Coronavirus is truly a ‘black swan’ event for the car industry

Chinese car market fell 80% in February

Coronavirus is truly a ‘black swan’ event for the car industry

As the Coronavirus emergency unfolds the automotive industry is focusing on the wrong vulnerability: the concentration should be on the customer and sustaining demand, supply side problems will have to wait to be fixed.

The Coronavirus outbreak looks like a real game changer for car makers, a once in a generation ‘black swan’ event: that is, one that was unforeseen yet is of huge consequence. Output has stalled, and in countries where there are a relatively high number of cases — notably China and Italy — demand for new cars has all but dried up as these societies have entered lock down.

 

The industry’s dependence on extended ‘just-in-time’ supply chains has once again been brought under the spotlight. As Peter Hasenkamp, former strategist at Tesla, elegantly summed up the situation in yesterday’s Financial Times: “It takes 2,500 parts to build a car, but only one not to.” So far the industry has failed this stress test of its systems, with component shortages creating a domino cascade of shutdowns and slowdowns starting from China and spreading to car plants around the globe.

 

No doubt a strategic rethink is required, with potentially the creation of new or duplicate sources for vehicle content. This is not an undertaking that can be embarked upon lightly, or whilst key parts of the industry are shuttered. There are also competitive considerations to be resolved: how much contingency can be engineered in without giving commercial advantage to a competitor who decides to ‘stay lean’? Building in supply-side resilience therefore isn’t going to happen overnight.

 

The industry should focus instead on an even greater vulnerability that the Coronavirus has exposed, and one that it could counter more immediately and at far less cost.

 

When the car market in China fell by 80% in February, the problem, from the evidence available, was not primarily the industry’s inability to build cars or a shortage of stock, but rather the drying up of demand, and the means to meet demand as people stayed in their homes and dealerships were forced to close. Arguably therefore, the most immediate and damaging impact of the Coronavirus has been on the industry’s even more vulnerable retail and fulfillment chain.

 

But there are solutions: face-to-face interaction through live chat video and other virtual showroom technologies can be implemented rapidly to engage with consumers who are limited in the real-world contact they can undertake. The use of Live Chat technology that Sophus3 has implemented for car brands in China has risen steeply as the outbreak took hold. The number of interactions with consumers via video links that allow a conducted walkround of a car by a brand representative increased by more than 50% during February.

 

We are still very much ‘this side’ of the Black Swan event Coronavirus represents, but however we come out of it, things will look very different and new imperatives of operational resilience will have been painfully established for every business.

 

For the automotive industry we can expect digital solutions to become of increasing importance to address the vulnerabilities that have been thrown up. The ‘Internet of Things’ will allow a better understanding in real time of the condition of supply chains, whilst alongside this, the application of Artificial Intelligence in sensing and managing demand should help manufacturers address supply side problems as they emerge. At the retail end, which Coronavirus has proven to be even more vulnerable to disruption, excellence in the use of virtual technologies will become essential to maintain and maximise customer interaction.  

 

You can find out more about Sophus3’s Digital Showroom solutions here:  Live Chat Video from Sophus3 (125 downloads)

Sources:

‘Companies’ supply chains vulnerable to coronavirus shocks’, ft.com, 9/03/2020, https://on.ft.com/38EP7es

‘Factbox: Automakers’ sales sink in China due to coronavirus epidemic’, Reuters, 11/03/2020, https://reut.rs/2wMEGZ3

‘Black Swan: a definition’, Investopedia, updated 11/03/2020, http://bit.ly/3aMbcJh

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