The Effect of Covid-19 on the Automotive Industry
The automobile industry is among the most badly hit sectors as a result of the coronavirus. The lockdown has created a supply chain problem. But the bigger problem has been the sharp decline for automobiles. Coronavirus is leading to a recession like situation in many countries. Hence, people do not have the luxury of buying automobiles.
According to an estimate by the International Labour Organization (ILO) , factory closures across the North America and Europe have resulted in 2.5 million passenger vehicles to be removed from the production line. For the automobile and associated industries, it represents a loss of US $77.7 billion.
This has greatly aggravated the financial crisis in countries where the automotive industry is a major driver of economic growth. Besides contributing to the economy, the automotive sector in those countries is a major source of employment. Now, let us have a look at various countries and their automobile industry.
China
Wuhan, where the virus originated, is known as the ‘motor city’. The reason is that General Motors, Honda Motor, Nissan Motor, the Peugeot Group (PSA), Renault and Toyota Motors all have factories there. During the lockdown, all factories were completely closed down. February 2020 saw new vehicle sales in China drop by nearly 92 per cent.
According to an estimate, the automobile sales will plummet by at least 2.9 per cent. Besides the sales, it is imperative to take into the account the fact that China exports automobile related parts & equipment to the rest of the world. The importing countries are set to lose US$ 7 billion due to disruptions in the supply chain.
European Union (EU)
European Automobile Manufacturers’ Association (ACEA) have said that new automobile sales were 7.4 per cent lower in the EU during January and February when compared to the same period last year. The demand for new automobiles in Germany has fallen by 9 per cent and Italy by 7.3 per cent.
In addition to this, Germany has suffered greatly in terms of job losses. There are 2.6 million automotive workers in the EU. Out of this, 1.1 million jobs have been affected. More than half are from Germany. 13.8 million EU workers that encompass the wider supply chain related to the automotive industry are also at risk.
Americas
Automobile manufacturing plants across the USA have closed down. Recently, Tesla forcibly opened its California factory in defiance of the lockdown measures. Nevertheless, General Motors, Ford Motors, and Fiat Chrysler Automobiles (FCA) had closed down their entire USA factories temporarily for nearly two months. General Motors resumed production on 18th May.
India
The lockdown in India is set to cost the automobile industry nearly US $800 million. Also, about 50 per cent of the automobile related workforce is at risk.
Final Thoughts
The automobile industry may very well suffer more losses in the coming months. While the lockdowns might be relaxing or ending, peoples’ finances have been greatly impacted. This has reduced their appetite for new vehicles. Besides the coronavirus, the automotive sector was already facing serious challenges due to trade war, technological shifts, and increased emphasis to produce greener cars. According to the ILO, shift to electric vehicles will result in a job loss of 400,000 people alone in Germany.