In Conversation: Outlook
Grant Thornton Outlook
Owen Edwards, Associate Director
The global automotive industry is under pressure from numerous areas: COVID-19; political and economic transition; developments in emissions legislation; pressure from shareholders to generate more value; and increased consumer demand. For the first time, however, these changes are spanning both the upstream and the downstream and have been exacerbated in many cases by the COVID-19 pandemic.
The global automotive industry is rapidly adjusting to changes triggered by numerous sources: COVID-19; political and economic shifts; changes in emissions legislation; pressure from shareholders to generate more value; and increased consumer demand. For the first time, however, these changes are spanning both the upstream and the downstream and, in many cases, have been exacerbated by the COVID-19 pandemic.
In the short term, attention is likely to remain focused on the progression of the pandemic and governments’ lockdown strategies. Regardless of whether lockdowns are imposed nationwide, or more localised action is taken, many automotive companies are set to return to survival mode, throwing a fresh spotlight on the key issues that continue to affect them: lower sales and the cash burn seen during the first lockdown in Q2 2020. We believe that, where they can, governments will provide support for companies to maintain those businesses that would be viable under normal circumstances, in order to sustain an economy that can survive and eventually thrive after the pandemic has passed.
The automotive market has always experienced and continuously adapted to change, and faced with longer-term challenges from EVs, CAV and MaaS, will be required to continue to do so. More investment will be required in these areas of the market, from the manufacturing, servicing and repair of such vehicles, to their end-of-life and recycling, for which the use of rare earth metals is set to become a growth industry.
Reducing cost will be a priority for many business leaders – in the short and the long term – and this will create an ongoing conflict between costs and the need to make profits. Continued consolidation is expected across the whole automotive industry to achieve economies of scale by building increasingly large companies, or operational efficiency to become more vertically integrated. In the downstream sector, this will mean more consolidation among the dealers, leasing, and smaller rental companies, echoing what we are already seeing in the upstream with parts suppliers and the OEMs.
As highlighted in this report, change is inevitable and much has happened since our last edition in 2019. Nevertheless, we have adapted quickly, not only in our day-to-day lives but also as an industry. We continue to encourage all companies to plan as much as they can, employing a short-term business strategy which builds in scenarios to address the unexpected, while staying ahead of the longer-term considerations as the market evolves. “It is not the strongest of the species that survive, nor the most intelligent, but the one most responsive to change”. Charles Darwin