Coronavirus and the car: the impact of COVID-19 on the automotive world

Posted by Ashley Karr on April 20, 2020

This is a repost of an article that originally appeared on our CarGurus blog.

Around the globe, many car factories continue to lay dormant as a result of the coronavirus crisis. Offices that would usually be occupied by staff managing all facets of the automotive trade, from parts acquisition to finance, are still empty. In many places—including the UK—dealerships have been shuttered, garages closed, and auctions silenced. Only limited services remain, to ensure those who need to stay mobile can.

This near shutdown of the global automotive industry, which began in earnest in March, has presented many with a rapidly changing and unpredictable situation. It’s resulted in dramatic and sweeping actions that have led businesses and private individuals alike into uncharted territory. This, coupled with continued unknowns about the new coronavirus itself, poses many questions for the future.

COVID-19 and car production

Unsurprisingly, such wide-ranging disruption has hit the automotive sector hard. Many manufacturers—including Ford, Nissan, Volkswagen, Toyota, Ferrari, Bentley, Mazda, and Aston Martin—have shut down production facilities and supporting infrastructure due to the need to ensure the safety of their workers.

The Society of Motoring Manufacturers and Traders (SMMT), which provides data and reports on UK car production and sales, has cast ominous warnings about upcoming figures. “Despite the myriad global challenges, the UK automotive industry has faced in recent times, it remains fundamentally strong and February’s figures reflect that,” says Mike Hawes, the chief executive of the SMMT. “However, these figures also reflect the calm before the storm; with UK car plants now effectively on national shutdown, and many global markets closed, the outlook is of deep concern.”

Financial turmoil

The ongoing suspension of production and sales will unquestionably result in financial turmoil, even for major organisations. Volkswagen, as a case in point, is still spending around £1.8 billion a week despite the closures. Herbert Diess, the company’s chief executive, explained in an interview on German channel ZDF that the company can sustain itself for a few months – but not forever.

Other companies, including Ford and General Motors, have been withdrawing, borrowing and collating funds and assets to help them survive for the duration. There will be other knock-on effects; affiliated companies will struggle as well, such as those producing parts for manufacturers, due to the closures. All could end up needing, should the shutdown continue for an extended period, significant financial aid.

“We wholeheartedly welcome government’s extraordinary package of emergency support for businesses and workers, but this must get through to businesses now,” says Hawes, speaking on the matter of the UK automotive industry. “If we’re to keep this sector alive and in a position to help Britain get back on its feet, we urgently need funding to be released, additional measures to ease pressure on cash flow and clarity on how employment support measures will work.”

It is not only the manufacturers and the supporting companies that are at risk. New car sales themselves have tumbled (March’s figures were down by 44.4% compared with a year ago), as all dealerships have been forced to shutter their showrooms due to the coronavirus-related closure of all non-essential retailers. China’s automotive market, which has reputedly already weathered the worst and has recently started to re-open factories, gives further indication as to what may happen elsewhere; in February, as people stayed home and dealerships fell silent, new car sales in the first two weeks dropped by 92% compared to last year’s results.

COVID-19 and the used car market

The used car market will also suffer; many auction houses have closed or gone online—while the inability to view many a used car will quell much of the activity in the private market. Some dealers are offering contactless services, such as virtual appointments and free home drop off, though, which will allow limited trade to continue.

What happens to values remains to be seen but the consensus appears that they will, in the short term at least, remain relatively steady—because the markets are effectively paused, with sellers and buyers simply sitting it out until the situation changes.

Only time will tell

The ramifications of the COVID-19 situation truly range far and wide. Time will ultimately tell as to what happens; for now, all we and those involved can do is follow official advice, look after those who need care and do our best to support hardworking and tireless medical staff. To them, we remain truly thankful.

Topics: covid-19, dealer insights, used car sales