COVID-19 CRISIS IMPACT ON THE AUTOMOTIVE INDUSTRY AND NAVIGATING THE TURBULENCE - PWC
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COVID-19 crisis
Impact on the automotive
industry and navigating the
turbulence
Table of
contents
COVID-19: Impact on global economy and
01
the automotive industry
02 How to navigate the crisis?
Building for the medium term: Every crisis
03
is an opportunity
Learning from China’s COVID-19
04
experience
COVID-19 crisis: Impact on the automotive industry and navigating the turbulence April 2020
PwC 2COVID-19: Impact on global economy and the automotive industry
COVID-19 has affected the global economy adversely
United Kingdom Germany
• Third-largest components market (USD • Second-largest components market (USD
439 million) 782 million) Global economy to shrink by 1% in FY21, predicts
• Stay-at-home order in place • Shutdown of all auto factories Goldman Sachs
• Shutdown of all factories • Lockdown till 19 April
• The global impact of the COVID-19 crisis is perceived to
be larger than the 2008 financial crisis. Multiple
monetary and fiscal measures such as postponement in
tax collections and policy rate cuts need to be
implemented to tide over this crisis.
In the short term, domestic demand will decline in
India
• Health and welfare have become top priorities in India
as the Government has enforced a 40-day lockdown.
• The COVID-19 crisis will have a direct impact on
tourism, the hospitality sector, manufacturing industries
and non-essential services.
United States
• Largest components market
(USD 2.798 billion)
• Second-largest car market India’s major export markets severely hit; export of
(USD 727 million) USD 9 billion worth of vehicles and components to
• Stay-at-home orders in most North America and Europe stalled*
states
• Approximately 31% of cars are exported to North
America and Europe (USD 2.7 billion).
South Africa
• Approximately 60% of components are exported to
Mexico • Third-largest car export market (USD
• Largest car export market (USD 1.047 billion) North America and Europe (USD 6.6 billion).
674 million)
• Ban on gatherings of over 50 people • 21-day lockdown
• Declaration of emergency
Source : Goldman Sachs, Press research, PwC analysis and Department of Commerce, Ministry of Commerce and Industry, Government
COVID-19 crisis: Impact on the automotive industry and navigating the turbulence of India April 2020
PwC *Export data for 9M FY20 for 12 HS Codes (vehicles); 219 HS Codes (components) 4Historically, there have been three potential recovery scenarios
post economic shocks
GDP Growth %
Scenario 1: Optimistic Scenario 2: Realistic Scenario 3: Pessimistic
V-shaped curve U-shaped curve L-shaped curve
Example – SARS, Example – 1973 oil crisis Example – 2008 financial crisis
Spanish flu
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
Rapid recovery, growth returns to Shock breaks growth trend, some loss of Real structural damage, lower long-term
normal, no loss of output output permanently growth rate
Impact on public • Monetary and fiscal response to the crisis • Sustained period of virus mitigation • Long-term structural damage, lack of
enterprises (credit, liquidity push and policy rate • Significant fiscal and monetary interventions resources for public spending
easing) • Major expenditure in healthcare and welfare
Impact on private • Rapid rebound in household spending • Household and business confidence loss, • Large-scale unemployment, repeated
spending • Immediate pent-up demand seen postponement of high-ticket purchases waves cause unrest in the labour market
• Major cracks seen in the financial system • Domestic expenditure on essentials
Impact on the automotive • Rebound in auto demand • Sales remain depressed, significant portion • Alternate supply chains, policy changes in
industry • Cost pressures in the short term of demand lost procurement practices, trade agreements
• Likely shift to used car purchases • Continued disruption of production and retail
Source: Harvard Business Review, Investopedia, marketplace.org and PwC research and analysis.
COVID-19 crisis: Impact on the automotive industry and navigating the turbulence April 2020
PwC 5Three possible scenarios with different recovery periods*
FY 2020–21 FY 2021–22
Scenarios Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
(Apr–June) (July–Sept) (Oct–Dec) (Jan–Mar) (Apr–June) (July–Sept) (Oct–Dec) (Jan–Mar)
Economy Auto sector • Two-quarter slowdown in the economy
1 Optimistic • Pay cuts and temporary job losses expected in the informal
sector; recovery by end of Q3 FY21
Rapid recovery (~Q3 FY21) • Poor consumer sentiment and deferred capital
expenditures likely to result in slow recovery
+1
Wave with community spread
in isolated regions.
