How Are Global Car Makers Reacting To COVID-19 Outbreak?

Jatin Ahuja Apr 20, 2020

The coronavirus outbreak that initiated in Wuhan in December 2019 has now affected 1,039,922 people across the world. Its impact on the luxury automobile industry has been observed worldwide.

China is known to be the world’s biggest auto market and Wuhan, the epicentre of COVID-19, is home to manufacturing plants of auto parts for companies including General Motors, Honda, Nissan, Peugeot Group and Renault. The city had been under a strict lockdown and thus, leading to car equipment shortages. Luxury car manufacturers and car dealerships across the world had reported a cut in supply.

What led to the Global Luxury Car Market Crisis?

Wuhan’s 50% of auto-parts production is done for Honda Motor Company and with its shutting down, the company was the most affected. The city was also responsible for about 10% of the nation's vehicle production and delivered 2.24 million vehicles in 2019 alone. When Tesla's manufacturing unit in Shanghai shut down due to the COVID-19 outbreak, it delayed the company’s Model 3 release; and Volkswagen’s plants that were running in association with SAIC were also shut down leading to a global shortage of cars. Other than the pandemic, the first quarter of 2020 has already witnessed automakers fight for their survival due to a liquidity crunch, manufacturing shutdowns and very low buyer sentiment.

German luxury carmaker Daimler (DAIGn.DE) in a conference held in February 2020 had discussed how the economy and his own business could be hit by coronavirus as it would restrict the production of unit deals or significantly affect the development process, acquirement segment and stock chain.

Sound consumers are now avoiding over-packed areas, including car dealerships; demand for vehicles in the corporate sector is debilitating as more extensive financial vulnerabilities have hit organizations so much so that they are downsizing their capital spending; productions have come to a halt due to government-commanded lockdowns across the globe; there is a decrease in migrant labourers across China and disturbances in vehicle parts supply chains, all of which has brought the luxury car market in a grim position.

There is a prevalent tension and a feeling of fragility far more noteworthy than the one during the 2008-2009 recession. While the financially stable customers had endured financial difficulty, a vast majority of them still had money to brave out of that storm. However, this time is different. More than money, their physical wellbeing is at risk.

In order to keep their customers attracted, luxury car brands are discovering new approaches to manage the situation. Many traditional brands, for example, Volkswagen, Nissan, SAIC and BMW have gone to the internet looking for tools including virtual reality and live streaming to excite the sales process. Brands like Audi and Mercedes-Benz are doing live broadcasts of their vehicle unveilings amidst the cancelled events to the coronavirus. All this could help them once the immediate threats are off the radar. The buyers are expected to return to the market after all this is over and once they do, they would know about the new releases and promotional offers as showcased by these brands online. This will prompt a rebound spending after a prolonged period of emotional, financial, and physical wellbeing emergency.