Even before COVID-19, the automotive industry had its share of challenges. Sales were down in many markets. Huge investments in electrification, autonomous driving and digital were hurting revenue and profitability.
The coronavirus pandemic turned those challenges into a crisis. Global vehicle sales have stalled, production facilities have been shuttered, and many supply chains have ground to a halt. Total vehicle sales in China dropped 80 percent for the month of February. Factory shutdowns in Europe created production losses of more than 1.9 million vehicles through March, affecting 1.1 million jobs. And global supply chains are being hampered by supplier shutdowns, border closings. and the curtailed operations of logistics service providers.
On a more positive note, we are already seeing signs of recovery as the COVID-19 risk is declining in China. March vehicle sales in China increased by 22 percent over February. Chinese original equipment manufacturers (OEMs) and suppliers are ramping up production. And there are increased investments in digital footprints in manufacturing. OEMs in other parts of the world are offering incentives to drive sales: lease payment deferrals; interest-free financing; and job loss vehicle buy-back programs to mitigate consumer risk.
History tells us the automotive industry will very likely recover, and the winners will probably become stronger and more focused. According to a report from IBM, “Automotive 2030: Racing toward a digital future,” half of surveyed automotive executives say that to succeed—or even survive—in the next ten years, they need to reinvent their organizations with digital technologies, supported by data. In fact, 83 percent of those respondents say they understand the strategic value of data in their industry. We expect the crisis to force automotive companies to accelerate their existing transition to digital sales, connected vehicles, and autonomous driving. This crisis could jeopardize the future of companies that have been slow to start the digital journey.
The immediate challenges are daunting. Companies have had to enable employees to work from home, and keep critical processes and systems operating remotely.
Across the world ,OEMs and suppliers are retooling their plants to produce medical equipment and personal protection equipment (PPE), and helping to distribute supplies necessary to avert deaths. In the US, Ford and GM are making ventilators and PPE surgical gear. Ford has plans to produce 50,000 ventilators in 100 days. Mahindra in India has embarked on a similar effort—with the caveat that it wants to build personal ventilators with a USD 100 target price.
Looking to the future
Industry leaders are most anxious about the inability to know how long this situation will last, how it may reshape the industry, and what the lasting effects will be.
From a consumer perspective, will the sharing economy lose traction as people re-evaluate using someone else’s property? For travel, will consumers prefer personal vehicles over public transport (such as trains, buses, or ride sharing)—which, in turn, would increase traffic congestion?
The global auto industry could see benefits from a relaxation of regulations as governments try to revive national economies. In addition, the slump in crude oil consumption is driving lower gasoline prices which then could generate more sales of SUVs and small trucks—the industry’s highest-margin offerings.
And all the while, the further adoption of digital technologies and cognitive business practices will help reshape sales systems, supply chain logistics, and manufacturing processes.
That’s why, despite the current struggle, the industry will be wise to accelerate this digital reinvention—driving a more rapid transformation and digitization of the core business with such innovations as touchless car purchases and AI-enabled connected services for vehicles.
Modernizing IT infrastructures and development processes, and embracing multi-hybrid cloud network architectures, and agile development and operations (“dev ops”) can all help prepare the automotive industry to withstand future ups and downs.
Near-term measures, long-term investments
In this era, cash conservation and risk management should be the major areas of focus. Automotive supply chains are critical to managing costs and risks, and optimizing production. Key enablers include supply chain visibility tools, AI capabilities with location intelligence, and predictive risk assessment.
We also expect there will be rapidly changing demands as virus flare-ups happen in different geographies over the coming months. Digital capabilities and cognitive processes will allow immediate manufacturing adjustments based on these changing demand signals which will drive down costs and excess inventory.
As IBM supports the auto industry in this time of crisis, together we are making significant investments. We have teams around the world running large parts of the industry’s most critical IT infrastructure. We are providing laptops to automotive company employees so they can work effectively in remote settings, and we are expanding network capabilities such as virtual private networks to enable secure access.
We are also providing free tools to support employee engagement. IBM has developed IBM Watson Assistant for Citizens. It is pre-loaded to understand and respond to common questions about COVID-19. This tool also provides company-specific guidance as things change and evolve.
Finally, we are offering global financing options to help automotive companies with potential financial burdens. Working with clients on cost-reduction ideas and supply-chain resilience programs are just a few ways IBM can assist automotive OEMs in these challenging times.
It is hard to predict the timing of crises like COVID-19. But we’ve proved as an industry that it is possible to prepare in advance, as well as to react quickly and wisely. There’s much work left to do, and tougher times may remain in the short term. But together, we will emerge as a stronger, smarter, and more relevant industry.
To support our clients, IBM has developed best practices and recommendations for actions to take now and after the pandemic. Click here to access our COVID-19 Action Guide and related resources.
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