Economy
Auto sector
2 Realistic • Economy expected to recover by Q4
Delayed recovery (~Q4 FY21) FY21
• Job losses expected in both informal
+1 Community spread across both urban sector and formal sector; re-employment
+2 and rural India. Development of medical could take more than two quarters
cure takes longer than expected. • Government fiscal policies likely to take
time to show results
Economy
Auto sector
3 Pessimistic
Prolonged recovery (Q1 FY22)
*PwC analysis based on the situation as on 8 April 2020. Analysis and forecasts could change due to the rapidly changing external environment.
COVID-19 crisis: Impact on the automotive industry and navigating the turbulence April 2020
PwC 6Factors impacting automotive demand over FY21* Strong factor/high negative impact
Factor Key parameter Characteristic Optimistic Realistic Pessimistic
Supply Original equipment manufacturer Reduced production levels
(availability) (OEM) – manufacturing capacity
Supply side
Supply chain issues Expected supply chain disruptions
Finance Stability of the financial system Financial system likely to undergo stress; government support
availability expected
New product launches OEMs to defer product launches later than Q3/Q4 FY21
OEM initiatives Vehicle discounts and incentives High discounts from OEMs; unlikely to pass through BS6 price
hikes
Government and Tax cuts and other incentives Government support expected to reduce impact of taxes and
regulatory duties
interventions Compliance costs Government help to liquidate BS4 stock
Consumption Consumer income Job losses and pay cuts expected
demand Net worth Asset prices expected to decline
Demand side
Sentiment Consumer and business sentiment to remain low
Mobility preferences Increased preference for personal modes of transport
Vehicle finance rate 200–300 basis points lower than FY20
Activity levels in Manufacturing sector activity To remain below normal
the economy level
Service sector activity level To remain subdued due to poor sentiment and periodic
lockdowns
Investment Private capex To be deferred to FY21
demand Infra spend by the Government. Boost in infrastructure spend by the Government post COVID-19
*PwC analysis based on the situation as on 8 April 2020. Analysis and forecasts could change due to the rapidly changing external environment. Strong factor/high positive impact
COVID-19 crisis: Impact on the automotive industry and navigating the turbulence April 2020
PwC 7How the three scenarios will play out in each vehicle segment*
Two–wheelers (2Ws)** Key factors
6,000,000
Start of COVID-19
(India)
2019–20* 2020–21 % change • Preference for personal transport (changing mobility
4,000,000 (estimated) preferences) to be a key driver – used vehicle
2,000,000 17.2 million 15.2 million -12% market to capture a significant share of this demand
Sales 14.2 million -18% • Informal sector – a key buyer of two-wheelers –
0
(units)
20-Q1 20-Q2 20-Q3 20-Q4 21-Q1 21-Q2 21-Q3 21-Q4
affected significantly by the downturn
13.4 million -22%
• Online sales to grow
Optimistic Realistic Pessimistic
Passenger vehicles (PVs)†
• Passenger vehicles expected to show strong growth
1,000,000 post recovery – mobility preferences for personal
Start of COVID-19
800,000
(India)
2019–20* 2020–21 % change mode of transport to have a significant impact on
600,000 (estimated) demand
400,000 2.75 million 2.53 million -8% • Shared mobility segment to remain subdued in the
200,000
coming months
2.43 million -12% • Segment downgrade likely by buyers – consumers
Sales 0
(units) 20-Q1 20-Q2 20-Q3 20-Q4 21-Q1 21-Q2 21-Q3 21-Q4 2.26 million -18% that buy PVs/2Ws may go one segment and one
variant lower
Optimistic Realistic Pessimistic
Commercial vehicles‡
• The commercial vehicle segment is already carrying
500,000 2019–20* 2020–21 % change excess capacity (GST impact, axle loading,
400,000 (estimated) movement of goods lower due to weak economy);
Start of COVID-19
300,000 (India)
1.34 million 1.14 million -15% with logistics disruptions to continue in hot zones,
200,000 1.06 million -21% and with customers not in the investment mode, this
sector will show a delayed recovery.
