• Friday, March 29, 2024
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BusinessDay

Eight million auto industry workers’ future gloomy

Deloitte’s Covid-19 shows African auto sector in severe shock

With the world economies on its knees battling the coronavirus pandemic, at the end of the day, the devastating scourge may leave some automakers emerging stronger, others too weak to survive on their own and while factories will shut down, the pressure on the industry to go electric could become intense.
The takeaway in all the unfolding episodes is that people are traveling 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.
Prior to the outbreak, the auto industry was bracing for a brutal year even before the coronavirus idled factories, closed dealerships and sent sales into a free fall.
This time around, things are about to get really very critical. 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.

Before the pandemic, region by region, it took almost a decade for car sales in the European Union to recover from the recession that began in 2008. In the United States, it took the market 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.
One of the leading auto makers eggheads that is pessimistic about possible quick dramatic return to full scale businesses is Ola Källenius, the chief executive of Daimler.
According to him, ‘’We should not be too optimistic and expect that in 2021, everything is going to go back to normal as if nothing happened. The pandemic will probably have a huge effect on the global economy and we have to prepare’’.

Industry analysts said before the outbreak of coronavirus, automakers worldwide had at least 20 percent more factory capacity than they needed. 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.
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 as 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 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 not as many of the electric vehicles registered early this year had been ordered earlier, 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.

Automakers may not be as motivated to sell electric cars in coming months, but hey will be tempted to instead push SUVs, which generate far greater profits and are easier to sell now that fuel prices have plunged.