Auto Industry Recovery Becomes a Five Year Plan
U.S. sales to dive 20% in 2020; recovery years away, Alix says.
By Martha Hindes
The Auto Channel
The Coronairus might be a non-issue by 2025, but the impact it has had on the automotive industry is expected to continue to be felt at least that long.
According to the global management consulting firm AlixPartners, the auto industry could be in a “desert of profits” scenario as the longterm impact plays out.
The suddenness of changes for a mere three months has done years worth of damage to the industry, according to research by the firm that annually tracks the health of the industry globally and factors in the expected, and unexpected events such as the coronvirus pandemic.
In a Thursday morning webinar, AlixPartners' findings predicted a continuing sales decline of about 21 percent from last year, to 70.5 million worldwide this year, That's a decline trend that already had been underway since 2017 that could predict about a 13.6 million vehicle unit year in the North American market for 2020, and not reaching a high here again of 17.2 million until 2025, the end of the forecast period.
Those sales will reflect a softening of consumer demand for vehicles that previously had been considered ones that needed to be on the move to meet regulatory and environmental goals such as electric vehicles (EVs). Demand for EVs already had been low this year with cheap gasoline and an industry pull back on incentives.
Detroit-based Mark Wakefield, Global Automotive & Industrial Practice Co-Leader for the firm said the industry is expected to cut “project by project” with Autonomous Vehicles and mobility faring worse than EVs that need to be protected.
AlixPartners predicts EV development will decline from $234 to about $200 billion. And AV development likely will stay semi-autonomous rather than moving toward level 5 for now.
In addition to sales losses, auto makers and suppliers are reeling under a massive debt load, calculated at $72 billion since mid-March when shutdowns went into effect globally. “That's an extraordinary number that has to get paid off,” said Wakefield.
OEM's have lost 47 percent of their profits and suppliers 36 percent.
Some points are less corrosive than those during the Great Recession of 2008 -2009. Credit has been more liquid. Banks have been fast acting. And 2.4 times more stimulus funds were added in 12 weeks this year than during the entire 2008-2009 crisis.
In the short term there has been $52 billion in credit lines in addition to another $20 billion in short term loans this time, particularly in the U.S.
Consumer confidence has not gone into the depths it did at that time either, although some segments such as ride hailing have taken a major hit. And while autos were on the decline in favor of crossovers before the pandemic hit, that trend is not expected to change.
Expectations of new model introductions has been altered, with about 15 percent of 2020 new vehicle model launches now being pushed back to 2021 . Others will be delayed until 2022 or 2023 when the industry is expected to have a wave of new vehicle launches.
On the recovery side, AlixPartners'; London-based chair and global vice chair - revenue Stefano Aversa, said China – the world's largest auto market – is becoming a bit more of a normal country with about 4 percent expected growth, “ but not the explosive growth we had seen in the previous decade.”
There will be different speeds of recovery. Aversa said instead of a concise letter shape, the recovery “V” from the pandemic could have an extended “square root” extension as a mix of factors moves it along.
European countries are expected to have lost a third of their vehicle markets. Both Europe and North America could have been hit even harder without government support.
The last five years have been record profit years particularly in Europe and Asia, he said. GM makes 30 percent of its profits in China.
Every region of the U.S. market presents a different scenario in a comeback, Some excess plant capacity will need to be phased out. Standard cost reductions and business transformations are being accelerated. And AlixPatners also sees a continuation of partnerships in development of advanced platform functions.
To continue making progress, employment will need to improve to stabilize consumers' ability to buy especially after some industries such as hospitality had such devastating job losses.
“It's not just getting plants up and running, it's getting demand there when they are,” said Wakefield.