100,000 0.99 million -26%
Sales 0
(units)
20-Q1 20-Q2 20-Q3 20-Q4 21-Q1 21-Q2 21-Q3 21-Q4
Optimistic Realistic Pessimistic
Optimistic Realistic Pessimistic scenario scenario scenario
*2019–20 sales include March 2020 sales estimates based on sales reports in media by select OEMs. Data source for FY2020 YTD Feb 2020 – Society of
COVID-19 crisis: Impact on the automotive industry and navigating the turbulence Indian Automobiles Manufacturers (SIAM). April 2020
PwC **†‡Classification as per SIAM. Commercial vehicles include three-wheeler goods carriers and three-wheeler autorickshaws (including N1,N2,N3 and M2,M3). 8
Note: PwC analysis based on the situation as on 8 April 2020. Analysis and forecasts could change due to the rapidly changing external environment.How to navigate the crisis?
Automotive companies can adopt a phase-wise, three-step
plan to initiate demand recovery
Protect Restore Rebound
3–6 months 6–12 months >12 months
• Sense disruption impact • Recover operations and resume • Prepare for growth
Strategic response • Protect customers and revenue planned growth trajectory for the • Invest in new opportunities
period
• Preserve cash and create liquidity • Improve and sustain cash position • Strengthen cash position to invest
Liquidity • Identify quick cash through new initiatives in new growth initiatives
management generation/saving opportunities
• Reorganise to align with current
Workforce • Safeguard employee welfare • Manage employee productivity and
business imperatives
engagement and • Communicate and engage with adapt operating model to new ways
• Create a resilient organisation
productivity employees of working
• Assess supply chain disruption • Evaluate supply chain gaps and • Strengthen the resilience and
Supply chain risk and monitor/manage risks restore operations to support visibility of the supply chain
and resilience • Protect supplies, orders and business objectives • Invest in agile and flexible
deliveries supply chains
• Stress test information technology • Scale up IT resources to meet • Strengthen IT infrastructure and
IT readiness (IT) infrastructure business requirements security and develop scalability
• Resolve issues impacting
business continuity
COVID-19 crisis: Impact on the automotive industry and navigating the turbulence April 2020
PwC 10Strategic response COVID-19 crisis: Impact on the automotive industry and navigating the turbulence April 2020 PwC 11
Prepare for different scenarios – sense and respond quickly
Scenario 1: Optimistic Scenario 2: Realistic Scenario 3: Pessimistic
• Assess impact across core segments – mass • Sense any significant impact on • Refocus business areas/segments
vs premium, rural vs urban, private vs fleet core segments under stress
Customer segments
• Protect core segments and prioritise • Identify new segments/opportunities • Protect and grow attractive business
segments that are showing more resilience that are relatively insulated segments
• Evaluate any product delay costs and • Review product launches basis • Shelve product launches that do not
revise target costs segment trends meet the revised business case
Product/launches • Assess launch readiness and identify • Prepare for digital/soft launches • Evaluate and invest in product solutions
opportunities to accelerate launches • Assess launch readiness and the that meet the evolving customer needs
ability to scale up new models
• Enhance promotional activities across digital • Optimise sales channels for revised • Restructure sales channels to create
channels demand projections more flexibility and resilience
Channels • Enable digital sales journey • Invest in convenient digital sales • Develop integrated digital channels to
• Evaluate network strength and expansion plans and marketing channels enhance visibility of demand and
customer needs
• Evaluate financial health of suppliers • Support suppliers and dealers with • Explore opportunities for strategic
and dealers and develop support initiatives financial initiatives to ensure investment in distressed partners
Ecosystem
• Evaluate opportunities to enhance sustenance • Identify alternative sources/channel
resilience of the ecosystem • Review and enhance ecosystem partners in line with the revised strategy
continuity plans
COVID-19 crisis: Impact on the automotive industry and navigating the turbulence April 2020
PwC 12Sensing demand signals and prioritising segments
Rural market recovery could be more Shared mobility likely to be
Increase in uptake of used vehicles
prolonged adversely impacted
• Impact of the lockdown has resulted in rural • The impact of COVID-19, along with upcoming • Shared mobility start-ups have been negatively
output loss. environmental and safety regulations (e.g. impacted by the COVID-19 crisis as services
BS6), will likely dampen the demand for new across the cities were disrupted and users
• Automotive rural demand may be under stress
vehicles. inconvenienced.
