The coronavirus spurred one of the worst periods for vehicle sales in markets across the globe. When the COVID-19 virus first emerged, no one could have predicted the crippling repercussions that would follow. Now, it’s clear just how bad things became.
As nations worked to contain the spread of the virus, manufacturers attempted to balance production, exportation and sales.
Trends have stayed consistent worldwide: coronavirus ravages, auto industry fails. Japan, India, the United Kingdom and Brazil are some of the largest auto markets in the world and offer a perspective on the toll COVID-19 has taken. While all four countries follow similar trends, the auto industries in each are reporting distinct narratives for how they’re weathering the storm.
“Western Europe, Brazil and India are underperforming, with volume expected to be off at least 40%,” Jeff Schuster, president of Americas operations and global vehicle forecasts for LMC Automotive said in a release. “Clearly, risk for the remainder of the year remains very high and downward weighted, but there are now reasons to be cautiously optimistic for demand, as a fragile recovery begins to take shape.”
Insult to injury
India, the world’s fifth-largest auto market, was already struggling due to weak consumer sentiment, looming exhaust regulations and a lack of lending capital after the country’s largest non-banking financial institution defaulted. Then in March, coronavirus swept the globe, plunging auto sales by 51% year over year as dealerships were forced to close.
“As the revenues took a severe hit, the OEMs struggled on meeting fixed cost and working capital requirements,” Rajan Wadhera, president of the Society of Indian Automobile Manufacturers said in a release. The society represents all major vehicle manufacturers in India.
Then April brought a horde of giants. April registration figures recorded zero for the first time ever in vehicle registration data tracked by the Federation of Automobile Dealers Associations (FADA), largely due to dealerships and production facilities being closed for 40 days.
India, which has a population of about 126.4 million people, logged 490,401 COVID-19 cases as of June 26, the fourth-highest number of cases in the world, according to Johns Hopkins University. The shutdown helped India mitigate spread, but threw a wrench in earlier LMC Automotive projections that called for a spike in YoY sales of 23% during the third quarter.
May saw vehicle registrations dropping by 88.9% YoY, FADA reported. Passenger vehicle sales also fell by 87% to 30,749 units. India’s auto sales were expected to struggle into June as coronavirus fears keep consumers at bay, FADA reported. Still, there is hope for the industry as businesses reopen and the country continues to see a rise in residents looking to buy cars.
“Mobility still being a necessity and not a luxury in a growing country like ours, demand stimulus along with credit support can bring auto sales back in positive zone within 30 to 60 days and help shore up consumer confidence,” Ashish Harsharaj Kale, FADA president, said in a release.
My, how the tables have turned
Brazil’s market, which in 2019 was ranked seventh in global vehicle sales, came to a shuddering halt in the face of the coronavirus pandemic. Brazil, one of the fastest growing auto markets in the world, grew 15% in 2019 compared with the prior year, according to data from F&I Tools.
Brazil now has the second-highest number of COVID-19 cases in the world, with 1.2 million in a population of 212.5 million as of June 26, according to Johns Hopkins. Consumer fear has emptied DMV lines and in May, YoY registrations dropped 78.6% to 39,275 units while dealerships were closed.
Group 1 Automotive, a publicly traded U.S.-based retail giant with a presence in Brazil, is feeling the jarring impacts of these losses. “The greatest challenge to [our] dealership operations has been in the Brazilian market where Group 1 dealerships were closed most of the quarter with the final dealerships not reopening until mid-June,” according to a company statement.
While production activities resumed in June, the next reporting quarter will inevitably be the worst in the history of the automotive sector, said Luiz Carlos Moraes, president of the National Association of Motor Vehicle Manufacturers.
The association originally had a much more optimistic outlook. At the start of this year, sales were expected to accelerate in 2020, when the national manufacturer’s association predicted a rapid growth spurt in production and sales, piggybacking on a slight decline in foreign exports.
“It remains to be seen if the reaction of the second half [of the year] will be capable of preventing further damage to the automotive chain,” Moraes said.
