The coronavirus pandemic has caused great upheaval to the automotive industry. On the production side, capacity utilization has dropped tremendously as demand collapsed over the last few months. In major markets like the UK, France, Spain and Italy, in March and April 2020 we saw sales dropped by 80-90% year-on-year. The same goes for Japan, Singapore and Malaysia as the lockdown hit auto sales, on both passenger cars and commercial vehicles. India had practically zero sales during the lockdown period.
Besides low demand, production glitches also led to huge production management challenges. Unlike other types of products, autos have something like 10,000 parts on average and not a single missing part is allowed, and over the years many of the sourcing has been so spread out globally that any upheaval in any part of the world can affect production. However, due to the severe drop in demand, the dropped in production was not felt much yet, and dealers still carry a lot of stock.
To move the cars in a period of lockdown and movement restrictions, where showroom traffic comes to a virtual halt, dealers have to find other ways to reach out the customers, and moving online was not only the preferred options, it was the only option. Some dealers do better the others because they are better prepared. Those who have earlier invested in online sales channels have benefited, and those who were earlier reluctant to go online suddenly took on the new channel enthusiastically, frantically looking for internal resources and expertise to do so.
Moving on the online in some ways have changed the rules of the game. The traditional sales models rely heavily on showroom traffic and territorial controls, but online there is no sales boundaries and so it really does not stop a dealer from selling outside of their allocated sales territories. Also, since the emphasis is on contactless sales transactions, sales contracts, down payments are made via online transactions, insurance policies are issued online, and even cars and car keys are delivered with direct personal contacts. In China, Geely deploys drones to hand over car keys and digital manuals and subsequent interactions are conducted through social media and even service bookings are done online or even automated in some cases.
Car dealerships are assessing their future manpower needs and clearly there is a lesser need for staff, so there is likely to be quite some manpower attrition to follow soon. Those leasing real estate are also starting to evaluate the real estate costs and are questioning the high costs of city center real estate rentals, especially in the current circumstances where location is not as important anymore and sales territories mean much less to sales results.
It is interesting to watch the development of the automotive industry towards the end of this year, and one thing is certain: the industry is going through fundamental changes and the rules of the game needs to be re-written.