COVID-19 is having a substantial impact on the global economy, affecting consumers, businesses, and industries around the world. In Australia, the PwC projected a $34.2 billion reduction in the country’s GDP. While this sounds like a lot, this 1.32% drop is a fraction of the damage caused by the Global Financial Crisis in 2008 where the GDP suffered a 5.2% reduction. One industry that is certainly not immune to this pandemic is the automotive industry, suffering a -21.85% downfall in car sales from last year’s January and February car sales figures in Australia. Overall, automotive industry trends unsurprisingly show a reduction in revenue, a disruption of the supply chain and other business operations, and unfortunately a disruption of planned automotive events.
“Consequently, 80 percent of automotive and related companies report that Coronavirus will have a direct impact on their 2020 revenues.” – Dieter Becker, KPMG.
As we know, this virus originated from Wuhan. Out of all of the cities within China that this pandemic could have originated, this was the worst case for many countries that rely on trade deals with China. Wuhan sits within the Hubei Province, which is one of the biggest manufacturing capitals in China. In particular, the Province has become one of the greatest manufacturers of electronics and is one of China’s major automotive production sites, making parts and whole cars for trade overseas. Some brands you may recognise, such as GM, Honda, Nissan, Peugeot, and Renalt have all been manufactured in plants within the Hubei Province. So, it didn’t come as a surprise that when the virus hit, it had an immediate impact on the automotive industry.
The Immediate Impact:
- The production process of making cars and parts was completely stopped
- Many car shows were cancelled and marketing activities were halted
- Consumers postponed any plans to buy cars due to fear, carefulness or isolation
With Australia and many other countries still fighting the spread of COVID-19, the economic impacts will continue to be felt, especially by the automotive industry. So, how will this pandemic affect the automotive industry as we continue to face the repercussions of the virus?
How Coronavirus Affects the Car Industry
As we’ve mentioned, when it comes to production line disruptions, the car industry is on the front line. Currently, 80% of the world’s auto supply chain is connected to China. As production factories continue to be shut down for the time being, the supply chain for car retailers will remain interrupted. This calls for automotive companies to work strategically to better navigate the crisis. With the current climate, however, there isn’t a great demand for new vehicles, and there aren’t any major concerns regarding stock levels.
Many international motor shows and events have been cancelled or rescheduled for later in the year. These highly esteemed events are greatly anticipated by many car enthusiasts. Not only are they an event for car fanatics, but they also play an important part for automotive companies. These events provide an opportunity for them to showcase their latest models and plans. Therefore, the cancellation of upcoming shows affects the debut of many cars that would have been unveiled at these shows. This has a roll-on effect to brands that rely on these events for marketing and advertising purposes.
Consumer Confidence and Buying
Job insecurity and an economic downturn have led to a massive drop in sales across a number of industries. As businesses struggle to balance the books, and workers try to hold on to employment, it makes sense that not many are in the right mindset or financial position to make a significant purchase.
“With dealer foot traffic decimated by social distancing requirements, most industries shuttered for the foreseeable future and huge job losses throughout the entire Australian workforce, new car sales will bear the brunt of the slowdown.” – WhichCar.
As the government’s restrictions continue to be enforced, many dealerships have had to modify their business practice to ensure the health and safety of the staff and general public. According to Tony Weber, the Federal Chamber of Automotive Industries (FCAI) chief executive, “The industry has considered and adopted a number of additional hygiene and safety protocols, including extended cleaning processes, personal distancing and contactless sales and service consultations – all with the number one priority of ensuring the safety and security of our communities.” Companies are also imposing social distancing protocol within their business.
At this stage, many dealerships are continuing business as usual; however, with the continued closure of overseas factories, this may lead to eventual pressure on retailers as spare parts become difficult to source.
Impact on Reporting
Continuing on with the business side of COVID-19’s far reaching effects, there has been a great disruption to business reporting for automotive companies. Some businesses have had to delay the finalisation of their financial statements, which have taken a turn due to coronavirus. Some automotive companies are becoming increasingly concerned about the possibility that the economic impact of the pandemic may cause triggering events for goodwill and long-lived asset impairments, the recoverability of receivables, restructuring actions, and liquidity issues. Currently, big companies are taking extra care and consideration for their key stakeholders as they weather this storm.
While the automotive industry has taken a massive hit with the advent of coronavirus, there is always opportunity amid the chaos. For example, some manufacturers have begun shifting their focus towards gaps in the market. Ford, for example, is a company that is helping with the production of personal protective equipment (PPE) for health care workers. To help equip medical staff, Ford has been churning out 200,000 hand-made face masks a day in the US. On top of that, Ford and GM are currently looking at ways to switch some manufacturing capacity over to the production of medical equipment to help treat the coronavirus.
The COVID-19 pandemic has proven a challenging time for many businesses, particularly those in the automotive industry. While the economic effects of the virus can already be felt, they will not last forever. We can recover from this, just as we’ve recovered from other harsher recessions. While it’s a challenging time for the car industry, it’s just a season and it will pass.
Novus Autoglass continues to follow health policies while providing top quality service to ensure the safety of all customers during this time. Novus can come to your home to repair and replace windscreens or windows, for those that cannot travel at this time. For all enquiries, call Novus on 13 22 34.