due to:
– loss of income in agriculture and informal • An increasing number of buyers might choose • In the short run, consumers are likely to prefer
sectors impact demand (crop price to defer their new car purchase or shift towards self-driven rides.
buying pre-owned vehicles.
reduction, losses for migrant workers) • OEMs who were considering investing in
– continued lockdown of urban pockets may • Automotive OEMs will need to focus on shared mobility play may identify opportunities
further impact rural economy (even if rural strengthening their used-car business. to invest in the space at better valuations.
clusters open up)
– low cash reserves and limited liquidity • 66% of Chinese consumers indicated a
support from banks due to crisis in non- preference for private vehicles for commute
banking financial companies (NBFCs). post the COVID-19 crisis, as compared to 34%
before the crisis, according to a survey by a
global market research firm.
• In China, the impact of the COVID-19 • Preference for taxis and car-hailing services
lockdown on rural economy was estimated to went down by 15% post the COVID-19 crisis.
be >USD 100 billion/month, with half of the • Public modes of transport were the most
surveyed households losing USD 282–704 per impacted, with a decline of 32% in preference
month. post the COVID-19 crisis.
Source: International Food Policy Research Institute Source: IPSOS Impact of Coronavirus to new car purchase
in China
COVID-19 crisis: Impact on the automotive industry and navigating the turbulence April 2020
PwC 13OEMs will need to leverage digital sales and promotion
channels to enhance engagement with customers
Traditional model: Lead generation Key considerations
Increased focus on OEM-led lead generation
primarily driven by dealers
Offline lead generation and sales promotion
activities have been deeply impacted by the
COVID-19 crisis.
OEM OEM
OEMs can proactively engage with
prospective buyers through digital channels
and share the leads with their dealer
Mass Digital Brand Brand Key opinion partners.
media/online platforms story platforms leaders (KOLs)
Dealer channels
Customers
Lead For digital natives, the trend towards online
sharing sales may get accelerated in the post
COVID-19 environment.
Dealer Online stores
Customers
COVID-19 crisis: Impact on the automotive industry and navigating the turbulence April 2020
PwC 14Managing liquidity COVID-19 crisis: Impact on the automotive industry and navigating the turbulence April 2020 PwC 15
Importance of cash while dealing with the crisis
Global
uncertainty
Requirement of a robust cash forecast
Why is it important to manage liquidity?
01 Cash visibility
02 Foundation for
cash-generation
initiatives 03 Process
improvement
Rapid decision
04 making
COVID-19 crisis: Impact on the automotive industry and navigating the turbulence April 2020
PwC 16Indicative step-wise plan –what, how and when
Week 1 – Obtain historical
Understand the key cash drivers and current cash position
understand the financial data
situation
Prepare supplier-wise weekly payment plan
Week 1 – cash
outflows
visibility
Understand quantum, Classify into statutory payments, critical/contractual payments
ageing and periodicity and discretionary expenditure
of payments
Review pipeline expenditure
COVID-19 crisis: Impact on the automotive industry and navigating the turbulence April 2020
PwC 17Understand the Obtain weekly detailed collection plan
Week 1 ‒ cash quantum, ageing and
inflow visibility
periodicity of
recoverables Monetise non-core/surplus assets
Seek product margins
Week 2
and product cash Consider changing sales and production plan
onwards ‒
improved cash conversion time
conversion
Seek key vendor
contracts and payment Identify vendors offering longer credit terms or discounts
terms
COVID-19 crisis: Impact on the automotive industry and navigating the turbulence April 2020
PwC 18Implementation of the cash conservation and liquidity
management office (CCLMO)
Members ‒ representatives of the CFO, treasury, payables and receivables teams
Role and Agenda of the CCLMO
Daily meetings with various departments Weekly meetings
• Prepare daily payment requests • Actual vs forecast variance
• Cost benefits of delaying capex, research and • Update of forecasts
development (R&D) and onboarding
• Accelerate refunds/recovery processes, identify
opportunities for bill discounting
• Capture cost-reduction ideas
Regulate the activities each day and at each stage
COVID-19 crisis: Impact on the automotive industry and navigating the turbulence April 2020
PwC 19Certain working capital levers to conserve cash
Debtors
• Proactive customer dispute Payables
management process
• Collection-focused key performance • Prioritise payments
indicators (KPIs)
• Ensure process compliance
• Increase invoice frequency
• Realise discounts/rebates
• Negotiate advance payment terms Inventory
• Renegotiate credit terms
• Consolidate supplier base • Align target stock levels with supply
chain
• Identify alternate sources
COVID-19 crisis: Impact on the automotive industry and navigating the turbulence April 2020
COVID-19
PwC Impact Assessment 20An example of a direct 13-week cash flow forecast
This is an illustration and may change depending on client needs.
