Impact of COVID-19 on Automotive & Transportation Sector: Managing risks and Opportunities

MSG explores the top risks and opportunities impacting the automotive & transportation sector, owing to the prevalence of COVID-19.

The impact of the COVID-19 pandemic, the global automotive & transportation sector has severely impacted. The disturbance in the supply chain of the Chinese small parts exports, European manufacturing interruptions, and the closing of the United State assembly plants. This pandemic creates intense pressure on an industry and its operators in managing with reduced global demand, leading to increased merger & acquisition activity in the market.

They are considering the impact of COVID-19 on the globally combined automotive sector has been swift and meaningful. Initial worries over a disruption in Chinese auto parts exports quickly pivoted to large-scale manufacturing interruptions across the European countries such as Germany, France, and Spain. In the US, the closure of the automotive assembly plant creates intense pressure on an increasingly distressed global supply base where automotive OEMs are at risk of defaulting on contracts, potentially targeting banks for loans. Moreover, this pandemic aggravates an existing reduction in global demand that will be expected to lead to increased M&A activities as an opportunity for sector consolidation to emerge for private equity players. 

Potential long-term COVID-19 impact on automotive OEMs and part manufacturing companies 

• A protracted truncation of consumer demand as nations work through various lockdown situations may results in a global recession, leading to extensive damage to consumer confidence, significantly reduce the revenue and profitability of automotive companies.
• Automotive OEMs and part manufacturing companies may be involuntary to divert capital to shore up continuing operations by minimizing the R&D investment for advanced technology initiatives and other discretionary projects.
• Forcing of strategic decisions to exit loss-making global markets and vehicle segments may increase, significantly lowering output as manufacturing capacity is rationalized/consolidated.
• Automotive suppliers face liquidity problems that may succumb to rapidly worsening the market conditions and resulting in widespread disruption and potentially disastrous consequences across the entire global automotive manufacturing supply chain.
• There is the anticipation of a significant amount of reform in the retail auto sector for the dealers, as they cannot pivot quickly enough to changing demand conditions.

Digitalization in cars will get a boost from COVID-19 with people embracing a digital life that promotes social distancing, safety, tracking, and efficiency. Services and features enabling the above will see growing popularity among car buyers. Digitalization will also be supported by other factors like increasing screens in cars and increasing 5G network coverage.

To read more about how we believe the automotive & transportation sector can manage the current pandemic scenarios, inquire about our report.

Key Issues Addressed

Considering the COVID-19 impact on the automotive industry is carried out through various lenses, and many critical issues identified in the COVID-19 impact strategic insight report include:

• Specific key trends have begun to accelerate due to the crisis, reshaping both demand and supply across industries.
• Other trends that probably decelerate or halt due to the COVID crisis
• Trends that are essential before the pandemic and post-pandemic directions to shape the industry
• Key uncertainties and challenges that should be considered in strategy and business planning
• Detailed consideration of scenarios that compare the reach of the pandemic versus the industry impact arising from changes in end-consumer behavior
• A set of both recovery and thrive oriented actions for market participants and players.

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