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| Background | ||
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- The impact of coronavirus at short-, medium-, and even long-term will be significant for the automotive industry.
- At short term, we will face a double crisis, as it never happened since the World War II (WW2):
- An extremely severe decline in production, with a total stop in many countries, however not on the same periods of time.
- An expected severe decline in the demand, as consumers will:
- Have much less money to spend on non first-necessity goods. Of course cars are considered by most people as a first necessity good but replacing their current one will not be a first necessity.
-Have deep fears that the “coronavirus crisis” can rebounce, even after it will be stopped, or new diseases can outbreak at any time.
- Take new habits, with new ways of working and leisuring.
- The situation will depend very much on the governmental actions taken all around the world.
But using normal levers of in-place economic system cannot work. States will be led to take after-war measures (as it was the case in Europe after WW2 with the Marshall plan) , such as nationalisations, debt write-off, restrictions, management of boarders, … These actions cannot be anticipated today and it is therefore very difficult to construct consequently close-to-real forecast. However our company Inovev is building and will continuously update scenarios as realistic as possible to guide the automotive industry in their thinkings, strategies, and action plans. - In order to forecast the automotive production from now on, we have to take two factors in consideration:
- The loss of production due to the closures of the plant
- The decrease of purchases due to the crisis.
Generally speaking, when there is a crisis (such as the 2008 financial one), the loss during the crisis is not caught up and the production gets back after a while to its normal pre-crisis position, without going higher than the pre-normal pre-crisis position. - Inovev has constructed a mathematical model, based on its 25 year experience in automotive statistics and analyses, to understand what will happen and estimate the production quantities in Europe in the next months.
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| The model and its results are available for Premium customers on the Inovev Internet platform. |
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The Coronavirus crisis is an unprecedented and incomparable crisis to what the modern world
has already experienced. Why ?
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- A global crisis that affects all countries in an extremely short time (4 months).
- Not comparable to a post war crisis (such as WWII crisis):human losses are less significant and labour forces practically intact, the means of production and consumption are physically still present and intact, and no vehicle in the fleet has been destroyed.
- Not comparable to a financial crisis (such as 2008 crisis). The 2008 crisis, despite its magnitude, did not prevent economic and industrial activities from continuing to operate. In addition, it was not uniform: China relatively offset the decline in other markets globally in 2008.
- Actually, the only point of comparison which can be used to understand the impact of this crisis is what China is currently experiencing. It means that we have an history of only two months of data and information to create potential scenarios.
And even, with China example, we have to be cautious if we intent to make a comparison with other regions as Europe (or North America): - The COVID-19 has “mainly” impacted one Province, the Hubei Province (nearly 60 millions inhabitants) and its capital (nearly 11 millions inhabitants including surroundings), which is nearly the size of a main European country, while almost all European countries or US states have been shutdown.
- The Chinese market still remains a first buyer market, while in Europe the market is already saturated.
- The Chinese economy is centrally controlled and the government can use very powerful levers.
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| Factors impacting the DEMAND | ||
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- Private consumers
- Household confidence in the short, medium and long term future.
- Fear of a second wave (real or feed in particular by the media).
- In the case of a fear of public transport, it may be the second-hand market that will benefit at first with a shift on the new market after 2020.
- Consumers will be cautious waiting for economic support measures but also announced recessions - If current economic system.
- All registrations lost during the lock down will not be caught up.
- The demand for new cars is not essential at the short term (2020 - 2021). All transportation systems (individual or public) are intact. Contrary to a post-war period which generates a strong increase in the demand needed for the re-equipment of the countries.
- Exports: consumer countries also towards a decline in demand and nationalist orientation in an "effort of national unity" (USA? China?).
- Professionals demand
- Declining demand from companies (a big proportion of the European market is made by fleets, short and long period rental companies).
- Companies will at first extend their current leasing contracts, at minimum after 2020.
- Competition
- Competition from other mobility ways (two-wheelers motorized or not) which both respond to the fear of public transport and are less expensive than cars.
- Governmental decisions
- Progressive “unlock” - by region – social/professional/age group…
- Non-uniform impact (not at the same time) in all European countries as some countries took late decisions to lock down, therefore time lag in 2020.
- Incentives to boost the car market. However this kind of levers will not create a demand, but rather anticipate existing demand. Therefore, a counter effect (decrease of sales) is generally felt at the end of the incentives period.
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| Factors impacting the PRODUCTION | ||
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- The market demand!
- Governmental decisions
- Progressive “unlock” - by region – social/professional/age group…
- “Unlock” priority industries for the countries economy: Will the auto industry be considered as first priority industry to revamp?
- Carmakers challenges to restart the production
- Run a complete supply chain health check (analysis of critical suppliers, delivery performance…).
- Secure own producing capacity.
- Prepare for a safe restart of in-house production (workforce safety regulation).
- Secure product planning (SOP/EOP) or delay them.
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| After crisis: Questions arising | ||
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- Launch of new of vehicles (SOP) planned for 2020 (renewal, new vehicles, etc.) postponed?
- Could the SOP of these models be shifted from 2020 to 2021, and those from 2021 to 2022?
- Anticipation of the end of non profitable models (EOP)?
- In the perspective of a gradual restart and in order to focus dedicated resources, could some low volume or unprofitable models no longer be produced?
- Factory closures?
- As a consequence of the previous question, what will be the status of factories producing low volume and non profitable models? Will they be reopened at the same time? Will they be reopened or carmakers will accelerate decisions of closures which would be normally decided in the 2 or 3 coming years?
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Contact us: info@inovev.com