In many respects, the automotive industry is essential for the global economy and the resulting prosperity:
Links to other industries: The automotive industry is a critical component of economic growth with extensive interconnections to upstream (e.g. steel chemicals, textiles) and downstream industries (e.g. repair, mobility services).
Employment in the automotive industry: With nearly 14 million people employed in Europe and 8 million in the US, as will as approximately 5 million in China, the figures highlight the importance of the sector.
Economy: The turnover earned by the automotive industry exceeds 7% of EU GDP, 3-3.5% of the overall GDP in the US and 10% in China.
Although it is currently a difficult time, the OEMs that are able to mobilize their COVID-19 response and take swift actions will be in a better position post-event and more resilient going forward.
The epidemic places even more pressure on the automotive industry
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.
To deal with the disruption, businesses need to execute actions over three timelines.
The direction of the industry is expected to remain unchanged –but there is uncertainty regarding the timeframe
First, small signals of a rebound in the Chinese economy:China’s government is talking up the prospects for a rapid economic rebound. At the moment, one can already see that there are early first signs of a recovery in the Chinese economy, measured by the movement of people and goods, production, etc. Whether the recovery of the Chinese economy is sustainable cannot be said at this point in time.
Multiple possible rebound scenarios across the globe:There are various scenarios for the recovery of individuals and the global economy. In general, three scenarios could be observed from previous crises (e.g. “Sharp V” triggered by SARS in 2003; “Short U” caused by the early recession in 1980; “Deep U” caused by financial crisis in 2008). The scenario will be driven by the combination of the resolution and containment of the medical emergency, the resulting consumer confidence, as well as the effects on the overall economy influenced by public intervention.
Slower adoption of the megatrends:The direction of the automotive industry towards the four major megatrends (connected, autonomous, shared and electric driving) is expected to remain unchanged as trends will continue to drive the industry evolution going forward. However, the speed of adoption might change due to the emergency.
Considerable uncertainty regarding the timeframe:As the timeframe cannot be predicted right now, industry players must be ready for all scenarios. Therefore, they must develop the capabilities to quickly identify the signals and direction –how to manage the ongoing crisis, how to reset ways of working and how to renew for the “new normal”.
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