The social and economic impact of the coronavirus pandemic is a once in a lifetime occurrence. It’s bringing incalculable human cost that we would never have thought possible in peacetime. Then there is the economic cost. It too is off the scale. Beyond any of our wildest imaginations and coming so soon after the global financial crisis which, at the time, stretched the limits of our imaginations.
Like then, the automotive industry is at the forefront of the economic impact. What started off in innocent minds as a little trouble in big China, that could exhaust parts inventory by the end of April in Europe and North America, has become the biggest threat to the automotive order since its inception a little over 120 years ago.
We’re used to talking about threats to the automotive industry’s established order in recent times. There’s the aforementioned financial crisis. The impact of the CASE megatrends. New technology entrants. New mobility business models. But, nothing of the magnitude of coronavirus and its fall out.
For the sector, it’s meant an almost instant decimation in demand. Nearly half of the world’s population is estimated to be in lockdown, unable to venture outside let alone go to the car showroom to think about a new vehicle. Manufacturing is shutdown mostly due to issues of ensuring worker safety and halting the transmission of the virus, but the demand situation and supply shortages aren’t helping either.
Workers are being furloughed all over the world or instantly being made unemployed. In the US alone 6.6m people filed unemployment claims in the week ending 28 March. This was double the amount the week before, in itself a record. Some 10m people out of work in the US in two weeks. In the entirety of the global financial crisis, 9m jobs were lost.
It’s a crisis that keeps on scaling up. Initial plans for production shutdowns in many auto plants were just for a one or two days deep clean. Now many plants in Europe and North America expect to be shuttered throughout April and until the beginning of May. It may end up being longer.
When GlobalData first started tracking the estimated lost production in the two regions (way back in the third week of March) we calculated the loss at 2m units and lost revenue to the OEMs of $64m. Fast forward three weeks, and with restart dates put back by the likes of BMW, VW, Ford, GM and FCA, the lost volume stands at 3.6m units. The revenue loss is estimated at an eye-watering $113.3bn. Given GlobalData’s base case for global sales in 2020 – down 10m on 2019 give or take a few – the global revenue loss scales up to well over $300bn for the year.
That revenue loss trickles down the supply chain too. Suppliers contribute on average 60% of a vehicle’s value. On the figures for lost production in March and April alone, nearly $68bn has been gouged out of the supplier industry’s topline. For the bottom line we’re looking at just over $2bn in profits being sucked out of the supply base. What started out as little trouble in big China has taken on a whole new dimension.