In these challenging times, we can look to China for lessons on how the automotive sector can prepare for its recovery.

In the current global crisis, there’s no such thing as business as normal. Organizations and governments around the world are putting in place efforts and contingency plans to best cope with the impact of Covid-19 and, more importantly, to keep people safe. However, that doesn’t mean we should ignore the need to look forward and start planning for a return to normality.

Of course, the wider repercussions and immediate future are unclear, but there are actions that organizations and governments can start taking. We can, for instance, look to China for lessons on how to respond to the crisis.

From lockdown to cautious optimism

Covid-19 was first noticed in China in late 2019, and since then, the country has (at the time of writing) recorded over 80,000 cases, with the pandemic peaking in mid-February. Thanks to draconian measures put in place, China seems to have turned a corner in its fight to contain the virus.

As a result, life is slowly but surely returning to normal. But, as factories and shops reopen in China, the question remains: how will the economy recover? Certainly, in the automotive sector, there have been signs of recovery after the unsurprising collapse in car sales as the country locked down. For instance…

  • In the first half of February, new car registrations were down 92 percent year-on-year. A market of 1.8m registrations in January had fallen to become one of 250,000 in February. However, the market appears to have adapted remarkably quickly
  • By the end of February, the market had started to recover, finishing at 81.7 percent down year-on-year for the month. For the first 15 days of March, the year-on-year fall was 47 percent
  • On March 19, Volkswagen’s CFO, Frank Witter, estimated that the Chinese market in March would be between 0.8 and 1m units.

This eight-week turnaround is very encouraging, but it’s important to add a note of caution. An immediate “bounce back” to business as normal in China or any other country will face limitations.

  • Many consumers and businesses will still be coming to terms with the financial shock of the pandemic long after treatments become widely available. Spending power and confidence are likely to be restrained
  • The global nature of business will mean that a recovery will be staggered as supply and demand takes time to recover

The IMF is forecasting a global recession in 2020. Separately, the UN estimates that Covid-19 could cause up to a $2 trillion shortfall in global income. However, some analysts are forecasting a recovery as early as the third quarter of 2020. A variety of factors, such as government stimulus, consumer confidence and the number of Covid-19 cases, will have an impact on this timeline, of course.

What the automotive market can learn from China

On March 20, leading UK-based motoring journal Autocar’s editorial director Jim Holder penned an opinion piece about the impact on the world’s largest car market, China, after the worst of the Covid-19 crisis in the country appeared to have passed. While in his introduction, Holder noted, “I heavily caveat all that I am about to write,” the report provides a valuable insight for OEMs, retailers and suppliers globally.

Holder’s well-placed OEM and retailer sources reported some common themes in how they responded to the crisis, and how their actions have helped to deliver China’s recovery.

  • The first and most key point that all Holder’s sources made was that Chinese automobile industries did not stop working. The period during which interest crashed was also one of decisive action for some. This seems to have been crucial to the industry’s recovery
  • After an initial and profound slump, definite actions were enforced and people were told to isolate, with web traffic booming as a result – perhaps unsurprising with so many people grounded at home
  • Action by OEMs and retailers was aimed at turning interest into a pipeline of future sales, and some would-be buyers were keen to push on with making transactions. Investment and staffing were ramped up through their online sales channels as a result

“The number of online sales went from a few hundred to thousands and thousands,” noted one source, adding, “It sounds obvious, but we have been waiting for online sales channels to really take off – now I think we can say they have, because even as people have come out again the growth has continued.”

Sales were supported by home delivery, including the use of drones or robots to maintain social distancing.

The final point Holder made was around finding the right time to re-engage with customers, and how long it has taken to reignite some of the sales conversations. All Holder’s sources noted the risks of sounding too positive too quickly; but, likewise, they suggested that getting out of the blocks quickly is crucial, and that there is a pipeline of pent-up customer demand that they felt they could capitalize on if they could deliver the cars.

The article’s conclusion is profound: “Change – both short and long term – is inevitable as a result of this crisis.”

Preparing for the future

Despite the lack of clarity in the short, medium and long term, it’s almost certain that the market will bounce back, even if it’s not immediately back to “business-as-normal” levels. How long this takes will likely depend on the measures organizations and governments take.

We’ve seen from the Chinese automobile industries that it’s important to continue working throughout the crisis, to continue to anticipate a demand and to anticipate that demand as a digital one.

Furthermore, we’ve also seen that to expedite the rate of recovery, organizations need to continue reaching out to customers and communicate effectively with them.

James Powell

Head of Global Automotive Strategy

Sopra Banking Software