What nobody counts on: Is the second wave of the coronavirus destroying the automotive industry?

Like many, I pay close attention to the news flow on the coronavirus, on the one hand, obviously because it is closely related to my work, and on the other hand, by filtering and synthesizing the available information, I try to form my own opinions and expectations about the future.

Although we are not even past the first wave, the news recently focused on the second coronavirus wave after China announced that after initial success in curbing the coronavirus epidemic, the next wave of the coronavirus epidemic could break out, so they respond drastically. the appearance of infections, for example, by tightening restrictions in a city of 10 million.

This was followed by a series of warnings intended to draw public attention to the expected second wave of the coronavirus:

• Erika Vlieghe, head of the group of experts planning the Belgian restart strategy He said the new wave of the epidemic could not come in the fall, but as early as this summer, he warned everyone not to dive too deep into the bulk of social contact.
• Dr. Maria Van Kerkhove, WHO Chief of Epidemiology of Coronavirus He spoke of the realism of a second wave, so he warned countries that they were considering reducing the restrictions.
• Michael Osterholm, director of the University of Minnesota Infectious Disease Research Center He said the epidemic will infect 60-70% of the United States population before it subsides. He stated that the country is still a long way from achieving herd immunity and also projected three possible scenarios: (1) the epidemic will slow down in summer but will come back with great force again in autumn and winter, (2) there will be fluctuations in the epidemic in different places and times. , (3) or the epidemic spreads slowly and can last up to 18 months.
• Epidemiological experts in the Western Balkans have warned that if the new type of coronavirus disappears for a time in the summer, it will definitely return in the fall, and the second wave may be stronger than the first.
• Lothar Wieler, President of the Robert Koch National Institute of Public Health (RKI) According to him, the fact that the reproduction rate in Germany is decreasing does not indicate the end of the epidemic, it is the beginning of the end, but only the relief of the first wave. Most experts say a second wave will form, and many experts expect a third wave, stressed the head of the RKI, who also noted that in the absence of vaccination, an epidemic will end if 60 to 70 percent of the population passes from the infection.
• In Hungary, Béla Merkely, President of the Semmelweis University. He spoke of waiting two quiet months in the summer. However, he added, there could be a second wave of the epidemic in the fall that will in no way surprise the country.

Although many warn about the second wave, they hardly anticipate it

Based on the above statements, it does not appear to be a question of whether there will be a second wave of the coronavirus, but exactly when, with what intensity and how, and how stringent restrictive measures the world’s governments will respond.

In Germany, for example, the federal government has agreed with the Member States on a gradual relaunch, which means that states may decide to open, for example, universities, restaurants and cinemas. However, they also agreed to avoid a second wave that if the number of infected people increases again after the reopening, the restrictions will be rebuilt immediately. The threshold will be 50 new infections for every 100,000 inhabitants in the last 7 days.

All of this is important because the recently released forecasts from the auto industry, which address sales growth and expected increase in production, do not take into account, with one exception, the second and, worse still, the third wave of coronavirus.

IHS Markit was recently forced to override its previous forecast, so today its experts expect only 69.9 million cars to be sold worldwide this year due to the adverse effects of the coronavirus, a 22 percent drop from 2019. The house of analysis estimates that the rapid pace of the decline will be followed by a very slow recovery in world auto markets. In their analysis, they mention the second wave of the coronavirus as a risk that negatively affects sales, only in relation to the US automotive market. USA

LMC Automotive analysts went further and proposed several possible scenarios for the expected development of sales. By default, it is estimated that approximately 71 million vehicles could be sold worldwide this year, a drop of around 20 percent since 2019. At the same time, they add that this number could be even lower, depending on how fast the Life returns to normal in regions that are dominant in automobile production.

It was recently revealed that the BMW Group expects the epidemic and the resulting restrictive measures to significantly reduce demand in all major automotive markets by 2020. However, the first quarterly report made it clear that this was pessimistic.

FORECAST does not even contain a deeper recession in major markets, a deep economic slowdown in China, market distortions, even greater competition, or as a result of a second wave CONTROL AND RESPONSE AS FOR A PARTICULAR new restrictions negative impact.

