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Evolution of Automotive Sector Post-COVID-19 Outbreak

Feb, 2021 - By CMI

Evolution of Automotive Sector Post-COVID-19 Outbreak

 

Post-normalization, the automotive sector tries to revive its production and tackles the new consumer demands with new approaches.

Automobiles have been a primary mode of transportation since the time it was introduced. But with changing technologies and preferences of the world, the automotive industry has to adapt to the ongoing changes in the world. Automated manufacturing, self-driving cars, electrification, and vehicle renting were the major factors that were affecting this industry prior to the breakout of the pandemic. The pandemic has compelled the automotive industry to shut-down the production and lay-off the employees for indefinite period of time. Many people are working from home as well as learning from virtual classes, which has led to decline in car sales and real-estate properties. Consequences of lockdowns are very vast and can be sensed during the post-lockdown period. Large number of passenger vehicles were unsold during the shutdown. The global automotive sector had a decline of US$ 100 billion in its profits, which is around 6% decrease on considering the overall profits. Resurging from such crisis is going to be very crucial for the automobile sector.

The pandemic has led to production development in the automation sector at the operational levels. The original equipment manufacturers (OEMs) have expressed their desires to co-operate with the automotive companies to tackle challenges. Although the production companies are lagging behind on their core tasks, they are ready to explore new measures. The OEMs are currently focusing on the core operations to stay in the competition but if the new measures are not implemented, it would be sufferable loss for the manufacturers in the long-term. Sailing into the crisis, industrialists may have an upper hand if they re-consider their operations and structure at an organizational level.

Here are the five initiatives to keep the industrialists in the race: -

-          Creating a flexible supply chain

-          Adopting zero-based budgeting from scratch

-          Targeting digital channels

-          Opting for flowing income sources

-          Optimization of assets

Establishment of a strong sequential decision-making is quintessential for the automotive industry. With critical times ahead, the chance of adapting to these situations will fade in the coming months.

Currently, most of the vendors from various industries are opting for online sales channel to stay in the business. In Europe, the use of digital channels has increased by 13% on an average since the COVID-19 outbreak. Responding to the COVID-19 pandemic, the use of digital channels spiked to 28% in Germany, highest among all the European countries. More than 70% of Germans have plans to stay involved in online activity even after the withdrawal of restrictions. Considering this data, digital presence is the key factor to survive this crisis situation.

In the pre-COVID-19 period, the automation makers had no plans to adopt digital means while other industries moved ahead with the same at that time. Due to this reason, the automation industry is behind other industries in this section. A Digital Quotient Analysis of 2019, which evaluated the total online maturity of the automotive companies, mentioned that a mean automation business needs to be digitized as it has below-average revenue than other B2B industries. Automotive industries have identified that the models that are sold remotely are becoming the new trend and most of them have started the manufacture of the same in response to the consumer demand. On analyzing the sales, it was found that the sales of models through digital means are now twice that of traditional method. In fact, all the B2B companies have shifted their offline/traditional working model into the digital model. Majority of B2B businesses are likely to stick with this model of sales even after a complete normalization. In other industries, the marketers were able to upraise their positions and the marketers of automobile industry just need to imitate them.

The advantages of strategizing the digital presence gained popularity in the early days of COVID-19 pandemic within the automation industry. China witnessed a decline of 80% in its automobile sales in February 2020 whereas a U.S.-based company experienced an overall increase of 10% in its sales. The reason behind this was that the company had initially established its presence digitally with multiple sales offers and discounts. This kind of decision proved to be fruitful for the company during the nationwide lockdowns. 

In March 2020, the stock prices of all industries across the globe fell by around 40%. However, some remarkable companies grew in stock at that time. In the early days of global lockdowns, customers ran out of cash and were uncertain regarding the future. Making a significant purchase in such a situation would have probably sounded foolish. Rather, the consumers opted for subscription offers, which were short and did not involve any major capital. 

Demand for mobility products is on the rise. Hesitation of the consumers to make a significant investment has driven the current trend towards the adoption of more flexible products. Manufacturers of mobility-based products have re-designed their offerings to cope-up with the consumer demands. In the pre-COVID period, around 34% of millennial consumers choose ride-sharing and rental services whereas, only 6% of older consumers decided for the same. Post-COVID, most of the companies along with OEMs offered short-term rentals as a substitute for car sales.

Continuous flow of revenue creates a reliable stream of income. An electric-vehicle producing company in the U.S. suggested that the driving factor for the automotive manufacturers will be their market valuation in the future.

The current challenge equally faced by automotive industry, OEMs, and suppliers is for making investments in autonomous technologies, connectivity, electrification, and shared mobility (ACES). Instead of competing with each other, the industrialists of automotive sector should focus on delivering the current requirements of the consumers. Optimizing the budgets of conventional OEMs should expand beyond the COVID-19 pandemic to limit the assets, for saving the cash, and an initiative to perform the operations with minimum resources. However, these initiatives will curb the room for investments in new technologies. With closed factories, employees are forced to work from home alternatively due to crisis. But remote working of employees has brought some opportunities such as less power consumption at the workplace for the companies.

One of the missing traits of automotive industry is the co-operation. Other industries such as smartphone industry enter into collaborations to stay in the business and enjoy the mutual income together. Unlike those industries, the automation industrialists like to trade solo with some exceptional small-scale companies. Less power consumption at the workplace and least resources required for the operations are the benefits for the organizations to optimize their expenditures.

To capitalize on this situation, the companies must adopt the zero-based budgeting (ZBB) to evaluate their expenses from scratch. In this approach, the budgets are analysed from zero by taking into consideration every minor expenditure in the plant. By implementing ZBB, it will help the industrialists to re-construct their annual expenditure and promote optimization in the annual revenue. This approach will help the automation industry to eradicate unproductive operations, merge the production services, and reduce the unwanted out-sourcing. Stoppage of supply chains has resulted in scarcity of raw materials in the workshops. In the early stage of COVID-19, the supply chains were weakened that led to disruptions in the industry. China, one of the major suppliers in the world, reported the missing of its tier-one suppliers in February 2020. Automotive industry was largely dependent on China for the supply of raw materials at that time but the stoppage of its plants had worsened the scenario for the industry in 2020. Responding to the halt of supply, many manufacturers are planning for back-up in the form of in-sourcing within the locality. Hence, the manufacturers would not be dependent on China for the supply. The number of workers and laborers reduced significantly since the outbreak of pandemic. It is estimated that the time required for the industry to recover the business to its pre-pandemic level will be around four years, as the sales of vehicles declined about an average of 25% globally in 2020.

In the post-pandemic period, the automation companies must focus on the health of their employees and laborers to ensure that the coronavirus in not transmitted among them. The products delivered should not become the carrier of the coronavirus. Creating awareness, promoting the safety measures with the staffs of the company, and indulging in conversations with the employees will make the companies more resilient in this crisis. To restore the faith of the stakeholders in the industry, industrialists should begin the operations based on information and analysis of the demand. Instead of resuming the business with old strategies, the organizations should consider a new initiative with zero-based approach for returning to the business. Allot the management teams in various departments for setting the targets and to inspect the production rate.

Yet, many organizations are not able to adapt to the changing trends and demands. Implementing new strategies and execution of the plans should possess the propulsion and precision to make them practical. Strong decision-making will consolidate the fate of the industry.

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