Business and Covid-19 – testing times ahead for the automotive industry
You will be tested to find an industry that has not been impacted by the coronavirus, which has locked down cities and prevented companies from operating. Perhaps hit hardest, the automotive industry has had even more thrown on its plate, which has forced closures of factories and businesses worldwide.
Not to mention start-ups in the transport space, who rely on investors to stay afloat and develop innovative solutions for consumers and larger companies.
TheNewsMarket takes a look at some of the companies hit hardest by the outbreak, and looks at how they will evolve during – and post – Covid-19.
The Demise Of Dealers
More than ever, dealers have tonnes of cars on their forecourts, with its distributors stocking up for a market that, fundamentally, doesn’t exist anymore.
These problems trickle down to the finance and leasing companies, with no new or used cars selling due to lockdown and a significant drop in demand. What will happen to this excess supply?
Of course, demand will increase somewhat once lockdown is lifted, but it will be completely different to what the environment looked like just a few weeks ago.
With a global recession looming, the average consumer will not want to commit to a multiple-year finance or leasing deal. Not to mention the financial trouble the coronavirus has bought with it.
Unlike property, people aren’t willing to commit to long-term vehicle ownership, be that leasing, finance or outright ownership. They are more interested in what they can do for the short term, even if it’s a little more expensive. In addition, this could increase the need for shared ownership models, where consumers would use new vehicle services, which would be detrimental to existing dealerships and their business frameworks.
As the outbreak goes on, dealerships are falling further into uncertainty.
Start-ups do not have the riches of larger corporations that allow them to get through testing times such as what we are experiencing today. Many of these start-ups are busy raising money and developing products and services. What this disruption now means is that they are struggling to find additional funding and rollout their operations due to a complete lack of demand due to lock down.
This is a colossal problem for these companies as they are living hand to mouth, and are now being constrained by something that no one could have prepared for.
However, all is not lost. Although there was an element of shock, contact time with key decision makers has been easier for some due to not needing to travel and utilising online capabilities, which has allowed many to secure new partnerships on innovation that can be incubated from desktops. Yes, commercially this has been a shock and has made life harder but, for some, there has been a focus on what can be achieved.
The lockdown has given companies time to focus on the more technical things they need to achieve in the long-term and get it done without any distractions.
Finally, it will highlight the stronger business models. Half-baked models with VC money and crazy valuations may see a drop in their worth. If so, they will have to shift their focus to their viability and work out their core value to progress.
So it is likely that this disruption will expose sub-par businesses and possibly stimulate a more realistic valuation that reflects the brand’s business model effectively. Actual plans, with actual valuations, for actual results. This could flush out a lot of new businesses with unproven frameworks.
The Big Corporates Are Next
At the other end of the spectrum, an imminent recession may also impact the big corporates that are responsible for a lot of investment into start-ups and innovators, forcing them back into their core business models.
For example, in automotive it’s all about producing cars and getting them out to dealerships and consumers. With what’s happening today, we may start to see these automakers doubling down on their existing business models and moving away from new ventures.
In the long run, everyone is going to be hit hard by this, so don’t be surprised if these larger corporations drop unneeded technology as quickly as possible in the hope to salvage finances.
However, what happens if their core business model starts to disappear? Automakers cannot simply fire up their facilities and build cars with no demand. There is going to be less cars built as there will be reduced demand from consumers.
It will be interesting to see how global OEMs will react to this, as they have been reluctant to scale back production in the past.
It was forecasted by experts that 2016 was the peak of private car sales. As we go through this change, OEMs have continued to walk the tightrope and try to understand a new part of the business whilst maintaining their cash flow.
In short, it is extremely difficult to shift over from huge diesel and petrol vehicle production to electric vehicles and new mobility solutions. This doesn’t happen overnight and without losses, certainly in the short to medium term.
Huge polluting SUVs sell well. And automakers don’t want that to change. But they soon may not have a choice.
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