing to fund untried, untested technologies and business models, and pull the plug if they cannot. Consider here GM’s quiet termination of Maven, and how easy the decision would be for companies to reassign R&D priorities if economic pressure eases or delays the introduction of emissions targets in key markets such as China, Europe and the US.
The need to prepare for a new era of mobility has been usurped, for the foreseeable future, by a need to get back to something resembling the old era of mobility. There will be a time after the pandemic, but succeeding at CASE means first succeeding at COVID, and that means making and selling cars.
Martin Kahl is is Automotive World’s Editor-in-Chief
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