2020 Auto News Auto Sales USA automobiles

The Pandemic Will Permanently Change the Auto Industry

Plunging sales could force factories to close and lead to takeovers and mergers, but also bolster sales of electric cars.

A Skoda Auto factory in Mlada Boleslav, Czech Republic. It took almost a decade for car sales in the European Union to recover from the recession that began in 2008.

FRANKFURT — Some automakers may emerge stronger, others too weak to survive on their own. Factories will shut down. The pressure to go electric could become more intense.

People may travel less now that they have discovered how much they can get done from home. Or they may commute more by car to avoid jostling with others on crowded buses and trains.

The auto industry was bracing for a brutal year even before the coronavirus idled factories, closed dealerships and sent sales into a free fall. Now, things are about to get really Darwinian: The industry is expected to realign in ways that could have a profound effect on the eight million people worldwide who work for vehicle manufacturers.

It took almost a decade for car sales in the European Union to recover from the recession that began in 2008. The United States market took about five years to bounce back, but sales have been flat since 2015. Explosive growth in China initially helped compensate, but the market has been in decline since 2018. As Volkswagen, Daimler, Fiat Chrysler and other companies slowly restart their assembly lines, people who work in the car business are beginning to ponder what the repercussions of this crisis will be.

“We shouldn’t be too optimistic and expect that in 2021 everything is going to go back to normal as if nothing happened,” Ola Källenius, the chief executive of Daimler, told reporters during a recent conference call. The pandemic, he said, “will probably have a huge effect on the economy and we have to prepare.”

Here’s a look at what to expect.

Automakers worldwide had at least 20 percent more factory capacity than they needed before the coronavirus hit, analysts say. That idle manufacturing space cost them money without producing any profit. As sales plummet further, shutting down underused plants may be a matter of survival.

“Some of those big plants in Europe are going to really struggle,” said Peter Wells, director of the Center for Automotive Industry Research at Cardiff Business School in Wales. The going will be especially tough for the companies that make smaller cars, which tend to be less profitable, like Fiat, Renault or Volkswagen’s SEAT brand.

In Europe, it’s impossible to close a factory without labor strife and political resistance because so many jobs are at stake. Severance payments to workers and other costs can make it as expensive to shutter a plant as it is to build one.

“It’s about the politics more than the economics,” Mr. Wells said.

In an example of the kind of fights that may lie ahead, workers shut down a Nissan plant in Barcelona only two days after it opened in early May, demanding that the Japanese company commit to maintaining its presence in Spain.

Sales of electric cars have been surprisingly resilient even as lockdowns gutted sales of gasoline and diesel powered vehicles.

In March, as much of Europe went into lockdown, car sales on the continent fell by more than half. But registrations of battery-powered cars surged 23 percent, according to Matthias Schmidt, an analyst in Berlin who tracks the industry.

In April, lockdowns caught up with electric cars, too, and their sales fell 31 percent, according to Mr. Schmidt’s estimate. But that was nothing compared with the total European car market, which plummeted 80 percent.

It is not clear whether the surge in electric car sales is a trend or a quirk. Many of the electric vehicles registered early this year had been ordered earlier, Mr. Schmidt said. Carmakers may have taken their time delivering cars that were bought in 2019 so the vehicles would help meet stricter European Union limits on carbon dioxide emissions that took effect in 2020.

Carmakers may not be as motivated to sell electric cars in coming months. They will be tempted to instead push S.U.V.s, which generate far greater profits and are easier to sell now that fuel prices have plunged.

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