Covid-19, automotive industry, automotive sector, automotive companies, General Motors, supply chain, automakers
The Covid-19 pandemic has had a significant impact on all industries. While the tourism sector, as well as the aeronautics sector, has been particularly affected by the pandemic, several other sectors are also facing a similar crisis. This is particularly the case with the automotive industry. The effects are all the more important as the unemployment rate is constantly increasing in the main developed economies, including the United States, which will force individuals to reduce their consumption and spending, automatically leading to a sharp drop in unemployment and the demand for cars.
[...] The effects of COVID-19 on the automotive sector The auto industry and the global economy are both interdependent. First, the auto industry is a major employer in the world, both directly and indirectly. In addition, the well-being of the automotive industry is also critical of the well-being of other upstream and downstream industries. Upstream industries like textiles, chemicals and steel are heavily dependent on this industry and, likewise, downstream industries like transport and repair services are also dependent on the welfare of the automotive industry. [...]
[...] In addition, auto-trade shows are being cancelled all over the world. Thus, car brands can use virtual tools to create events. They should also think of a sales process without physical contact to meet health and safety requirements. Companies will have to rethink their sales strategy and their distribution channels. In addition to adopting online sales channels, businesses should also consider direct selling models. Indeed, as manufacturers will have to reduce their inventories after the crisis, prices will be under strong pressure once the crisis has passed. [...]
[...] Production stops cost The first major challenge for the automotive industry is that of shutting down production. Many companies around the world have stopped production. While the situation has stabilised much in China, there is still uncertainty in Europe and the United States about a possible return to normal. However, several manufacturers, including General Motors in the United States, use their production capacities (assembly, supply) to produce medical equipment. Even if production restarts from time to time, manufacturers face the double challenge of shutting down production and falling demand. [...]
[...] Disruptions in automotive supply chains also risk trapping cash that could otherwise be used to fund operations, benefit employees and better manage certain financial investments. However, some car manufacturers are already having cash flow problems. The drop in demand will lead to a decrease in revenue and therefore in cash flow. However, companies still have to pay their employees' salaries and short-term debts. The remaining cash reserves will most likely be depleted in the coming months. So, as operating cash flow is depleted during the crisis, many companies are likely to face liquidity issues soon. [...]
[...] China remains the largest market for light vehicles around the world. However, in February 2020, sales of light vehicles in the Chinese market fell by almost 80% compared to January. This clearly indicates that the global market is moving towards the countries of the South and that the impact of the pandemic is already visible. Global light vehicle sales are forecast to fall by approximately in 2020. The likelihood of these circumstances rapidly changing towards improvement is very low. Experts have estimated the decline in sales of light vehicles in the United States at nearly 10%. [...]
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