Automotive & Coronavirus

The Coronavirus Effects on Automotive Industry

It is a still unclear factor that how long coronavirus continue to disrupt daily life and economic activities. Automotive industry actors are watching with high anxiety level the developments of recent outbreak. It appears that the biggest problem is not whether producing the cars but selling them. There is a substantial decline on demand figures.

Let’s take China alone … China accounting for 30 % of global automotive production and sales. Outbreak is recovering in China, but producers faces around 33 % drop in sales.

This situation is not affecting much e.g. Turkish auto spare parts industry which doesn’t depend on much China. But the problem is if there occurs lack of supply chain for the other spare parts those imported from China of the OEM clients of Turkish companies, will start to affect negatively also Turkish producers. Manufacturers in Europe recently declare that they haven’t had position yet closing temporary factories. But the low demand level in global sales is likely to be worse than expected.

Another typical example is from Indian Automotive Industry. The supply restrictions from China which have started affecting the Indian automobile industry. It is likely to have a negative impact on the component in India shortly. China accounts for 27% of India’s automotive component imports.

As it is known that automotive industry is an industry with a very integrated global supply chain. Therefore, any potential problem in the global automotive supply chain will impact every regional market: either by less sales of cars or because of shortage of parts necessary for the production of cars.

Auto industry supply chains are also very complicated and this reality makes the supply chain networks vulnerable. For example, some of the components should pass more than one borders. During this period the process is going on like stamped, machined and refined for the final assembly transaction.

According to Prof. Ferdinand Dudenhoeffer, Director of Germany’s Center for Automotive Research (CAR), “ German auto companies have annual China business worth about $170 billion, close to 35% of its annual global sales, but also China business earns high margins, and roughly 40% of German annual auto profits are in danger”. And he added that “This makes clear that 2020 will be a very difficult year for the German auto industry,” Prof. Dudenhoeffer has declared that because of the dynamic nature of the spreading coronavirus it was very difficult to assess the extent of the danger.

On the other hand, when we turn our face to the automotive industry, these days are creating an important opportunity for the entities to minimize and make more flexible their cost structure by using appropriate technological instruments and increase quality level with applying e.g. EFQM Excellence Model.

Finally, we can easily say that production lost due to interrupted supply chains can be compensated again. But the recovering of declines of sales of cars because of the low demand level of buyers will take more time. Taking in consideration of the risk of Coronavirus outbreak might reach to 60-70 % of the population of countries, starting to force governments to take tough decisions to keep people at home (Italy situation) will have permanent negative effects on not only automotive sector but also more on the GDP level of the countries and also global economy.

Bülent Hasanefendioğlu – Head of Consultancy