Auto industry faces sharper downturn than 2007/8 financial crisis – GlobalData

Even as automotive manufacturers tentatively restart production lines after the COVID-19 crisis disruptions, the global automotive industry faces a hit to the market that will be greater than in the 2007/8 financial crisis, says GlobalData, a leading data and analytics company.

David Leggett, Automotive Editor at GlobalData, comments: “GlobalData’s base COVID-19 light vehicle sales scenario forecasts a fall of 18.9 per cent on 2019 to 72.8 million. That is a bigger annual percentage drop to the global market than we saw during the last great recession.

“A decline of this magnitude will create structural change in the industry all along the automotive value chain – from parts suppliers to vehicle manufacturers and retailers.”

GlobalData estimates a revenue cost of $139bn to vehicle manufacturers as some 4.1 million units of production were lost in Europe and North America alone to the end of April.

Leggett continues: “We are seeing a recovery to the vehicle market underway in China and our projections are for a gradual recovery to other markets and for global sales from the third quarter of this year.

“There is, however, no avoiding the strongly adverse impact of lost sales on companies’ financial performances and cashflow during the worst of this crisis and its aftermath. The priority for many is simply to have enough cash to weather the worst of the storm and get through to the recovery phase, but sales will be below pre-crisis levels for some time to come.”

ASEAN vehicle sales sharply lower in Q1

Sales of new vehicles in southeast Asia’s six largest markets combined are estimated to have declined by over 19 per cent to 700,528 units in the first quarter of 2020, according to GlobalData.

“The ASEAN vehicle market largely shrugged off the threat of COVID-19 in the first two months of the year. However, the crisis severely dented vehicle demand in the region from March,” says David Leggett.

“Several markets of the region turned down sharply in the first quarter as lockdowns shuttered dealerships and manufacturing plants across southeast Asia. Thailand saw first quarter sales down 24 per cent as its economy reeled under the impact of much-reduced travel and tourism. Malaysia Q1 vehicle sales were down by 26 per cent and Vietnam saw a slump of almost 32 per cent.”

The worst of the crisis is expected to be in the second quarter of 2020, before economic lockdowns begin to be eased this month and in June.

Leggett continues: “Although 2020 is seeing a setback for the automotive sector in ASEAN markets, long-term prospects for the region remain very strong. GlobalData’s analysis points to strong indicators for long-term demand as motorisation rates rise with high economic growth – especially in Indonesia with its increasingly transportation hungry population of 273 million. Its market of around 1 million new vehicles a year is forecast to double to 2 million vehicles a year by the end of this decade.

“In addition to strong long-term market prospects, the automotive manufacturing industry in the region benefits from relatively low costs, favourable government policies for investment, as well as free trading regimes for vehicles and components.”