Source: CLEPA, 2020-05-08
COVID-19 is having a major impact on the economy, with retail and manufacturing activity crippled without precedence and concerns mounting on consumer sentiment. In April 2020, the Economic Sentiment Indicator in both the Eurozone and EU showed the strongest monthly decline since 1985, with both consumer and business confidence reaching lows last registered in March 2009.
This is the dramatic backdrop against which the European automotive industry is trying to ease out of lockdown, carefully ramping up its manufacturing activity. Restarting plants and logistical operations across the EU is a tedious and highly complex process, and ultimately relies on enough demand in the pipeline. It also relies on a functioning internal market, which is far from given today. Member states and regions are at very different stages in the corona crisis, and restart measures would benefit from a much deeper and broader Europe-wide coordination.
CLEPA regularly updates an overview of containment measures in Member States and whether automotive manufacturing and sales activity is resuming or set to restart. The overview includes latest announcements by OEMs on planned production restarts per country, and is part of the weekly COVID-19 news flash the association disseminates to its members.
Volatility of demand is considered the most critical issue for the automotive supply chain at the moment. A CLEPA survey of automotive system and component suppliers in Europe gauging the impact of the COVID-19 crisis, shows 90% of respondents ranking uncertainty on what and how much to produce as their number one concern. Their future perspective depends very much on consumer sentiment and demand picking up substantially.
The sector’s outlook has worsened considerably over the past weeks. Over 90% of businesses expect a drop in revenue in 2020 of at least 20%, up from 60% in March. Over a third expect a reduction of more than 30%. Profitability will take an even harder hit, with more than half of respondents now expecting to make a loss before taxes. The perspective of a quick recovery worsened significantly as well. Three out of four businesses fear that it will take more than a year to recuperate, whereas four weeks ago the consensus tended towards 6-12 months. One third of respondents counts with a timeframe of two to three years.
CLEPA has urged EU and national governments this week to launch EU-coordinated vehicle renewal schemes to kickstart economic recovery and support the relaunch of the sector. Demand stimulus will help to increase the utilisation of manufacturing capacity and therefore safeguard jobs and investment capacity. The automotive sector will act as an engine of overall economic recovery thanks to the sector’s vast and complex ecosystem, significant employment impact and immediate knock-on effect on other sectors of the economy.
The call for action is part of the 25-point Joint Action Plan for a Successful Restart, published by CLEPA this week with the other three European associations representing the full automotive value chain, from equipment and tyre suppliers, to vehicle manufacturers, to dealers and workshops. Together, the sector wants to contribute to a policy response to COVID-19 that ensures public health, minimises the impact on the economy and maintains focus on the overarching objectives of our time: the digital and carbon-neutral society.
Europe needs a strong automotive ecosystem to push ahead with ambitious environmental, digital and road safety targets. Investment in people and R&D remain essential, yet are equally under immediate pressure.
To cope with the crisis, a large share of businesses plan to cut investment and reduce workforce and, according to the CLEPA survey, half of businesses intend to adjust investment and workforce already in the short-term. The remainder foresees such measures to be taken in the next 6-12 months. Revision of manufacturing footprint is also considered.
Around five million Europeans work in automotive manufacturing, R&D and supporting operations. In total, the sector accounts for about 13,8m jobs. With employment Commissioner Nicolas Schmit, first steps are taken to build a dedicated skills pact for the automotive sector. The crisis is accelerating the transformation of the sector, and industry and policy makers must work together to sustain employment and make the workforce future proof.
To underpin Europe’s long-term competitiveness, the EU should also leverage all instruments at its disposal to support research and innovation. This includes the EU budget including HorizonEurope, public procurement and financing tools from the EIB. Almost 40% of respondents in the CLEPA survey have already taken steps to cut R&D budgets, with 32% undecided and 30% at this stage decided against. Supporting the innovative capacity of the sector will be crucial to relaunch from the crisis in a sustainable way. Automotive suppliers are among the largest private investors in R&D, contributing significantly to the competitiveness of the automotive sector in Europe.older