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The impacts of “COVID-19” pandemic on the automotive industry

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1. The “COVID-19” pandemic
On 31st December 2019, the local government of Wuhan, China, confirmed there are several cases of unknown source pneumonia and after that Chinese authorities identified a new coronavirus as the agent causing these cases.  Until 20th January 2020, the World Health Organization (WHO) published the confirmation report of the infection outside mainland China. While Thailand’s 1st infection case was confirmed on 12th January 2020. The Chinese laboratory identified a new type of coronavirus, and then, was named COVID-19 on 12th February 2020. Currently (13th April 2020), there were 1,856,831 cases and 114,312 deaths reported. The viral spread of COVID -19 was a concern of many governments around the world. The lockdown measure was widely implemented by the government of many countries to halt the spread from the mass movement and gathering groups of people. The lockdown measure has also affected the economic activities and caused the economic recessions, while the pandemic is still happening. The GDP growth in 2020 was estimated to be decreased from 3% to 0.5% – 2.5%,  because 6 of top 10 countries having the most GDP in the world have been confirmed the most COVID-19 cases. (Table 1)

2. The automotive industry during “COVID-19” pandemic
Hubei, China is one of the important regions of the Chinese automotive industry and it was the first region that implemented lockdown measures since 8th April 2020. During the shutdown, 9 car manufacturers have closed temporarily, which accounted for 10% of China's production capacity. The shutdown also led to the temporary shutdown of parts manufacturers, such as the braking system, steering system and electronic and electric parts. Currently, 9 manufacturers already re-started their production. However, the pandemic in China is being controlled, the other parts of the world are still facing severe situations, which led to the temporary shutdown of many car manufacturers worldwide (Figure 1), including 8 Thai car manufacturers have been temporary shutdown between April and May 2020 (Figure 2) and could affect Thailand vehicle production in April and May 2020. According to the Thai Auto Parts Manufacturers Association’s survey, the purchase orders of Thai auto parts manufacturers are decreased by 30% and some were decreased by 70%.

In Q1/2020, the Chinese vehicle market was decreased by 40% accounting for 2.7 million units, which caused by COVID-19 pandemic and earlier China-USA trade war, while other markets were decreased by about 10% - 30% because other countries were affected by the pandemic in late March 2020.

IHS Market, an automotive industry research company, estimated the automotive industry will be affected by COVID-19 pandemic the most. The lockdown measure affected the automotive industry from both the demand and supply side. The demand side was caused by less traveling which reduced the vehicle demand, and the stalling of economic activities led to lower-income, which consumers prefer to sav for more important needs in the future instead of buying new vehicles. The supply side, the automotive supply chains are located mostly in the pandemic regions including China, the U.S. and Europe. Therefore, the vehicle market might gradually recover in the future, the production capability might not be able the recover as fast as the markets.

3. The COVID-19 impact on the automobile market
Oliver Wyman, a research company in the automotive industry has forecasted the global automobile market which affected by COVID-19 based on 2 scenarios. In the first scenario, the market quickly recovers due to the efficiency of response measures which are able to control the pandemic and stabilize the infection numbers, while the consumers still have purchasing power and travel needs with private vehicles to avoid public transportation. In this scenario, the market will quickly recover in August 2020 and the overview of global market in 2020 will be decreased by 17% compared to the previous year which accounts for 63 million vehicles sold in 2020. In the second scenario, the market gradually recovers due to drastically decline of consumers’ purchasing power and expected to be recovered in December. The market will be decreased by 29% compared to the previous year, which accounts for 54 million vehicles sold in 2020 (Figure 4). According to Oliver Wyman's estimation, the market will take 3 years to be recovered at its pre-COVID-19 level. However, some markets having radical pandemic might take longer recovery time especially the European market which took 8 years to recover from the US subprime mortgage crisis in 2008.

In order to maintain the business during the pandemic, the vehicle manufacturers should adopt an online platform for sale and marketing activities, as well as at-home test drives and vehicle delivery including the financial services due to the customer payment capabilities might be decreased from saving money for the emergency situation. However, COVID -19 is a catalyst accelerating the growth of the online marketing platform, which can enhance customers’ conveniences and reduce the sellers’ marketing costs.

The government could implement market stimulation measures together with the adaptation of business sectors. For instance, the Chinese government not only implemented subsidies and loan moratorium for car manufacturers but also implement the market stimulation measure by giving subsidies to the customers which implemented with different conditions in each city, such as giving the subsidies to first-time car buyers, replacing an old vehicle with a new green one and domestically produced car. Thailand could consider applying the Chinese government’s measure especially giving subsidies for the buyer who turn an old vehicle into a new and cleaner one or electric vehicle. These measures will also support Thailand's next-generation automotive industry. The government can also implement the financial support measures that could help SMEs who have limited capital such as Low/Zero interest rate loans, loan moratorium.

The pandemic has a negative impact on the new-vehicle market. However, the replacement parts market could be grown from the uncertainty of customer income. The customers would rather repair and maintain the current vehicles than buy the new ones and  Thai manufacturers, who can produce both original parts and replacement parts, should take advantage of theirs growth market which could be extended into new business opportunities in the future. The 3 things needed to be considered to promote replacement parts manufacturing, (1) replacement parts standardization, (2) research and development infrastructure, and (3) online platforms. Both standardization and R&D infrastructures could enhance customer confidence and satisfaction, while the online platform will offer the sellers products directly to the customers.

