Curtain-raiser
The vicious wave of the coronavirus has gradually engulfed the whole world. Various sectors of the society are drowning in this wave. Apart from affecting the health of the people, the coronavirus is feigning devastating repercussions on the world’s economies. Job & employment rates are at the lowest. Being jobless, more and more people are opting for freelancing or part-time work options.
However, sectors like travel and tourism, insurance, and the automobile industry have had a catastrophic impact because of the virus. The automobile industry has various kinds of carmakers. They range from the influential carmakers to the small-scale luxury carmakers. Some can absorb the shock of the coronavirus, whereas some have suffered severely.
It took nearly five years for the United States to rebound its automobile sales from the recession of 2008. Still, sales had not increased since 2015. And now the coronavirus has forced the carmakers to idle their factories and sight a fall in their sales. Companies like Daimler, Fiat, Chrysler, and Volkswagen have gradually recommenced the assembly lines. This has made the people ponder over the serious effects of the crisis.
>> Impact On The Passenger Vehicle Industry
With the alarming number of cases in the US, the coronavirus is having a profound impact on the global passenger vehicle industry as well. The analysts are still cautious of their earlier global sales forecast data. This is because there are hints of retrieval and further turbulence ahead, which creates significant confusion.
In June, the US saw an augmentation in the COVID-19 cases. The key states, including Texas, Florida, and California, boosted the restrictions on the movements of the people. This facilitated a reduction in the country’s PV (Passenger Vehicle) sales.
Nevertheless, the rebounding effects remain low due to lockdowns and government restrictions. The forecasts of the analysts show an annual truncation of over 24% in 2020. This curtailment is expected at 13.4 million units.
Now, let us have a glance at some positive data. Tesla is the most valued car maker in the world. Its market capitalization has outperformed Toyota‘s capitalization. Its sustained global EV (Electric Vehicle) sales momentum is given prominence during the pandemic. Hence the US industry retreated its sales last month, though it had encouraging numbers in May.
>> Impact On Electric Vehicles
The electric vehicles will combat the pandemic in a better way than conventional cars. This is because of the restrictions of the government to fulfill their aim of the overall emission targets.
The augmented sales of Tesla in the first quarter of 2020 have neutralized the virus’s negative influence. However, halting the operations from March to May has had a severe effect on the OEMs. During quarter 2 of 2020, Tesla sighted a 5% truncation in its deliveries.
If the government continues to impose strict emission norms, then the long-term demand in the US shall be the lowest. The demand in the US is also affected by low oil prices. Let us have a look at the various data on EV sales in the US.
> Tesla and GM solicited the government to augment the $7500 tax credit qualification in January 2020. The plea was put in front of the government to cover the two lakh EV threshold per automaker three times. However, the government did not only reject the appeal but also decreased the credit to $7000.
> There have been protracted legal battles between State and the Central Government about the zero-emission vehicle. These battles would even continue to impose a harmful impact on EV sales in the US in the coming years. The automakers would hence fund promising vehicles like SUVs.
> The month of April saw a fall in the crude oil prices to $37.6. This fall would boost the car buyers to purchase the gas-fuelled cars.
>> Re-entry In The Industry By Pairing Up
Re-initiating the business would unequivocally pressurize the carmakers. They would have to integrate the mobility options and other new technologies in their production strategy.
Although, with a halt in their revenues for so many months, this would be a daunting task. So, to combat this financial crunch, the formation of coalitions and partnerships would be boosted.
One such example of an existing partnership is between Volkswagen and Ford Motor. This partnership has been facilitated to fabricate autonomous driving software. Consequently, the development of autonomous vehicles would see an increment in the partnerships. The alliances and partnerships promote easy and quick investment during these edgy times.
Conclusion
Due to the worldwide lockdowns, the carmakers have suspended their operations. This has been done to avoid the total variable cost during these distressful times. With no revenue in the hands of the carmakers, they are shutting down their factories to avert the total fixed expenses as well.
To diminish the dispersal of the virus, people are traveling less now. By exploring the remote working or freelancing option, people are likely to avoid commuting. Even if they commuted, they would avoid the crowded buses and trains. This has also reduced the sales of cars. The monthly sales of May in the US slumped at a rate of over 30% for General Motors, FCA and Ford.