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COVID-19 and the Automotive Industry: Just How Bad Is It?

Automotive plants and their suppliers are slowly starting to come back online not just in the United States, but in North American and around the world. As we enter this next post-quarantine phase, we must consider what is in store for the automotive industry for the remainder of 2020.

Let’s start with the not so good news: sales. They are going down. They were expected to go down before the pandemic, but now they are expected to be drastically down. Each of the below organizations were forecasting, pre-pandemic, approximately 16.8 million vehicles sold. Now:

Source  Current 
IHS Markit  12.5 Million 
LMC Automotive  12.2 Million 
J.D. Power  12.6-14.5 Million 
NADA  13-13.5 Million 

Worldwide is not better as IHS Markit and LMC Automotive predict a range of 69.6 – 71 million units. This is a drastic reduction from their pre-pandemic forecast of close to 90 million units. IHS and LMC are forecasting sales in Western Europe to fall 25-27% for full-year 2020, respectively. Further, LMC does not see the global auto industry returning to pre-COVID production levels until 2023 or 2024. None of this is surprising given unemployment numbers (1 in 4 American workers have filed for unemployment benefits during the pandemic) and consumer sentiment (U-M Index of Consumer Sentiment has fallen -26.3% y-o-y). In fact, Cox Automotive predicts some households may need 18-24 months or longer to recover from the financial stress caused by the pandemic.

Of course, plants are not exactly churning out vehicles. Ford had to temporarily stop production four times the week of May 18th: twice in Chicago due to two employee COVID cases; once in Chicago when a supplier stopped production due to one employee with COVID; and once in Dearborn, Michigan due to one employee with COVID. Even if manufacturers can avoid COVID, they cannot always get the necessary parts. Volvo’s Ridgeville, South Carolina plant stopped production May19th due to parts shortages. The plant had only resumed operations May 11th. Daimler AG’s Mercedes-Benz plant in Vance, Alabama suspended production for the week starting May 18th due to a parts shortage from Mexico. Workers were given the option to use vacation time or file for unemployment. GM had to postpone adding second shifts at two key truck plants in Fort Wayne, Indiana and Flint, Michigan due to parts shortages from Mexico. The size and scope of the automotive supply chain presents more challenges.  As Dietmar Ostermann, U.S. automotive advisory leader at PwC cautions: "I know that, certainly, the larger Mexican suppliers and the facilities of larger U.S. and European and Japanese suppliers in Mexico will implement the same safety standards. But I am very doubtful that smaller Mexican supply plants and Tier 2 supply plants will have the safety processes ... and testing capabilities in place.”

Autonomous and electric vehicles are being hit especially hard. With cost cutting the current strategy for every company (in and out of the Automotive industry), research and development are slowing. In a recent survey from IHS Markit on the automotive R&D impact from COVID-19, tech deployment delays are listed as the main impact by 54% of respondents, with e-mobility technology the most impacted according to 22% of respondents. In the near-term, automakers are expected to delay certain capital-intensive efforts for autonomous, shared and electric technologies in order to prioritize resources for immediate product launches and restarting profitable core businesses. PwC predicts companies may focus on technologies that are already well on their way, such as advanced driver-assistance systems and lower-level autonomous features, instead of technologies that are decades ahead.

But there might be some hope for vehicle manufacturers. For one thing, consumers appear less interested in packing into trains and buses and sharing vehicles. A recent Capgemini survey of 11,000 consumers found that fears about using public transport and shared mobility services during the pandemic is increasing the number of young consumers considering buying a car.  Nearly half (44%) of consumers say that they will use their car more often and public transport less often and at least 40% say they will make less use of ride-hailing and ridesharing services. The key reason behind this shift is concern over health and safety.

© 2020 Foley & Lardner LLPNational Law Review, Volume X, Number 153

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About this Author

Legal, Business, Jeffrey Soble, Class Action Attorney, FOley Law FIrm
Partner

Mr. Soble’s practice focuses on class action defense, post-transaction disputes, products liability, construction losses, and general contract and tort law. He is experienced in supply chain management and contract enforcement, in particular with limited or sole-source suppliers and just-in-time suppliers. He has further experience in the litigation of insurance coverage claims. Mr. Soble is a member of the Business Litigation & Dispute Resolution Practice and former co-chair of the Automotive Industry Team. He is the co-editor of Dashboard Insights, the Automotive...

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