4. The effects of COVID -19 to the vehicle manufacturing processes.
In the early stage of the recovery, there is the possibility that production capability might not meet the response of the customers' demand because parts manufacturers in many countries have been shut down during the pandemic and the improbable of changing the parts suppliers. However, Japan and China are the top 2 countries Thailand imports auto parts from accounting for 41% and 13% of total auto parts import value respectively, following by Indonesia, the U.S. and Germany accounting for 7% of total auto parts imports value equally. The motor vehicle parts and accessories and engine and parts are the most imported parts, which account for 61% and 24% of total auto parts import value respectively (Figure 5).
Figure 5 Thailand auto parts imported value.

 
Data from Global Trade Atlas compiled by Next Generation Automotive Research Center
For short-term solutions, vehicle and parts manufacturers should make a joint production planning and gradually produce essential parts which could not be substituted by other manufacturers and store some inventory to alleviate parts shortages deficiency in the future.

However, the estimation on COVID -19 pandemic will continue for 2 years until COVID -19 becomes local endemic. Therefore, all stakeholders have to adapt their business operations and daily life activities accordingly. For middle-term solutions, the vehicle and parts manufacturers would have to change the manufacturing process to mitigate the infection and spreading of the virus including the supply chain management and purchasing from suppliers in different areas can also reduce the risk diversification from the lockdown measures in many countries.
Another essential measure is supply chain monitoring, the vehicle manufacturers need real-time information in order to instantaneous implement measures and respond accordingly. Therefore, the implementations of Information technology, Internet-of-Thing (IoT), Big Data and Artificial Intelligent (AI) are inevitable. The implementation of IoT not only mitigates risk in the supply chain but also allows the operators to implement the robotic and automation systems remotely, which can reduce the number of operators in the production line. However, the consideration of changing materials and parts in accordance with the currently accessible supply chain and the local supplier development is also needed to be done in parallel with implementing IoT. In this circumstance, the manufacturers are not ready for any investment in order to maintain their financial liquidity. In the case of the manufacturers have investment planning on operating IoT or automation, the COVID -19 pandemic might become a factor accelerating the investment even a more advanced technology. For example, before the pandemic a manufacturer has planned for productivity development only but the current situation the technology investment is needed to substitute human workers and mitigate the risk of spreading the virus and also improve the resilience of production lines.

Therefore, the government’s role is not only to stimulate the market but also to establish ecosystem and infrastructure, which supports the implementation of IoT, such as the associability and coverage of telecommunication network, know-how, and capacity building in IoT. Moreover, the financial measures could be implemented to relieve the financial situation of businesses, such as low/zero-interest loans or an additional corporate income tax deduction for any manufacturers investing in IoT.
It is a good opportunity for the co-operation between the government and the vehicle and parts manufacturers to upskill and reskill the workforce to support the productions for automation systems and next-generation vehicles, while the market is in the recovery period and no termination of employment for skilled labor.

5. Impacts of COVID -19 the future mobility mode
In the early stage of the pandemic, traveling by passenger cars, which is a private traveling method, has not much affected. On the other hand, mass transportations, such as buses and trains, are affected by their passenger density. The social distancing and sanitization approaches were implemented to reduce the risk of infection, which implemented in a short period of time. When the situation in control, the mass transportations will be as dense as before pandemic. Most of the passengers are still using mass transportations, however, some passengers will change to travel by passenger vehicles or mitigate the travels. Therefore, the new mobility mode, personally shared mobility, will be popularized and a concept of future vehicles will be as mobility tools only. The vehicle design could be changed to be smaller and suite for one passenger and future mobility, which more flexible and require a more isolated environment. However, the service provider will have to provide often sanitization service to build customer confidence in terms of hygiene safety. The automotive sanitizing system will be needed to be installed in passenger cars, shared mobility services and mass transportation, which already being developed .

6. Key Takeaways
1) According to COVID-19 pandemic, many countries implemented lockdown measures to prevent the spreading of the virus. Car manufacturers were temporarily shut down because of the measures. Also, 8 car manufacturers in Thailand were affected by the measure and temporarily shut down the production lines between April – May 2020.

2) According to TAPMA’s survey, the temporary shutdown of Thai car manufacturers causes a 30% decrease in parts purchase orders. Moreover, there are some parts manufacturers have a 70% decrease in parts purchase orders.

3) HIS Market estimated the automotive industry is one of the most affected by the COVID -19 pandemic because automotive industry supply chains are located in the regions having the pandemic, as well as, the decrease travel demand, economic activities and customers’ purchasing power.

4) According to Oliver Wyman’s study, 2 recovery scenarios for automotive industry which are, (1) the quick vehicle market response to the pandemic, global vehicle sales will be decreased by 17% and (2) the slower vehicle market response than the first scenario, global vehicle sales will be decreased by 29%

5) Oliver Wyman also estimated the global vehicle market will take 3 years of recovery as a pre-pandemic level, especially in some heavily impacted regions such as the U.S. and Europe.

6) There are 3 impacts on the automotive industry impacts on the automotive industry caused by COVID-19 pandemic
 (1) Marketing impacts caused by a halt of economic activities and customers’ purchasing power decrease.
 (2) The manufacturing and supply chain impact caused by the automotive supply chains are located in the same areas as the pandemic.
 (3) Business and product development impact caused by the changes in customer behaviors during the pandemic. The business model and product development are needed to support the changes.

7) Government and private sectors could reduce the impacts by implementing the following measures (Table 2)




 
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