Jesús María Herrera (CEO of CIE Automotive) and Lorea Aristizabal Abasolo (Corporate Development) analyse the automotive industry and explain why they believe it will emerge stronger from this crisis.
Automotive. “Cursed sector to avoid.” This is what many of you will immediately think when you read this. Automotive sector? What future does it have? Everything seems uncertain. But sometimes – many times – things are not what they seem…
We need to remember where we are coming from…
Before the word “COVID-19” appeared in our lives, the industry was already suffering from its own unnameable ghosts that, in the form of structural changes, loomed over the sector. All those sectoral mega trends that threatened us with that abstract concept of disruption, but with the very tangible reality of large investments: electrification, hybridization, autonomous car, connected car, emission reduction…
Not to mention the fact that the sector, historically very fragmented, has been operating for years with evident overcapacity, especially high since the peak of production in 2017, which has generated increasing – and significantly greater than the historical – price pressure on us.
…and understand where we are…
And, in case we did not have enough with our sectoral challenges, in 2020 COVID-19 appears, an exogenous variable that turns the downpour in the automotive industry into a perfect storm.
Now we must manage the large investments needed in future technologies, in conditions of sectorial overcapacity, while resisting the pandemic and the associated economic recession.
Are we all done?
Let’s not forget that even the perfect storms ease, and this one has already started to do so. Little by little. With little big news every day, with a firm step and leaving us changes that have come to stay. Changes we are understanding and adapting to.
We have the dubious honour of being a sector where Darwinism is unforgiving. And it is the case that this evolution – be it sought or overcome – is in our DNA.
And here we are, with each player performing their particular stress test of their business model to check if it is valid as defined or if the ship’s course needs to be corrected (how many restructuring plans have we seen launched lately…). We are faced with the challenge of recovering profitability given the certainty that we will have to do so without the short-term return of volumes. Nobody said it was easy, in this sector nothing ever is.
We do feel at this time the support (although it never feels enough, that human emotion…) from the institutions to implement these necessary changes gradually in a sector that in Spain represents 10% of GDP (almost 8% a European level) and 9% of the workforce (7% at European level). Changes to give competitiveness to an industry in transition towards a more sustainable economy, an industry that with more than 60,000 million euros invested each year, is the largest private investor in innovation in the EU.
And of course, taking advantage of the occasion, we cannot help but remember that our necessary evolution would have an easier context if the governments gave up putting obstacles to free trade that cost the sector millions of euros in lost commercial operations, as well as avoided significant regulatory divergences between geographies and regulated with common sense to avoid that the final consumer is so confused as to delay the purchase of a new vehicle while the current vehicle fleet ages and pollutes (does this situation ring a bell?).
…to define where we are going and who we are going to be.
Evolution implies being in continuous movement, innovating and growing to progress. And in the automotive industry we continue to demonstrate that, in the face of every difficulty, success is constantly evolving.
In the medium term, the industry will have emerged from this crisis stronger and with a lighter backpack.
The excessive overcapacity of the sector will have been reduced, albeit involuntarily.
There will be concentration, there will be fewer players and they will be larger, stronger, more diversified, more internationalized players, with more market share and with greater resilience in the face of future crises.
There will be players with masterful lessons learned on balance sheet strength, liquidity, Capex control, optimization of working capital or the advantages of contained fixed costs and lean structures.
There will also be strategic collaborations. COVID-19 has focused on the urgent need to maintain a healthy financial situation that can withstand unexpected stakes and will naturally lead to alliances that rationalize large investments that otherwise would not have found return.
There will be trends that accelerate and others that take the service path: if something has become clear to us, it is that resources are finite and priorities must be established.
Economic recovery will arrive, volumes will return, we will have new regulations, consumers will show new preferences, social norms will be altered… and in the industry we will have evolved to adapt. As we did so many times before.
“Man discovers himself when he measures himself against the obstacle”, Antoine de Saint-Exupéry told us. It is clear that our sector does so as well.
You just have to wait and watch… or invest now and reap the fruits of the fabulous work that each and every player in the sector is developing. You decide.
SOURCE: CIE Automotive