The effect of COVID-19 on the automobile industry was first felt in Asia as China was the epicentre of the pandemic, which slowly impacted the automobile industry in other nations with its outbreak in other parts of the world. The automotive industry observed a sharp decline in demand and investment amidst the pandemic.
Moreover, it is also dealing with a sudden and widespread cessation of the economic activities, as workers are ordered to stay indoors and shut factories, bringing production chains to a halt.
China ranks among the world's leading car markets, in terms of both sales and production. Auto sales in China first plummeted in 2018; the market has not recovered since then. Although employment has recovered from the global financial crisis of 2008-09, businesses, and staff around the industry's global supply chains are facing considerable uncertainty with the outbreak of the pandemic.
Restrictions on people's movement and the abrupt shutdown of economic activities are expected to cause a significant contraction in sectoral production and Gross Domestic Product (GDP). Factory closures in Europe and North America led to a reduction of nearly 2.5 million passenger vehicles from production plans, where the loss of revenue for the automobile and parts manufacturing industries amounts to USD 77.7 billion. This is expected to have adverse economic effects through backward and forward linkages, particularly in countries like Canada, China, Germany, India, Japan, the Republic of Korea, Mexico, Morocco, South Africa and the United States, where the automotive industry is a significant driver of economic growth. Small and medium-sized enterprises (SMEs) that make up the bulk of employment in the sector, and provide multinational carmakers with intermediate inputs and services are expected to be severely affected (backward linkages). The areas likely to be affected through forwarding linkages in the automotive industry include transport and services.
The pandemic has resulted in an unprecedented increase in unemployment, affecting the people engaged in the automotive industry as well. Many more jobs will be at risk if governments, employers, and workers do not take immediate actions to ensure the survival and protection of small and medium-sized enterprises. It is estimated that around 42% of direct automotive manufacturing jobs in the EU have been affected by the pandemic. In the United States, the pandemic has been estimated to affect at least 150,000 unionized workers and hundreds and thousands of non-unionized workers in the industrial sector. Interruption in India's automotive industry and its supply chain is likely to cost more than INR 60.8 billion, or USD 800 million, over the last quarter of the current financial year (2019-20) and the first quarter of the next fiscal year (2020-21).
It should also be noted that COVID-19 impacted the economies at a time when the automotive industry was already facing significant disruption and displacement as a result of climate change, technological advances, demographic shifts, and trade turbulence and uncertainty. Even before the pandemic, the production of the new vehicles was stagnant due to weak sales. It is estimated that the shift to electric vehicles will lead to a loss of 400,000 jobs in Germany alone.
In the present scenario, to further protect the public from the pandemic, leading automakers around the globe are repurposing their production lines to make ventilators, disinfectants, and face masks. In almost all major auto-producing countries, governments and central banks have adopted fiscal and monetary stimulus measures to protect businesses and workers. These include active economic policies, in particular social protection measures, targeted transfers, and automatic stabilizers, such as unemployment benefits, together with public investment and tax relief for low-income earners and small and medium-sized enterprises.
Governments around the world are taking several measures to protect the falling economies and reduce the adverse impact of the pandemic. As of April 2020, the International Monetary Fund (IMF) had listed economic responses in 193 economies. It is currently uncertain regarding how many of these macroeconomic policies and initiatives will aid the automotive industry, and if small and medium-sized businesses in the supply chain will be able to access financial assistance in particular, and whether major producer countries will be benefitted from their implementation.