Within the space of only a couple of days, the automotive industry in Europe has come to an almost complete standstill and millions of people are at home to either work from there or, more often, bide their time until life returns to normal.
in CLEPA, by Sigrid de Vries, 03-04-2020
First priority for the industry is the health and safety of employees and society at large. The many initiatives to manufacture medical equipment and protective gear pay testament to that. In parallel, the sector is doing all it can to minimise the damage to an otherwise thriving and competitive industry. Driven by a strong wish of all players in the value chain and building also on the lessons from the severe crisis in 2008/9, the automotive industry is determined to overcome the situation in a strong fashion.
The situation is, however, unprecedented and the way ahead looks bumpy. A survey amongst CLEPA members between 20 and 24 March provides a clear view of the potential impact, even without having clarity on the duration of the crisis today. A majority of respondents expect a loss of sales by more than 40% during the next 3 months as well as a 25% reduction of revenues over the entire year. They expect an even larger impact on profitability. The biggest impact is expected in Europe, with a total of €58 billion of revenues considered at risk.
The most immediate need is to ensure liquidity. Automotive parts and components suppliers are faced with the same problem of many other sectors: the almost complete lockdown of operations leads to a collapse in revenue, while running costs still have to be paid. Capital is being used up and companies risk going bankrupt if they run out of liquidity.
The many government support measures announced, from relaxation of state aid rules, to tax breaks, investment guarantees, loans and other measures, are therefore all welcome and needed. Measures such as the reduction of working time with wage compensation, temporary unemployment schemes and other flexibilities in labour rules are also crucial.
Industry estimates that the demand for cash is likely to continue for some time to come, especially if consumer demand will not return to pre-crisis levels for a while. Therefore, once the pandemic ceases, the economy will need continued support in order to avoid a drawn-out depression like that of the 30s. Demand-side measures must be part of the picture too.
An equally manifest concern is the colossal job of getting the entire automotive manufacturing chain up and running again.
The orderly restarting of production across the entire automotive industry value chain is simply impossible without close coordination, both within industry and between industry and public authorities. A successful exit from the crisis will require timely sharing of critical and appropriate information, making sure that all players in the value chain can plan and act as effectively as possible. The automotive eco-system resembles an intricate clockwork of interdependent bits and pieces. Solidarity, partnership, and the need for a post-crisis mindset are words often heard within the sector these days.
Policy makers, too, can contribute by playing in concert, orchestrating measures in a timely and coordinated manner as much as possible.
Automotive suppliers call on the EU and member state governments to coordinate the lifting of restrictions. They urge to define common criteria on when the crisis measures can be reduced, to broker a timeline amongst member states for a smooth exit from the crisis, to coordinate on the conditions, measures and timeline for workplace safety, and to watch over the integrity of the Single Market, by letting goods and people move again as soon as possible, in a safe manner.
Europe should also recognise vehicle maintenance and delivery of spare parts as essential services and exempt these from restrictions. Services supporting passenger transport and logistics were already explicitly included in lists of essential services.
The automotive value chain is deep and long, with a wide ripple effect into other sectors of the economy. The sector plays an important role in the economy as a whole, and is in fact ‘system critical’, to use the policy jargon of today. This should be recognised and kept in mind when elaborating crisis-exit measures.
Interestingly, in the CLEPA Pulse Check survey, over 70% of respondents voiced confidence about the possibility of a recovery within one year. However, 94% are expecting lasting changes to their way of working, with 38% expecting an increase in regional sourcing and 37% expecting an increase in local production. These are major tell-tale signs of the fundamental impact the crisis may have.
Just a few weeks ago, in what now seems a different era, the Commission stressed the importance of critical value chains and technical sovereignty in the New Industrial Strategy for Europe. This has only gained dimension and importance. The crisis is sending shockwaves through society and the economy that we cannot yet fully comprehend today, but on which deeper reflection will soon have to start.
Sigrid de Vries
CLEPA Secretary General