Accenture POV on how is automotive industry being impacted by COVID 19, and how should automotive companies respond this new situation.
The automotive industry is disrupted by the four megatrends connected, autonomous, electric and shared driving, causing an unprecedented technology and business model transformation. Amid this transformation, the COVID -19 outbreak is putting additional stress on the industry. After initial supply and manufacturing disruptions, the industry is now experiencing a demand shock with uncertain recovery timeline due to shelter -in -place regulations. With limited room to cut fixed costs, some OEMs have low liquidity to power through a long period of missing revenues. Decreases in market capitalization will likely accelerate industry consolidation and without securing additional funding, some players risk going out of business. Changes in customer behavior, such as different mobility preferences and online shopping expectations, might remain after the crisis.
Challenges brought on by COVID-19
COVID-19 is disrupting the global automotive value chain. Here are a few of the key challenges facing the industry:
1. Disrupted supply chain
Since OEMs rely heavily on just-in-time production, their supply chains were immediately disrupted. In China, almost two-thirds of auto production was directly affected by the country’s industrial shutdown, which had a large impact on their suppliers as well. Furthermore, the shortage of Chinese-made parts has had a heavy impact on global production.
2. Shutdown of manufacturing
While the situation in China is starting to stabilize, most of the US and European car manufacturing is under huge uncertainty on when plants will resume normal production. At the same time, OEMs are starting to shift engineering, assembly and even procurement capacities to produce and source medical equipment.
Cash is king—and it becomes even more critical during times like these. Some OEMs have low liquidity, and with minimal operating cash flows, the remaining cash reserves are on average depleted in less than two months. This has led various OEMs to negotiate higher credit lines. Furthermore, the massive drop in market capitalization will likely accelerate industry consolidation. And without securing additional funding, some players risk going out of business. This financial challenge will impact transformational investments into connected, autonomous, shared and electric mobility, which are likely to be deferred.
4. Drop in vehicle sales
China is still the world’s largest market for light vehicles. The sales drop in February 2020 of more than 80 percent in comparison to January. Forecasts for global light vehicle sales in all major regions predict that the market will drop by around 12 percent in 2020. Changes in customer behavior in response to being on “lockdown,” such as less mobility and more online shopping, might remain after the crisis passes.
To deal with the disruption, businesses need to execute actions over three timelines and a crisis control tower can help to coordinate these actions:
a) A fastresponse to navigate the emerging situation
b) A reset of current business activities to adapt to new financial realities
c) A renewal of strategic plans to emerge stronger after the crisis and adjust to this “new normal”.
How OEMs should respond to the ongoing crisis:
How OEMs should reset their ways of working:
How OEMs should renew for the ‘new normal’:
„The OEMs that are most adaptable to change will be best positioned to ride out the immediate challenges and build stronger, more customer-centered businesses. OEMs with resilient operations and an adaptable ecosystem will be rewarded. The focus on the „new normal“, now more than ever, is important. Read our full report to learn more about our insights and actions we recommend“, ends Michal Málek, Managing Director Products Automotive, Accenture ČR.