The auto industry, like the rest of the economy, was plunged into sudden recession when the world essentially shut down in the attempt to stop the spread of a deadly virus. This was not like the downturn in 2008-’09 that was about 18 months in the making. Coronavirus threw down the hammer in mere weeks.
Automakers emerged from 2009 wiser and more financially prudent. So, what will the industry look like in 2020 or 2021, post-pandemic?
Some changes have been immediate and practical; others are mind shifts that will reverberate through the industry for years to come, until the next tumultuous event forces another major zigzag.
The first impact after the coronavirus began to take hold globally is that automakers stopped making vehicles and dealerships were forced to close their showrooms. Service departments remained open because they were deemed an essential service for those still venturing outside their homes as cities, then states, provinces, and counties, and finally whole countries told residents to shelter at home.
Almost overnight the industry had to conduct business differently. Vehicle development continued, with designers, engineers, and all their colleagues, working out of home offices. Meetings were conducted by video; product unveils were livestreamed with digital walkarounds. Car sales went digital.
Manufacturing ceased. Some idled plants were retooled to make masks, hospital gowns, ventilators, and other forms of protective gear. Others were disinfected and modified to create more space around workstations, erect plexiglass, even pitch giant tents for testing employees when it was time to return to work to ensure only the healthy continued through the plant’s gates.
“What happens on the other side of this pandemic? How are people going to react to this, coming out the other end?” asks Julian Thomson, design director for Jaguar and a man who has spent most of his career thinking about the future in automotive advanced design studios.
“There’s one indicator to say that people are going to be increasingly concerned about health, air quality, pollution, traveling,” Thomson says. “It’s going to affect everything like that. Are people really going to want to get into some automated Uber pod, squeeze in there, and go down the street in this thing, or are they going to want their personal space in their own car now? I don’t know.
“Will it make people more modest in their purchasing decisions? Will it make them think more about the whole rat race and their work-life balance? Or, on the other hand, will it just go nuts? Will they just suddenly say, ‘Life’s too short. Spend, spend, spend,’ and they’re going to go out there and grab it.”
What is becoming clear is that it will not return to business as usual when an all-clear is given. “We’re never going back to the way we were,” says Sandy Schwartz, CEO of Cox Automotive. His sentiment is being echoed throughout the industry.
Ford won’t overlook the opportunity the crisis poses to make changes to accelerate launches and work to reduce fixed costs and warranty costs, says Jim Farley, Ford’s chief operating officer. The goal is to run profitably at a lower production and sales level.
Fiat Chrysler Automobiles was forced into experimentation with a traditional workforce working remotely and sales switching to online. “I’ve been very pleasantly shocked and surprised at just how well employees around the world embraced working remotely,” FCA CEO Mike Manley said. “We’ve been forced to rethink our entire business model. These are unprecedented times, and we’ve learned a huge amount already.”
Manley says FCA has remained productive while still giving to communities. He said some new practices will continue and will have a residual effect on the business. “I think we can return stronger.”
Dealerships Changed Forever
Dealers were among the first to adapt. They already possess digital tools and use them to varying degrees. Closing showrooms forced even the reluctant ones to adopt online sales, virtual vehicle walkarounds, digital signatures, and home delivery of new vehicles.
“Everyone’s reevaluating everything they’ve done,” says Ernie Garcia, chairman and CEO of Carvana, an online used car retailer. Many years of progress have been jammed into a few months, he notes.
And many consumers like it. Buyers like visiting a dealership to see, touch, and test drive a new car, but they complain about hours of paperwork to complete the transaction. They’ve tasted this new, more efficient way, and they don’t want to go back.
Buyers want to go deeper into the process without touching anything, Schwartz says. There are about 33 signatures required in a vehicle purchase, and there is technology to electronically conduct all but about three of them before there needs to be any human interaction, and that’s what people want today, he says.
“People want new and more efficient ways to do things,” says Garcia. The current situation is pushing people to Carvana’s business model—a web-based, contactless buyer and seller of used cars that can approve financing and trade-ins in minutes and delivers the vehicle to the customer when the sale is complete.
Garcia says, in hindsight, he was too cautious and needs to buy more inventory to meet demand. Carvana’s sales went from a 30 percent reduction when the pandemic hit in March and April to a 30 percent increase in sales in May compared with a year ago, and Garcia has increased capital to propel already ambitious growth plans.
Experiment and Conquer Fear
Although a company such as Carvana may have a leg up, the pandemic has levelled the field for traditional businesses. It allows small groups to operate the same as larger ones, Schwartz says. This is the time to try things, evaluate everything, double down on technology, and focus on every tool to sell a car.
Pundits say dealers can’t just put their current practices online. This is the time to permanently change how they conduct business.
Many buyers have had an aversion to buying a vehicle online without seeing or driving it. There were fears it would not be delivered, or live up to its billing, and they would not be able to return it. But fear of the virus means online purchasing is seen as the safer alternative.
