Bleak outlook for car industry, but some hope for manufacturers

Commenting in response to UK car sales falling to their lowest level since 1946 and VW warning about rising costs, Christian Stadler, Professor of Strategic Management at Warwick Business School and an expert on the automotive industry, said:  “The fact that UK car sales have reached their lowest level since 1946 is not really surprising, after all we are in lockdown. A far bigger concern for car companies is that sales are unlikely to bounce back after the lockdown is eased.

“Demand for new cars was already falling before the pandemic and many people will feel less secure financially and more concerned about their jobs due to COVID-19. They may hold off buying a new car, especially with Brexit hanging over them as well. They might also feel less inclined to visit a car show room if social distancing measures continue.

“If demand remains low, manufacturers and their suppliers will lose the economies of scale that come from producing large volumes of cars and that will drive up costs, which they will be reluctant to pass on to customers.

“This comes at a very inopportune time for the industry, when companies have been investing heavily in electrification. It is likely there will be some job losses.

“However, there are some crumbs of comfort for the industry. Oil prices are low and commuters may be more reluctant to use public transport after lockdown, which could encourage them to buy a new car, if they are no longer working from home.

“Also, car companies are in a better position to weather this storm than they were the financial crash in 2008, when they had little money in the bank. Many car companies learned from that and have been careful to build up cash reserves, securities, and credit lines they can draw upon. VW has access to £47.5 billion, Daimler has £30 billion and PSA has £19 billion.

“We have also seen that Governments are willing to loosen their spending restrictions to support the economy during this pandemic. They may well be willing to offer some help to the car industry to protect jobs. After the financial crash we saw a car scrappage scheme to boost sales. While it wasn’t a complete success, it wouldn’t surprise me to see something similar this time, though some countries may seek to direct any support towards encouraging customers to buy electric cars.”

For further information visit the Warwick Business School website.