The Auto Industry in Covid-19 Crisis

Covid-19: the very fragile recovery of the automotive sector
Encouraging signals for the industry are coming mainly from China and Western Europe. However, several large markets remain at half mast and the entire sector is affected.

Has the auto industry hit the bottom of the Covid-19 crisis this summer?

Globally, the good news for manufacturers is coming from China. The number one market, the one that sets the tone for the health of the sector, with its 25 million cars sold in 2019 (almost a third of the total), posted an increase of 16.4% in July 2020. It s’ This is the fourth monthly increase in a row after the brutal falls in February and March following the confinement of the country.

To be sure, the Chinese auto sector still shows a 12.7% drop in sales since the start of the year, but this positive streak is a first since 2018 and many are hoping it will put a stop to the downward cycle. which affected the domestic market for the past two years. The subject is important for large international equipment manufacturers, very dependent on the buying appetite of motorists in the former Middle Kingdom.

“Strength of business demand”
Other encouraging signs for the health of the sector come from Western Europe. According to our estimate, carried out on more than 90% of the market, Europe in the broad sense (Norway, Switzerland and United Kingdom included) should post in July its “best” month of the year, that is to say a decrease of approximately – 2% compared to July 2019, while the month of June 2020 was still -22%.

The aftermath of the coronavirus pandemic caused the automotive industry to experience its biggest crisis since World War II. Numerous manufacturers closed their plants and applied for short-time work.

According to the Association of the Automotive Industry (VDA), the number of new registrations in Germany in the first half of 2020 fell by 35 percent to 1.21 million units due to the corona virus. For the year as a whole, the association is assuming a total of 2.8 million vehicles and thus a decrease of around 23 percent in Germany – provided there is no second wave of new infections.

The European market will shrink to a similar extent (minus 24 percent), it said.

Due to the coronavirus, almost half of the world’s population suffered curfews, lockdowns and other restrictions on their individual mobility. In spring 2020 it was not possible to buy or register a car in stores in many countries. And the fear of the deadly virus as well as the economic worries let the buying mood almost sunk to zero. In April 2020 alone, new registrations worldwide fell by around 45 percent. For the auto year 2020, the average of the most important expert forecasts results in sales of around 70 million vehicles – over 23 percent less than in the previous year, in which 91 million vehicles were registered.

Lined up in a row, the fewer new cars sold would stretch more than twice around the equator. In Germany alone, 533,000 fewer cars were registered by May 2020 than in the same period of the previous year. April 2020 was the weakest month in 38 years with 120,840 new cars and -61.1 percent. The reopening of the car dealerships in May 2020 brought only a slight improvement: The discussion about a purchase bonus for combustion engines also intensified the buyers’ wait-and-see behavior. For 2020, many experts are assuming around 2.7 million new registrations – a minus of a quarter. This means that Germany is still doing comparatively well across Europe: In Italy, new registrations almost completely came to a standstill in April 2020 at -97.6 percent. 4,325 cars are the lowest since monthly records began in 1960. As in Italy, there was also a strict curfew in France. As a result, our neighboring country experienced the weakest car month since 1957 in April 2020 with -88.8 percent. The effects of the coronavirus hit Great Britain even worse: the country with the most virus victims in Europe failed to set foot in May 2020 after a dramatic drop in sales in April: 20,247 new registrations mean the weakest sales month in May since 1952.

The car market in the USA, the country with the most corona infections and deaths worldwide, also experienced a historic slump. With around 625,000 new registrations (-53.3%), April 2020 was the weakest car month for over 30 years. Many corporations, including heavyweights General Motors, Ford and Fiat Chrysler, even stopped posting monthly sales by model. Although there was no nationwide shutdown, in April 2020 car dealers were only allowed to open in 24 of the 50 US states. Particularly dramatic: Due to the economic crisis, experts expect a slump in fleet sales, for example to landlords and companies, by half. Overall, the USA is heading towards only 13 million new cars in 2020 – instead of 17.5 million in the previous year. In India, car sales were even completely banned during the country-wide, strict lockdown from March 23 to May 18, 2020. In April 2020 there was not a single new registration. And May 2020 was also dramatic at -84.5 percent. In Brazil, there is also no sign of relaxation in the number of corona victims or on the local car market: May, like April 2020, was clearly in the red. Only China, of all things, the country in which the pandemic started, is hoping for a quick recovery. After -43.3 percent in March 2020, the new vehicle market already turned slightly positive in April and was +11.7 percent in May compared to the same month last year. The government in Beijing is giving sales a lot of support: for example, it relaxed the rigid restrictions on new registrations of cars in cities with a million inhabitants, such as Beijing and Shanghai, and extended the electric car subsidy, which was actually running out, by two years. Individual provinces have even introduced a scrapping bonus based on the German model from 2009. In addition, the manufacturers in China are determined to overcome the historic turning point by rapidly expanding online car purchases.