Fear of the virus is pushing other behavioral shifts, as well, Garcia says. He is seeing a growing preference for personal transportation in many cities, and growing demand for suitable vehicles.
Ride Sharing and Electric Vehicles
Ride sharing is different today than it was 60 or 90 days ago, says Doug Ekizian, managing director of PwC Consumer Finance Group. Data shows people who used it are getting back into dealerships.
Other automakers including Daimler and Ford have also gotten into the ride sharing space and all are working on autonomous vehicles.
Ekizian thinks autonomous vehicles will be pushed out to 2030 or beyond. The prediction had been for AVs to be on roads in significant numbers by 2025. Ford chief operating officer Jim Farley disagrees. He thinks the pandemic could promote more interest in autonomous vehicles in the future.
Many also think the demand for electric vehicles may be pulled ahead. People in California and China can see blue skies again, after months of reduced traffic and pollution, and seeing can be believing. Leaders want to use this time to push the electric car agenda. Barra says she would like to see government stimulus packages that encourage people to buy new cars with zero emissions.
Peter Rawlinson, CEO and CTO of electric car maker Lucid Motors, sees an avenue for turning adversity into opportunity. “When we come through this, the world will need sustainable mobility more than ever,” he said. “For instance, if pandemics are going to be part of the new landscape, we need biodiversity—which is what global warming is eroding—to develop new remedies. I really believe that we are connected to something that can change the world for the better.”
Even supplying the industry with used cars will change. Cox owns Manheim Inc., which is the world’s largest wholesale auto auctioneer based on trade volume and also holds public and government auctions. Schwartz says Manheim used to sell about 10 percent of its cars digitally, but most were sold “in the lane,” where buyers physically inspected the goods. Last year, sales were about 50/50 in the lane versus digital. With the advent of coronavirus, they abruptly became 100 percent digital.
It has been a difficult change, but the new way of doing business is safer, quicker, and better for everybody, Schwartz says. And it’s not ending anytime soon. Manheim will not hold physical auctions for the rest of the year. Social distancing is impossible in the lanes. The fallout is that the process needs some improvements. When cars come off lease they must be cleaned; they also need more detailed condition reports and absolutely accurate descriptions so people know exactly what they are buying online.
Consumer expectations have heightened, Schwartz says. He points to food delivery in the time of coronavirus. In the past, consumers accepted waiting for a food order that was not ready at the designated time and was then tossed carelessly in a bag brimming with contents ready to spill out. That changed with curbside pickup and social distancing. We now expect our food on time—almost to the minute—and properly packaged. Similarly, with car-buying, online efficiencies will be expected to continue.
Ready to Spend More
As Jaguar’s Thomson mused, consumers might be gearing up to spend more on their next car than they were planning to before confinement began in March.
Data from the online car marketplace BuyaCar.co.uk reveals that the average price of cars being reserved for purchase when lockdown is eased has shot up to a record level. Average prices paid on BuyaCar fell to a three-year low in April, but in May reservations shot up again. Analysts at BuyaCar think in addition to pent-up demand there is a stronger consumer appetite to buy a better car than originally planned. The sense was that essential car buyers who bought during the height of the crisis sought the most affordable car they could get, in many cases costing less than their original intention. Those able to wait will spend more. The data suggests there will be a surge in spending when the market begins to recover and has a busy restart.
Car as Respite
People want to spend time in their cars. They miss their cars and driving. Škoda UK commissioned a survey at the end of April and found a potential 1.2 million U.K. drivers working from home are retreating to their cars to have some time alone during lockdown; 13 percent are considering using their car as an office space; nearly two thirds of U.K. motorists miss driving their cars, people are washing their car more frequently, and 13 percent are dreaming about their post-lockdown road trip, according to a survey of 2,000 drivers. People are retreating to their massaging seats to sit back, crank up the volume, and sing along; pull out the tablet and binge watch; or take a nap.
Not All Good
It’s not all sunshine and rainbows. though. The instant recession has resulted in record unemployment and has hurt bottom lines across the economy. Retooling an economy takes time. Many think the economic curve will be a W with a second outbreak and dip projected, said Ekizian of PwC. “Consumers are keeping their money in their pocket in case there is a furlough down the line or another outbreak.”
The immediate shakeout will be dramatic, and some businesses, especially independent companies—and that includes dealerships—won’t make it. Big companies, like automakers, could take years to make up for lost sales, and in the interim they will be forced to make some hard decisions in prioritizing which product programs get capital and which upgrades must be delayed. Usually the first programs to be dropped are the cool, low-volume cars.
Despite the tough road ahead, Thomson said he hopes people will learn something positive from this forced period of reflection about how they live their lives.
FCA’s Manley agrees. “It’s been a horrible period for everybody, but good things come out of this.”