The depth of COVID-19’s impact on the motor industry is severe
In reflecting on actions, reports and possible outcomes for the motor industry, Iain Robertson suggests that the Coronavirus toll will be steep, afflicting brands, new and used values, future plans and behavioural patterns for many years to come.
Without wishing to inflate conspiratorial theories, were a superpower wanting to inflict as much economic, political and physical discomfort as it could exact on its perceived enemies, releasing a notionally incurable virus might be the most effective form of assault. If we have learnt anything from the Covid-19 exercise so far, it is the unpreparedness of some nations and the wholesale impact created by lockdown policies that are percolating to the surface.
A virus passed from one person to others in an unchecked manner could be termed as manna from heaven for the political classes. After all and almost entirely unpoliced, the UK population has been largely compliant/obedient with government advice and instructions, for possibly the first time in its history. It happened with immediacy and extremely limited resistance. While the statistics for virally caused deaths have been shocking and inflamed by a media seeking sensationalist headlines (rather than reporting ‘news’), the entire exercise has been controlled by fear, which is understandable, when information/knowledge has been scant.
Yet, after just two months of lockdown, governmental fear of UK economic breakdown has led it to allow its major employers to recommence manufacturing. Personally, I feel that it is too premature a decision and that the potential of a second wave of epidemic will follow in short order. However, for Rolls-Royce, the Derby-based jet engine maker, a pre-virus suggestion of up to 8,000 redundancies has been confirmed with 9,000 job losses promised, unless aid is secured. Whether this will be reflected at the BMW-owned Rolls-Royce car factory, in Sussex, is yet to be confirmed.
The contraction of the UK’s manufacturing businesses is not news, as it has been happening consistently, if slowly, since the economic ‘crash’ of 2008. The buffer-bouncing that has occurred since then has been disguised by the omnipresent cry of ‘austerity’, towards which most of the nation has railed, the waters muddied considerably by the Brexit situation. Yet, there is no denying the largely foolish, Thatcherian era of destroying our country’s manufacturing platform, in favour of one based on ‘services’. While the nation has remained rudderless for almost the past four years, lifted only marginally by the semi-Churchillian outpourings of Boris Johnson, the cracks have become increasingly transparent, especially as most of them appear to be fuelled by bluff and bluster.
While Honda Motor Manufacturing at Swindon was being run down pre-virus as part of that firm’s international realignment strategy, the Nissan plant at Sunderland, which remains closed, has been promised as a future Renault site, in part at least. Toyota at Burnaston, Derby, will be producing Suzuki models in coming weeks, in addition to its latest Corolla models. Bentley has already been crowing about its return to work, as has the much-reduced Ford engine plant at Dagenham. Yet, Aston Martin is already looking shaky at its new SUV facility in South Wales, while Jaguar-Land-Rover has deeper issues to resolve in the West Midlands.
Another of PM Johnson’s early statements surrounded the cessation of conventionally fuelled motor vehicles by 2035. While understandable, taking clean air policies and on-going EU fines into account, a nation propelled almost entirely by Battery Electric Vehicles in 15 years’ time is untenable, as the recharging infrastructure that is improving and broadening its coverage will be incapable of handling such an enhanced demand for electricity. The future is undoubtedly electric but hydrogen fuel cell technology might overtake it and provide a valuable support structure.
Yet, even as automotive manufacturers restart their production lines tentatively, after the initial virus disruptions, the global automotive industry faces a hit to the market that will be greater than in the 2007/8 financial crisis, according to GlobalData, a leading analytics company. David Leggett, Automotive Editor at the specialist firm, states: “GlobalData’s base Covid-19 light vehicle sales scenario forecasts a fall of 18.9% on 2019’s results to 72.8m units. That is a bigger annual percentage drop to the global market than we witnessed during the last great recession. A decline of this magnitude will create structural change in the industry all along the automotive value chain, from parts suppliers, to vehicle manufacturers and retailers.”
GlobalData estimates a revenue cost of $139bn to vehicle manufacturers, as some 4.1m units of production were lost in Europe and North America alone, to the end of April 2020. Mr Leggett continues: “We are seeing a recovery to the vehicle market already underway in China and our projections are for a gradual recovery to other markets and for global sales, from the third quarter of this year. However, there is no avoiding the strongly adverse impact of lost sales on companies’ financial performances and cashflow during the worst of this crisis and its aftermath. The priority for many is simply to have enough cash to weather the worst of the storm and get through to the recovery phase, but sales will be below pre-crisis levels for some time to come.”
The premise of a 10% levy on future vehicle imports (it ought to be 25%) is going to confound the situation for many new car buyers. Main dealer numbers have been falling consistently for the past few years. However, the used car scene is vibrant at the moment and set for a bumper year, should the fetters be released.
When consumer attitudes are also reported to be in flux, many employees refusing to travel to work by public transport, the traditional commuter situation is going to change radically. Paying back loans and dealing with the increased taxation necessary to fund the lockdown is going to force the nation into a depression, at a time when most politicians and economic forecasters struggle with recession. Disposable cash is going to be in short supply and increasing retail prices will cause inflation at rampant levels. However, increased redundancies and escalating unemployment notably around the UK motor industry is a near certainty.
