COVID-19 - Possible Effects

UPDATE: This column was written for the upcoming April 2020 issue of Autocar, and in the few days since, things have rapidly changed. Click here to see a timeline of how COVID-19 has been affecting the auto industry.

It’s all we talk about, and it’s all we think about. Life is fast becoming about huddling in fear of the looming black cloud that is COVID-19 and wondering, waiting for lightning to strike each of us. I voluntarily sit at home writing this in the middle of March, and if the rest of the world is any indicator, most of us may soon be forced into doing the same. Social isolation, living healthy and practising extreme hygiene appear to be the best we can do for now.

However, this isn’t just another ‘how to stay safe from COVID-19’ article and instead, I want to talk about some of the possible effects this can have on our already suffering auto industry. No one really knows what to expect, but we begin with a twisted sliver of positivity – things could have been even worse. By sheer chance, this pandemic started to unravel in the Hubei province around the same time as the Chinese New Year holidays. This is an annual two-week holiday and businesses worldwide plan around it by stockpiling components. It’s these very components that are keeping things running; for now.

Each manufacturer’s current situation will largely depend on how much they had sourced from the shutdown manufacturing giants like China, and now Italy. Moreover, most components arrive from external vendors, and these components often come pre-assembled, so there will be a problem if even a screw, sensor or connector in there originated from any of the affected countries worldwide.

Naturally, manufacturers have multi-layer contingencies in place, with supply coming from at least two or three vendors, usually in different regions. The suppliers are chosen based on a number of factors, but cost obviously ranks high. In a scenario where all the preferred vendors for a particular component are based in the now-shutdown countries, the auto manufacturers can still look to Indian vendors that were previously skipped for these components. Of course, this primarily relies on India continuing to be open for business; but even then, it’s not just a matter of bearing higher purchase costs. There’s also major concern about whether these new vendors can meet the demand – not to mention that all newly sourced components will have to go through long periods of full R&D testing.

I have tried to write this as positively as I can honestly manage, but it’s still a deeply worrying read and the novel coronavirus will affect all industries, not just automobiles. At the very least, costs may rise due to manufacturers moving to vendors that weren’t the first choice, while a worse-case scenario would be that the new vendors cannot supply enough. The absolute worst-case scenario is that business will ultimately cease completely, and the financial implications of a situation like that is another story altogether.

Who knows where things will be when you read this, but all we can do is fervently hope that the situation improves. Until then, I leave you with a combination of two powerful phrases – the tides stop for no man; and this too shall pass.