After the spread of the COVID-19 pandemic, most governments have imposed a nationwide lockdown to stop this disease. This is an essential step to prevent the further spread of COVID-19, but it has created a severe impact on the already falling economy. Companies are forced to impose social distancing for which service-based industries have started work from home procedures. However, for the manufacturing-based companies, this protocol can’t work.
One such industry that will have (*and is already facing huge deficit in these trying times) a severe impact will be the auto industry. Auto Industry was already facing a downfall, and the Covid-19 seems to be the last nail in their coffin. On the assessment of significant business analysts, here are the impacts of Covid-19 on the Auto industry.
Impacts of Covid-19 on Auto Industry
1. Effects on Supply
Many of the parts and accessories like air brakes, frames, filters, hood, Universal roof rack , etc., used in the manufacturing of automobiles are imported from different countries. Due to lockdown and sealed borders of the country, there are reported delays and cancellations of orders. Without the right parts, the production of Auto-mobile is not possible.
According to experts, this is a long term problem, which will prevail even after the lockdown period is completed. The import and export of products will be kept to the minimum, plus the production of parts will take time to maintain the demand curve, so this is the long term problem for the Automobile industry.
2. Effect on Demand
It is noticed that the demand for auto-mobile increases only in the right economic conditions. With the current scenario of the economy, demand graphs of the automobile industry have received a knock-out punch.
When the economy turns sour, people lose a job or experience deductions in their salaries. This reduces their luxury expenses, including the purchase of new cars, etc. Because of all this, the automobile industry has seen a sharp fall, of which Covid-19 is the main reason.
3. Effect on production
With the implications of social distancing practices and lockdown, production work in the automobile industry is next to impossible. The output in Auto-mobile is a work of 100 percent accuracy. It can’t be completed even with the 99 percent components; it needs its 100 percent efficiency. And at this time, when the supply of parts required in manufacturing is not fulfilled, the production process is not possible.
And, even if somehow companies manage to fulfill the demand for details, the need for new cars in the market will fall short because of which production of new vehicles won’t be required. Thus production work is expected to be on halt for quite a long time.
4. Effect on Electric Vehicle(s)
Electric Vehicle was to be the next-gen vehicle in the Automobile industry. They are efficient, eco-friendly, and help in coping up with high oil prices. But with the ongoing conditions, electric vehicle production and entry into the market might face an unprecedented amount of halt. With all the benefits, electric vehicles come with a little add up in the price. At the moment, the extra expenditure of revenue for new technology is not what anyone will think of.
In addition to that, oil prices are down to an all-time low in this century because of which the main benefit of electric vehicles is cut-off from the list.
5. Effects on Employment
Major companies like Volkswagen, Honda, and others have shared the company reports in which they state that they are facing huge losses due to the shutdown of their production plants. Volkswagen alone said that they are facing a loss of 2.2 billion dollars per week in this condition. To cover these losses, companies will cut off their staff, which will create an employment crisis.
Though with high reserved revenue, these big companies will sustain the hits of the economy, small suppliers who don’t have high reserve revenue will not be able to take the blow very well. With current economic conditions, if the lockdown extends to more than two weeks, many of these suppliers may have to shut down. This will add drastically to the employment crisis.
These are some of the major impacts of Covid-19 on the auto industry. With these impacts, experts are sure that the companies will have to come up with new business strategies to cope up with this economic crisis and current scenarios. Other industries will come to the standard track as soon as we pass through this pandemic, but conditions in the automobile industry are to remain harsh for the next couple of years.
It is mainly because Automobiles are considered more of a luxury item than essential. For an investment point of view, stocks of automobile industries are not a safe gamble to play at this point. With so much going on, it is not possible to predict anything of what may come.