How is Covid-19 impacting the automotive industry?
To prevent further spread of coronavirus, most car manufacturers are taking a controlled response, such as by suspending production and putting orders on hold. However, the Covid-19 pandemic is just the latest in a series of challenges for the automotive sector to contend with.
It is barely three months since the first confirmed case of coronavirus (Covid-19) in December 2019. But today, normal everyday life has all but ground to a halt in a growing number of countries and we are facing a global economic slowdown. The measures implemented by the world’s governments to stop the spread of coronavirus are affecting almost all industries, and the automotive industry is no exception. This blog takes a closer look at the impact on the automotive sector, and examines the knock-on effect on the leasing industry.
To prevent further spread of coronavirus, most car manufacturers are taking a controlled response, such as by suspending production and putting orders on hold. However, the Covid-19 pandemic is just the latest in a series of challenges for the automotive sector to contend with. After all, the industry has been in turmoil for some time now as it struggles to cope with several rapidly evolving developments. For example, in recent years car manufacturers have had to deal with a shift in consumers & mobility needs, emerging technologies (e.g. artificial intelligence and automation) and ever-tighter environmental regulations, to name but a few.
5 disruptions to the new vehicle supply chain
All in all, the automotive industry is currently being affected by five disruptions that are having an impact on the supply chain for new vehicles:
- Suspension of production - car makers have put their manufacturing activities on hold to protect employee health.
- Supply chain disruption - more than US$ 34 billion worth of automotive components are normally imported from China each year. Since many factories in China have been severely affected by the coronavirus epidemic, it has been increasingly difficult for car manufacturing plants to obtain the parts they need. Although many Chinese factories are now up and running again, various other countries have since put restrictions in place limiting the movement of non-vital products (including automotive components) across borders.
- Limitations of sales channels - as dealerships around the world are forced to close in order to protect employee and consumer health, many OEMs are finding themselves cut off from their traditional sales channels.
- Car registrations - governmental services that are not vital shut down or are under-functioning, making it very difficult to register new vehicles.
Decline in demand - needless to say, there has been a significant fall in demand for new vehicles on the global automotive market.
Thankfully, from the OEM perspective, there is also a silver lining to this situation: the decline in demand is causing a buildup of stock. Although high inventory levels are not always desirable, in this case car manufacturers will benefit from extra agility, enabling them to capitalise on the sudden upswing in demand when the coronavirus situation normalises again.
Impact on the leasing industry
For the leasing industry, the shortage of new vehicles will pose the biggest challenge in the short term. To help business owners and fleet managers mitigate the effects of this, we shared a couple of tips in our previous blog (2 immediate steps companies can take to reduce the impact of coronavirus on their fleet). Meanwhile, within LeasePlan, we have drawn up a full Covid-19 Response Plan to continuously monitor the supply of new vehicles. In conjunction with LeasePlan's team of experts who are specialized in the challenging dynamics of today's and tomorrow's mobility market, we are committed to ensuring we can adapt to the ever-changing situation in order to keep our customers as mobile as possible. Ask your LeasePlan contact person for more information or support.