Aftermath of COVID-19 on the Auto Industry

Even though the auto industry was going through a tough time before COVID-19 happened, the pandemic has worsened the decline. The interconnection between various elements like job losses, reduction in disposable income, low revenue generation opportunities – all of them had a say in the slowdown of the industry.

The inevitable effects of COVID-19 on the auto industry have divided the experts. While most focus on the negative impact of the pandemic, some believe that there would be growth in the auto sector post-COVID-19.

 

“As people become more conscious about going in public places and using public transport, there would be a large demand for personal vehicles – mainly to ensure the safety of the family”, an expert says.

 

COVID-19 and the Auto Industry: The Negatives

A large portion of the automotive industry is dependent on China for manufacturing. Here’s what has happened – 

 

• COVID-19 has left the Chinese factories ineffectual
• The result is zero production of new cars
• It has brought several automakers on the verge of a shutdown
• A few manufacturing units have started operations
• Some units have completely shut down owing to the financial crises
• The existing factories are not able to meet the production requirements

 

Apart from the production challenges, the demand for vehicles has also taken a hit. Here’s what has happened – 

 

• Nearly 58% of people below the age of 35 were planning to buy a car in 2020
• However, because of the pandemic, a lot of them lost their jobs
• The result was a decline in the overall disposable income
• Their primary focus shifted from buying a car to surviving
• Car sales declined as people stopped spending money on automobile purchases

 

The cyclical impact of COVID-19

Since people stopped spending money, the car manufacturers couldn’t generate revenue and had to shut down as a result. This cycle is expected to continue as more people focus on fixing their basic needs before thinking of making a purchase.

Auto experts believe that with more and more people working from home, there has been a steep decline in the need for automobiles, at least for the next six months. 

Most people won’t be stepping out of their homes because of the pandemic, which means that they won’t be considering making a vehicle purchase. 

 

COVID-19 and the Auto Industry: The Positives

On the other hand, there are advocates of the auto industry who believe that the sector will recover faster than predicted. In fact, there are already signs of growth. Take Tesla, for example – it became the most valuable automotive company in the world in June 2020.

In India, Bajaj Auto, Mahindra & Mahindra, and Maruti Suzuki also saw a steep rise in demand amidst the pandemic. These companies flourished because they adapted to the changing needs of the customer.

 

Here’s what might happen, positively, for the auto industry post-COVID-19 :

 

• Personal mobility will become a preference as people would want to avoid public transport
• Customers would now maintain distance and use private vehicles to travel
• Cleanliness and hygiene is a big factor now – an unlikely occurrence in public vehicles
• For the safety of their family, more people would prefer to travel in their own vehicle
• However, now the public transport system has to focus on more effective cleaning and hygiene if it is to get back on track.

 

Carpooling Not Coming Back Anytime Soon:

The shared taxi and carpooling service industry will also take a hit. It is difficult for people to sit with someone without knowing if they have been tested for COVID-19 or not. In some aspects, this change will be driven by fear and maintaining social distancing to keep oneself safe.

The aftermath of COVID-19 is more towards the usage of personal vehicles than public transport. However, the spending would not exceed the budget, and thus luxury cars and Electric Vehicles may have to wait for some time before their demand is back again. 

In the wake of the pandemic, survival and safety are the primary focus rather than luxury and eco-friendliness. 

 

Changes in the Auto Industry after COVID-19:

The question is – how will the auto industry change after COVID-19?

 

For one, companies could exit from regions where they are not making profits. Instead, they would focus on serving the target segment that is making money and will make them the maximum profit to recover from the loss during these 3-5 months.

Now the auto industry needs to redesign itself for getting back on its feet. From public transport to private vehicles, cleanliness and hygiene will become the top priority.

Here are a few changes that the auto industry might witness after COVID-19 

 

• Focus on personal mobility

Companies could reduce the production of buses and replace the production line with personal vehicles. Private cars would be preferred as the safest way to travel for at least the next 6 months.
Experts are sceptical whether there would be spending on high-end vehicles or not. Since the first instinct is safety, affordable automobiles will take the front seat.

 

• Robotics in action

To compensate for the losses, auto companies had to lay off a large number of workforce. With this, it is likely that the auto industry would see an influx of robotics and automated machines in the assembly line.
While it would increase their efficiency and reduce costs, it would also result in fewer workstations and start their journey of digital transformation.

 

• Investment in people

Since there would be more machines on the people, the companies can better invest in the fewer people they have. This means investing in their health, hygiene, and safety to ensure that work doesn’t come to a standstill.
As more auto companies realize the value of people amidst COVID-19, they need to focus on creating better working conditions for their employees.

 

• Automobile substitution

In the wake of the pandemic, many people would rather buy a cheap four-wheeler rather than two-wheelers that cost really high. This automobile substitution is not absolute, but a possibility that experts suggest could occur without any warning.
It also makes sense for consumers to choose a vehicle which keeps their entire family safe and not just them. Young adults planning to buy a two-wheeler or motorbike may also substitute it with a car.
However, one thing to note is that since the disposable income has reduced, it could mean that people stick with two-wheelers. There is uncertainty in the market, and the real situation would be visible only after a few months.

 

Conclusion: The Automotive Sector needs to adapt.

COVID-19 will significantly impact auto sales in FY21. The auto industry must use this time to restructure their work and adapt to consumer sentiments. Companies need to also focus on branding their automobiles as safe and hygienic by installing components that establish trust with the consumer.

It is also a wake-up call for companies that are heavily dependent on other countries for their production needs. They might start concentrating on building a domestic production system. 

The impact of the pandemic will stay for sometime before the consumers are equipped again with the purchasing power. Until then, the auto industry must find ways to adapt to these changes and prepare for the future.