COVID-19 Impact on Automotive Industry
By Space Coast Daily // June 13, 2020
COVID-19 has a huge impact on the auto industry. It has seen the COVID-19 crisis evolve from supply shock to the demand shock. There were large scale interruptions across Europe, disruption in exports of Chinese parts, and a lot of assembly plants in the United States have been closed due to COVID-19.
Moreover, 70% of the automobile companies do not have enough staff to run the full production lines. Since 80% of the world’s automobile supply chain is connected to China, there was a massive disruption in the auto supply market.
The production shortfalls in China has impacted all the global automakers. Many automotive companies are forced to source production in China because of the reduction in supply chain costs through outsourcing and offshoring.
Companies throughout this supply chain are already forced to halt or slow down the production, while a few companies are resourcing and evaluating the revenue. On the other hand, a few vehicle manufacturers had to take a call of moving their production plants outside of China.
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The Chinese New-Year and the timing of the epidemic break have impacted the companies relying on a 30-day supply. Most of the resources ran out by the end of February.
On the other hand, tool and die industry which sources tool builds from China is already experiencing a 60-day delay in the production, and it might even increase due to the outbreak of this epidemic.
All these delays will make up to the supply chain, and finally impacts the ability of the manufacturing companies to launch any new vehicles as per their current schedule.
China is the largest market for automotive manufacturing, and in February the automobile sales have dropped 80%, which impacts the ability of the automobile industry to meet the forecast revenues this year.
On the other hand, liquidity has become a major issue for most of the manufacturers now. Some OEMs have very low liquidity and are operating with minimal cash flows.
Hence, most of the OEM’s have started requesting for the higher credit lines. Besides this, industry consolidation is accelerating due to a massive drop in the market capitalization.
Most of the automobile manufacturers are risking to go out of business, without having additional funding. This impacts the transformational investments into autonomous, connected, electric mobility, and shared, which is likely to be deferred.
However, the problem of liquidity can be solved by closing working with the major banks on a working capital crisis mode. If required, the automobile manufacturers can enter a stage of fixed costs emergency mode, where they can utilize the AI in treasury management to setup real-time forecasts and overview of cash flow.
From the spare parts suppliers to the automobile makers, everyone has been severely affected by this pandemic.
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