At BMW, production has been idle in all European plants since March 18, 2020. Production in Rosslyn, South Africa, was also closed at the same time due to the corona virus. The plant in Spartanburg, USA, followed at the end of March 2020. Short-time work was applied for for around 20,000 employees of the company in Germany. The plants in Dingolfing, Munich, Regensburg and Leipzig are hardest hit. On April 6, 2020 it was announced that the production stop would be extended until April 30, 2020. The reason is the further decline in demand on the global automotive markets. BMW used the break to make changes in the factories. The production facilities in Munich and Dingolfing were prepared for the launch of the i4 and iNext electric cars. In contrast to the other plants, production at the engine plant in Steyr (Austria) started again on April 18, 2020. On April 24, 2020, the company announced that it would gradually restart the other productions. The start was made on May 4, 2020 with the plant in Spartanburg, America, and the motorcycle plant in Berlin. The plants in Mexico and Dingolfing will follow on May 11, 2020 – in the latter, however, only a few 100 instead of the usual 1500 cars are manufactured per day. Everything else depends on customer demand, explains plant manager Christoph Schröder. The main plant in Munich and the production facilities in Leipig, Regensburg, Rosslyn (South Africa) and the mini-plant in Oxford will start production again on May 18, 2020 at the earliest. On April 8, 2020, BMW also announced that it would also produce respiratory masks. These should be used in the company’s own plants, but also made available to nurses and doctors.

The crisis-ridden Aachen electric car manufacturer e.Go Mobile is now in self-administration in insolvency proceedings. The Aachen district court opened the proceedings and named the previous board of directors and two lawyers as operational managers, as the company announced on July 2, 2020. At the beginning of April 2020, e.Go had already applied for protective shield proceedings to rescue the company.

At the FCA plant (Fiat Chrysler Group) Sevel, around 6,000 workers resumed production on April 27, 2020. The Group’s own suppliers also resumed production at the same time. FCA had to take a beating because of the coronavirus pandemic in their native Italy. The closings also affected Ferrari production in Modena. The two FCA production sites in Poland and Serbia are also closed. To help contain the coronavirus pandemic, FCA announced it will manufacture more than a million respirators. In addition, FCA and Ferrari support Siare Engineering in the production of ventilators.

Ford restarted production in Europe on May 4, 2020. This was a reaction to the latest developments in the coronavirus pandemic. Initially, the production lines in Cologne, Saarlouis, Valencia and Craiova are to start, and engine production in Great Britain is to start again at a later date. Initially, the focus will be on the production of vehicles that have already been ordered. The hygiene measures were tightened in the run-up to the resumption. In addition to the obligation to wear a mask and an increased minimum distance, the temperature should be measured for all persons entering the factory premises. In addition, Ford produces up to 100,000 protective masks per day itself so as not to put additional strain on the busy protective equipment market. The Ford factories have been closed since March 19, 2020. In the USA, which has been badly affected by the coronavirus pandemic, production of Ford vehicles is expected to start again soon: The manufacturer announced on May 8, 2020 that it intends to gradually ramp up US production from May 18, 2020.

Global automakers are also pursuing business and manpower reorganization, and are spurring the establishment of eco-friendly car systems by recruiting new digital manpower. Based on these results, the National Federation of Businessmen (FKI) argued that Korea should also come up with a comprehensive support plan to save automakers and support the transition to an eco-friendly car system.

It was found that major countries have significantly expanded support for eco-friendly vehicles while supporting automakers in crisis. This is to enable companies to smoothly transition to an eco-friendly system. In France, President Macron announced a plan (Plan DE Soutien à l’Automobile) worth 8 billion euros. The goal is to support companies and workers in business crisis, build an eco-friendly automobile ecosystem, and invest in future automobiles. First of all, it announced that it will support Renault Motors’ bank loan (5 billion euros, which is in a business crisis. In addition, the subsidy for the purchase of electric vehicles was increased from 6,000 euros  to 7,000 euros in order to transform the system into an eco-friendly car, and 3,000 euros was also paid when purchasing an internal combustion locomotive that is more energy efficient than existing cars. I also prepared a plan. It also announced plans to expand infrastructure, such as installing 100,000 electric vehicle charging facilities nationwide by 23rd.

The Spanish government also prepared a plan to support the automobile industry worth 37.5 billion euros. About 2.7 billion euros will be provided for financial support such as low-interest loans to automobile companies including parts companies, and the remainder will be used for subsidies to purchase electric vehicles. Germany is more active in building an eco-friendly system. The plan to switch to an eco-friendly car system was included in the plan to revitalize the economy, such as significantly raising the subsidy for the purchase of electric vehicles (3,000 eurosb → 6.000b euros  and expanding electric vehicle charging facilities.

Accelerate restructuring of industry and manpower for company-survival, digital manpower recruitment

With the spread of Corona 19 and the automobile industry facing a crisis phase, global automakers are preemptively adjusting their business and production facilities and restructuring their workforce. Volkswagen announced its plan to hire 2,000 new digital-related personnel instead of reducing 4,000 manpower by ’23. GM ended Maven, a car-sharing service business, and also cut employee wages (20%). Nissan is considering closing factories in Indonesia and Spain, and plans to reduce its global workforce, including the US (10,000), the UK (6,000), and Spain (4,000). Renault Motors, which receives 5 billion euros  bailout funds from the French government, announced a plan to reduce its global workforce by 1.5 million over the next three years, and is expected to close some factories.

Need for liquidity support, foundation for future vehicle development, etc.

The FKI emphasized that Korea needs to prepare from now on to lay the foundation for preoccupying the future automobile market. Hwan-ik Yoo, head of the FKI’s Corporate Policy Office, said, “Up to now, policies have been focused on supporting parts makers that are experiencing a liquidity crisis. However, major countries were taking the corona crisis as a crisis as well as an opportunity for industrial system transformation, and were providing bold policy support. “We also actively support the crisis companies, expand electric vehicle charging facilities, and build road and communication infrastructure for autonomous vehicles. It is urgent to support bold policies for the tea industry.”

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Covid-19: the very fragile recovery of the automotive sector

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