And before we think that BMW’s honest rally is a one-off case, it should also quickly be added that a few days ago, Daimler also caught the attention of investors and market participants in his first-quarter report for

THE WINE PRONOUNCES ITS OFFER MAY BE VERY DETERIOR IF THE RESTRICTIVE MEASURES REMAIN PRIORITY FOR A LONG PERIOD IN THE PRIORITY MARKET, OR IF NOT. FURTHER, IN THE EVENT THAT THE SECOND WAVE OF CROWN VIRUS DISEASE WILL TAKE A HUGE SIZE IN THE WORLD.

The auto industry is ready, but it all depends on demand.

Although at the moment it hardly plays a role in the industry’s forecasts, it is important to say that a possible second wave of the coronavirus will be much more prepared for the automotive industry. The situation caused by the epidemic has highlighted weaknesses in the global supply chain. In this way, industry players can learn from events, draw the correct conclusions, and improve the structure of the global supply chain.

In addition to single-source solutions, dual-source solutions will also have a greater share, which, while everyone has spoken before, has been used by few in a normal operating situation due to its higher cost. Logistics routes and the way parts are transported are also expected to change, as significant differences have developed in the auto industry since China’s closure, with companies transporting by ship lasting longer than those transporting by plane. In the past, to keep costs under control, everyone tried to reduce their inventory to “0”. The coronavirus, on the other hand, has shown that it can be useful if a company has larger stocks.

It has also been heard a lot in recent weeks that the world’s leading automakers are going to great lengths to create working conditions for their workers that provide maximum protection for their health, even in the midst of a coronavirus epidemic in plants and on the roads that lead there.

Thanks to all this, in the event of a strong second wave, the auto industry would be much more resilient and would not be forced to temporarily suspend production as soon.

At the same time, it should be seen that preparedness will be worthless in the event that demand for cars suddenly starts to drop again due to renewed restrictions to curb the coronavirus.

The powerful second wave of the coronavirus could bring much suffering to the auto industry.

We can be sure that, in the absence of demand, no automotive company will produce for the factory yard, but that production will be temporarily suspended again. In the case of a strong second wave, the chances of survival largely depend on the liquidity of a given company, in which there are significant differences between suppliers, car manufacturers and, for example, car dealers. Before the coronavirus crisis, well-performing industry players will be able to cope with the crisis with financial assistance. On the one hand, these companies will be able to maintain their solid position during the recession and, on the other hand, they will be able to take advantage of the opportunities offered by market consolidation.

However, the possibility that some companies with previous difficulties failed could not be ruled out. Those who will be in the greatest problem will be those whose liquidity situation has already been shaken during the first wave of the coronavirus and who have only been able to stay afloat with great difficulty. Of course, this would mean more job losses in the industry.

It should also be seen that if the second strong wave of the coronavirus actually materializes, leading to austerity measures worldwide, it will also put companies in a very difficult position that can stay afloat.

It will be terribly difficult to operate profitably for a substantial profit, so coronavirus protection, worker health protection, and changing logistics and storage needs will carry huge additional costs. The situation could be exacerbated by the fact that new cars will be able to be sold at significant discounts in many places due to the expected decrease in demand. Double-digit discounts compared to list prices are reportedly no longer rare in salons. Of course, this would also have an adverse effect on the price of used cars. An additional difficulty for automakers may be that in recent years, thanks to favorable funding, individuals and businesses have purchased virtually everything they are shooting. The 2008 crisis, on the other hand, showed at that time the magnitude of the problems: the default rate could increase sharply in the crisis, which would lead to an increase in credit losses and, ultimately, to major write-downs in automotive finance divisions.

Looking at all this and thinking about it, it’s easy to see that industry players won’t have many options in case the above scenario comes true. If they want to stay afloat, they will be forced to introduce tough measures to cut costs. As we mentioned in our recently released video, cutting competition and development costs would amount to suicide due to increasing competition and increasingly stringent regulations.

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Cover image source: Andrew Harrer / Bloomberg via Getty Images