The ‘Single Biggest Risk Factor’
The United Kingdom, the eighth-largest market for car sales in the world, was already facing unique challenges as Brexit brought investment freezes and trade uncertainty. Add to that an unforeseen pandemic and it’s no surprise the U.K. auto market fell by nearly 100%.
The coronavirus pandemic came nearly two months after the U.K. began to withdraw from the European Union on Jan. 31, 2020. The uncertainty surrounding Brexit has for years contributed to a declining auto production, which was compounded by the spread of COVID-19 cases starting in March.
“There is no doubt that the COVID-19 crisis has emerged as the single biggest risk factor facing the automotive industry for many years,” according to the 2020 annual report from the Society of Motor Manufacturers and Traders. SMMT is one of the largest trade associations in the U.K. and supports the motor industry.
U.K. registrations for January were down 7.3% YoY, and February saw a less than 3% change, according to SMMT. Come March, U.K. registrations fell 44.4% compared to the same reporting period the prior year.
By April, registrations were down 97%, to 4,321 from 161,064 in the same month last year, and in May were down 89% YoY. The declines are largely due to the closure of showrooms amid the pandemic.
The U.K. had 309,456 confirmed COVID-19 cases as of June 26, the fifth-highest number of cases in the world, according to Johns Hopkins. The U.K.’s population is about 67.9 million people.
The coronavirus “piled intense additional pressure on an already stressed industry,” the SMMT report stated. “As a result, already wafer-thin margins in a highly competitive sector came under pressure, leading to sharp falls in revenues for most car manufacturers and suppliers around the world.”
The country has seen some improvement as car showrooms began to reopen in June and dealership service departments opened in mid-May, Group 1 Automotive reported in its second-quarter 2020 business update. Used vehicle and service sales in the company’s U.K. sector improved in June and are projected to turn a profit for the month.
The land of the rising sun
Japan is ready to snap back and lead the auto market into recovery, despite a heavy hit to consumer demand. As the threat of coronavirus subsides, the industry — particularly Toyota Motors — is preparing for the second half of 2020.
In March, prior to the onslaught of COVID-19, Japan was experiencing its sixth consecutive month of declining imported vehicle sales, including Mercedes-Benz and Volkswagen, according to IHS Markit. Sales dropped 4.9% in 2019, following an October rise to 8% in consumption taxes, a national tax tacked on to most purchases, including automobiles.
Japan was one of the first countries to see coronavirus spread, after China. The country had 18,161 confirmed COVID-19 cases as of June 26, with a population of 126.5 million, according to Johns Hopkins.
As a result, April and May vehicle sales in Japan quickly fell from prepandemic forecasts. On top of this, production tightened as domestic and foreign demand plummeted, according to an IHS Markit report.
New registrations also dipped 14.6% YoY to 1.25 million units between February and April, according to the Japan Automobile Manufacturers Association (JAMA).
Some OEMs with a foothold in Japan — such as Nissan Motor Co. and Subaru Motors — are reacting to a large drop in consumer interest. Nissan, for instance, cut shifts in mid-June at three of its Japan manufacturing plants. Additionally, Subaru reported a 47.5% YoY fall in April domestic sales.
Toyota Motors, in contrast, is expecting to boost Japanese production in July, reaching 90% of its pre-pandemic target output, the company announced. This is a continued improvement from June, when production was at 60%.
The country is looking to forge past the economic fallout, said Akio Toyoda, chief executive and president of Toyota Motors and chairman of JAMA.
“Although the end of this situation is not within sight, the world will eventually overcome the threat of COVID-19,” Toyoda said. “When that time comes, the Japanese automobile industry intends to play a leading role in the recovery and safeguarding of manufacturing and employment in Japan.”
Dealer associations around the globe continue to navigate the crisis left by the coronavirus, with many still waiting to see an influx in vehicle registrations. Still, there is hope for the industry as production resumes at assembly plants and showrooms reopen to customers. Only time will tell how well the auto market will bounce back from this unprecedented pandemic.
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