Cars & Covid-19

What the new normal will be in the auto industry

- Eric Tipan

While the population has been devastated to a level unseen since the Spanish Flu pandemic in 1918, COVID-19 has also managed to cripple the world’s sixth-largest source of revenue, the auto industry.

Manufacturing

As China slowly reopened some manufacturing plants in early March after almost two months of being shut down, the rest of the world began shuttering theirs in response to the pandemic. Over 5 million vehicles haven’t been produced as a result, which means all automotive suppliers (Tier 1, Tier 2, and Tier 3) have now lost over US$ 154 billion (and counting) in income.

These suppliers, mostly based in Hubei, were closed anyway due to the lockdown for at least 60 of the 91 days of Q1. That means there were virtually no exports and its effects will be felt months after the lockdown has been lifted. The United Nations Conference on Trade and Development (UNCTAD) says that a 2.0% reduction in supply of vital parts and components will result in a shocking US$ 7 billion loss in export for automakers in Europe, North America, Japan, and Korea.

Supply

Currently, auto manufacturers are already reviewing their supplier strategy and looking at domestic providers to mitigate future losses that can be caused by global disruptions like this. The Japanese government, for instance, has allotted US$ 2.2 billion to help its companies move manufacturing from China back to Japan. But it won’t be as easy as moving pieces on a chessboard. There will most assuredly be tax and tariff implications, adjustment in customs and duties, including transfer pricing changes.

Dealers