Can the automotive industry adapt to a COVID-19 world?
Factories have stirred back to life after the lifting of strict lockdown measures
WHILE immediate results suggest the automotive industry is set for a considerable contraction this year, there are some indications that social distancing concerns could actually lead to a spike in future car sales, Oxford Business Group (OBG) has said in its latest report.
After recording the first cases of COVID-19 in December, the report said, China was the first country to experience a decline in its automotive market, with light vehicle sales falling by 18.6 percent yearon-year (y-o-y) in January. This was followed by the country’s largest-ever recorded fall in February when y-o-y sales contracted by 79.1 percent.
As the pandemic spread, so did the economic fallout. In March the EU’s light vehicle market contracted by 44 percent y-o-y and ASEAN’s by 40 percent, while in April new passenger vehicle sales in the US were down 46 percent in the same period last year.
The fall in sales has been primarily driven by the economic impact of the coronavirus. A sharp rise in unemployment has led to a considerable drop in consumer spending.
In terms of the overall outlook for 2020, London-based intelligence consultancy IHS Markit has forecast that global light vehicle sales will contract by 22 percent this year, to a total of 70.3 million units.
“Although activity fell considerably in the immediate aftermath of the virus, some countries have seen a rebound in their automotive industries, while there are suggestions that the pandemic could actually lead to a spike in vehicle demand,” the report said.
After posting double-digit falls in vehicle sales in the first three months of the year, China the world’s largest automotive market recorded a 4.4 percent y-o-y increase in purchases in April. Remarkably, this was the country’s first increase in 22 months.
While the lifting of lockdown measures after three months of relative inactivity was largely responsible for the turnaround, other consumer preferences also contributed.
Crucially, the fall in vehicle demand also coincided with a reduction in public transport and ride-share usage, as people sought to adhere to social distancing guidelines. This is reminiscent of a trend seen during the SARS outbreak in China in 2002 and 2003 when the fear of infection led many to avoid public transport and resulted in an increase in vehicle demand.
In fact, Google search data for April found that searches for car purchasing options had increased in both the US and Europe. While there is no guarantee that such results will translate into actual purchases, at the very least they suggest a shift in opinion.
Significantly, those showing an interest in purchasing vehicles are younger people, in a key reversal of historic preferences.
According to a survey released by French consulting agency Capgemini in April, 45 percent of people under the age of 35 said they were considering purchasing a car this year, considerably above the overall average of 35 percent.
The report, which surveyed opinions from 11 countries including China, India, the US, the UK, and Germany, also found that half of this younger age group would use public transport less and take their own car more often in light of the pandemic, while 44 percent would use ride-hailing services less due to health and safety concerns.
The drop in global demand in the first quarter of the year has naturally had a significant impact on vehicleproducing countries. This is a crucial issue for emerging markets like Indonesia, Mexico, Morocco, and Thailand, all of which have significant automotive manufacturing industries.