The automotive sector is facing its biggest existential crisis since the 2007-2009 financial crisis with 97% of light vehicle manufacturing plants in Europe and North America temporarily shut down.
In Europe and North America, GlobalData’s latest estimates show that some 2.5 million light vehicles have been removed from production schedules at a cost of $77.7 billion in lost potential revenue if one assumes the stoppages last at least up until the end of April. Of the figure, Europe accounts for a hefty 1.5 million of the total.
This time the threats are not the one-dimensional threat to demand precipitated by the financial crisis. Supply chains are affected. Workforces are affected. It is challenging to manufacture vehicles and components without endangering a workforce; safe manufacture, if possible, can only be achieved at a reduced capacity.
In the current environment there’s barely a market to sell to.
In the current environment there’s barely a market to sell to. Efforts to suppress the spread of the virus – with social lockdowns widely implemented affecting 20% of the global population – have decimated demand overnight.
In response, 168 out of 173 light vehicle manufacturing plants in Europe and North America have called a halt to operations for varying amounts of time during March and into April. Additionally, production stoppages are not limited to North America and Europe, the virus is roiling the industry from Detroit, to Dusseldorf to Durban.
What’s more, the shocks will ripple through the supply chain. Supplier plants are furloughed as they encounter the same factors as the OEMs and they also bear the brunt of the cost of the shutdowns. Suppliers can be banked on to contribute ~60% of the retail cost of a vehicle translating to nearly $47 billion in lost revenue for suppliers and $1.4 billion in lost profits assuming an average margin of 3%.
This really is an unprecedented crisis, in terms of its speed and scale. The automotive industry globally faces its biggest existential crisis since the financial crash and subsequent recession of 2007-09.