How Will The Coronavirus Pandemic Affect The Automobile Industry?

During spring, automobile sales go up since this is the most popular time to buy cars. However, now we are faced with the global COVID-19 outbreak that affects the global economy. This means car sales are going to suffer.

According to DesRosiers Automotive Consultants’ analyst Dennis DesRosiers:

“The immediate impact is a cooling effect – people aren’t wanting to go out shopping. I’m fairly sure the impact will be negative, but the degree of negativity is still to be determined.”

We do not know all the sales figures that were released as automakers did not hurry to get this done. While no impact appeared during January and February, this is to be expected since it was in March when the pandemic fully appeared.

US Sales Already Down

While the impact is not clear, in the US, sales went down in areas where more coronavirus cases appeared. In March, Peter Nagle from IHS Markit said:

“It’s already having an impact – let’s be pretty clear. Regions like Seattle, San Francisco and greater New York are trending lower in the first days of March – Seattle is down 10% to 12% over March last year.”

While 2% is not a big number, this is sure to increase if the outbreak continues to grow. At this point in time, shutting down sales in the US for one month would lead to a potential loss of 1.5 million vehicles.

Potential Recovery

The good news for the automotive industry is that most consumers buy because of a need, not because of a want. They simply need the car that they buy. Due to this, sales will most likely recover in the later part of 2020, if the coronavirus pandemic is controlled and everything can get back to normal.

In most cases, purchases will not be canceled. They will only be delayed.

Incentives To Attract Buyers

Since unsold cars are going to just sit on lots owned by dealerships, it is expected to see car makers increase incentives in order to attract buyers. This is already happening, with different manufacturers offering protection against job losses in the event you cannot make payments for the car you buy.

If manufacturing plants will shut down, which is already happening in various parts of the world, production surely goes down. However, a long-term vehicle shortage will not appear since people also do not buy right now.

The Problem With Suppliers

One big problem for the automotive industry highlighted by the coronavirus pandemic is the fact that the industry now imports over $34 billion-worth of goods from China during a year. While no parts shortages exist, it would have been possible this would be the case if China’s shutdown would have continued. Fortunately for the car makers, China looks like it is getting back to normal faster than anticipated.

What this situation highlighted is that most car makers rely on manufacturing coming from China. Having such a dependency is not a good idea and car makers might want to set up a system to get parts and materials from varying sources.

Long-Term Effects

It is way too early to figure out the long-term effects of the coronavirus pandemic on the automobile industry. There are still strong fears that the virus spreads in all shared spaces so it is possible that fewer people are going to use systems like ride hailing or car sharing. This means that people will most likely at least keep hold of their car and use it more. Those that do not have a vehicle might be interested in buying one, at least a used vehicle.

When referring to electrical vehicles, the pandemic is not going to impact buying habits. What will influence this is the regulatory frameworks that are developing really fast in China and Europe.