The Impact of COVID-19 on the South African Automotive Sector

Even prior to the pandemic, the automotive sector was already grappling with rapid disruption and change, this includes congested cities without proper infrastructure discouraging and hindering seamless and convenient car purchasing. On the other hand, technological development shifts toward embracing the battery elective vehicle power together with the rise of new players moving into the automotive sector. Currently, the industry is faced with an unprecedented economic crisis that is unfolding at a fast pace. Research by Deloitte reveals that the global auto industry may face significant disruption and wide-sweeping restructuring in the near future, that’s if i has not yet started. The study also reveals that, the two major priorities for automotive companies at the moment are people’s well-being and raising cash for their businesses. By right-sizing their cost base, OEMs will be forced to adjust to a suppressed market. “Undoubtedly, there will be a different automotive sector coming out of this,” says Whitfield.24 But the example of China’s emerging consumer and industrial recovery holds out hope. 80% of global car production involves “Made in China” parts.

China’s economy is now cautiously reopening and economic activity reviving. Out of the 33 VW’s China based plants, only two are still closed, though at reduced utilization. Statistics show that car sales in China have dropped by 80% in February making it the greatest contraction on record. These are however expected to pick up with VW expecting sales to hit the 1 million mark in March. Figures that are going to be released in the next few days will reveal the extent of China’s economic normalization. China now offers both hope and lessons for other countries where Covid-19 has caused major economic impact. The US Federal Reserve Board and the Federal Reserve Bank of New York suggest that there is absolutely no trade-off between suppressing the virus and economic activity. Instead, the act of suppressing the virus will ultimately lead to improved economic activity and this is consistent with what China is seeing now..

If Governments could have taken the necessary steps to “flatten the curve” of infection rates at an early stage, the impact would not have been this severe. The above mentioned study by Deloitte evaluated the 1918-20 influenza pandemic and found that a mere swift action 10 days prior to the onset of the pandemic boosted employment in the manufacturing sector by roughly 5% in the post-pandemic period. While implementing restrictions beyond this for an additional 50 days improved manufacturing employment by 6.5% after the pandemic had subsided. This is clearly a case of willful short-term pain that will help avoid longer-term structural damage to the economy. The outcome may still be uncertain, but it is important for the South African automotive industry to be protected at all cost.

It is evident that COVID-19 continues to have a major impact on the entire business ecosystem. In the short term, businesses will need to respond to immediate challenges posed by the COVID-19 lockdown, in this new normal, speed will be more valuable than elegance. Stabilizing the business will be very crucial. This process should include identifying organisational vulnerabilities, inefficiencies and securing business continuity and financing.

Very soon, the world will start emerging and rising from COVID-19 constraints. The next challenge will then revolve around making strategic recovery plans including preparing for the return of employees, resolving customer dispute, managing claims and collaborating with customers and suppliers to streamline and realign operations. By then, many businesses will have identified and understood the value of a digital future and the impact it has on ways of working. From where we stand, this future promises improved efficiencies, flexibility, cost out and quicker response times. The only businesses that will thrive in the new normal will be those who see these convulsive and challenging times as opportunities not to be missed.

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