Article
Written by Marc Bishop
Posted on 02/06/2020

How is the coronavirus crisis affecting the automotive industry?

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Factories making vehicles for other markets have already reopened, and since the beginng of this week, UK showrooms can welcome the first customers after weeks. It took quite some lobbying from the big manufacturers like Vauxhall to reopen for some time. Stephen Norman (Group managing director Vauxhall) called on ministers to lift the shutdown so that Vauxhall can resume production at its Ellesmere Port plant, which directly employs 1,100 people producing the Astra.

Very few industries have been left unaffected by the current coronavirus pandemic. Last month, business intelligence provider Graydon concluded that, based on the financial health of UK businesses and the current economic situation, more than 1 in 4 UK companies are being heavily impacted by the corona pandemic. “It is estimated that of all companies that Graydon UK identified as healthy at the beginning of March 2020, around 30 per cent are now facing difficulties”, explains Marc Bishop, data expert at Graydon UK. The impact is extreme, but the impact felt by the automotive sector has been swift and severe. While this is certainly a global issue, it's one that has hit the UK hard, as there are more than 30 car manufacturers operating here. Over 1.3 million cars and 2.5 million engines were built in the UK in 2019, and the industry previously brought approximately £18.6 billion to the UK economy (SMMT).

Although we won't know the true effects of this pandemic for quite some time, certain outcomes are already being felt. Mark Barclay, Ecommerce Manager of GSF Car Parts takes you through how the sector has been impacted so far, and offers a glimpse of  what could happen next if things continue as they are.

The industry is feeling the effects of a production slump

British car manufacturers made just 78,767 vehicles this March, which is 47,428 fewer than in the same period last year ⁠— this is a drop of 37.6% (SMMT). This is due to car plants closing, either due to government restrictions, or because companies felt they couldn't keep their staff safe from the coronavirus at work.

The Society of Motor Manufacturers and Traders also warned that keeping plants closed until mid-May could cost the sector £8.2 billion. But most factories are still yet to open their doors, which means the damage could actually be significantly worse.

It's become increasingly difficult to get parts

The lack of workers isn't the only reason manufacturers are struggling to make cars, either: there's also a severe shortage of parts. Because so many companies rely on parts being shipped over from China, many manufacturers were struggling to keep up with demand before we felt the full effects of the public health crisis here at home. Because China was the first country to bear the full brunt of COVID-19, far fewer parts have been made over the last few months, and the usual transportation channels have been significantly disrupted. So, even if it was safe for all car manufacturing employees to return to work, it's possible they just wouldn't have the materials they need. 

Cars aren't selling

Car dealerships were forced to close towards the end of March as the government's lockdown restrictions came into place, making it impossible for most manufacturers to sell any of the cars they'd already built. With restrictions slowly beginning to lift, as of June 1st, car showrooms are set to re-open. However, limitations will still be in place, meaning customers will only be allowed to buy a car under a click and collect policy.

It's also worth noting that millions of UK residents are struggling with financial instability at the moment, whether they've lost their jobs, have been put on the furlough scheme, or are just worried about what's to come. So, very few people will feel like they're in a position to buy a new car any time soon. This means, even if dealerships do re-open over the next couple of months, they might struggle to get people through their doors.

Redundancies could be made

It seems most car manufacturers are continuing to pay their staff at least 80% of their wages through the government's furlough scheme, as most employees won't be able to work from home. However, while the scheme has been extended until the end of October, and companies are looking to get some of their workforce back into their factories before then, most ⁠— if not all ⁠— of the UK's vehicle manufacturers will have taken a serious financial hit. And, if they're going to struggle to sell large quantities of cars for the foreseeable future, they may not need, or be able to afford, to keep their whole workforce on.Unfortunately, this means it's very likely that redundancies will eventually have to be made in the automotive sector, unless the government offers another safety net.

 

Graydon's industry expert Marc Bishop can only confirm the struggle the industry is in. The risk in the industry is high and the coronavirus crisis makes them even more vulnerable for external threats such as commercial fraud too. Graydon analysis shows that fraudsters are using the COVID-19 pandemic as cover to operate fraudulent entities, and data from trade credit members of Graydon intelligence networks shows that fraud is at an all-time high since the financial crisis. His advice is deeper due diligence, better risk management especially when restarting, and every opportunity is grabbed with both hands it could be good to wear gloves in the form of extra checks and more stringent customer onboarding.

It's clear that the automotive sector has been hit hard by the current pandemic. Hopefully it will be safe for some workers to go back to their factories in the coming weeks, but it's likely companies will face further challenges as time goes on.

Mark Barclay is Ecommerce Manager of GSF Car Parts. He shares his insight into how the automotive industry has been affected by the COVID-19 crisis so far, and will look at how the effects could continue into the future.

Marc Bishop is industry expert at Graydon UK. He is a datadriven specialist in Fraud and Financial Crime, Risk & Compliance and Credit Risk.