13-week cash flow forecast – indicative format
Weeks Week 1 Week 2 Week 3 Week 4 Week 5 Week 6 Week 7 Week 8 Week 9 Week 10 Week 11 Week 12 Week 13 Total
Cash inflow
Collections from outstanding AR
Customer 1
Customer 2
Customer 3
Customer X
Customer XX
Collections from fresh invoices
Product/project/service 1
Product/project/service 2
Product/project/service 3
Product/project/service x
Product/project/service xx
Others
Total cash inflow
Cash outflow
-Statutory payments
Expense 1
Expense 2
-Contractual/critical payments
Expense 1
Expense 2
-Discretionary payments
Expense 1
Expense 2
General costs – total
Tax payouts
Total cash outflow
Total cash from operations
Cash flow from financing and investing
-Capital expenditure
-Investment
-Inflow from monetisation of surplus/idle assets
-Loan repayment
-Interest payment
-Other inflows
-Other outflows
Net inflow/outflow from financing and investing
COVID-19 crisis: Impact on the automotive industry and navigating the turbulence April 2020
PwC 21Managing people and organisations in the new normal COVID-19 crisis: Impact on the automotive industry and navigating the turbulence April 2020 PwC 22
Key workforce focus
areas to consider for High Immediate focus areas for organisations
the future Employee health
and wellness
We visualise two horizons of action in Continuous communication
which the focus areas will gradually shift and and connect
Ease of implementation
evolve.
Virtual capability
Horizon 1: Immediate/short-term Remote working enablement
building
and compliance
• Timeframe: 2 weeks‒2 months
• Focus: Keeping the lights on through cost,
compliance, care and commitment Transitions Cost and productivity
management
Horizon 2: Mid-term
• Timeframe: 2‒6 months Urgently rewire human
resources (HR) policies
• Focus: Building the momentum and nurturing Business continuity
the ecosystem to adapt to the new ways of planning
working
There will also be clear focus areas, Low Workforce impact High
where continued focus would be
imperative in both the horizons. Horizon 1 Horizon 2 Continued
COVID-19 crisis: Impact on the automotive industry and navigating the turbulence April 2020
PwC 23What are organisations doing to prepare for the long haul?
Key focus areas
Remote working enablement and Business continuity planning Continuous communication and Cost and productivity
compliance • Carrying on global mobility and connect • Engaging in workforce planning and
• Testing and enabling technologies to business continuity with customers • Constantly communicating with management
support collaboration and • Aligning with the leadership for employees to notify them about • Refining performance expectations for
communication business continuity measures taken amid COVID-19 employees
• Putting together remote working • Augmenting the workforce for • Sharing knowledge nuggets from • Planning for increase in absenteeism
policies and data security compliance key activities/tasks that credible sources like the World Health and work refusal
need support Organization (WHO)
• Drawing up productivity plans for
• Conducting scenario-based crisis • Creating a digital senior executives and white- and blue-
preparedness audits workplace of the future collar employees
Virtual capability building Transitions management Urgently rewire HR policies for Employee health and wellness
• Managing virtual capability across an • Managing compliance and brand relevance • Conducting health and wellness
organisation management around workforce • Realigning hiring, onboarding, exits, training sessions
transitions compensation and benefits (C&B),
• Building leadership capability for a • Revising leave, travel and
virtual world • Coaching and providing career performance management system hospitalisation/insurance guidelines
transition support for impacted staff (PMS) and learning and development
• Coaching leaders and staff for morale (L&D) policies to support the • Managing employee morale through
and resilience • Creating plans for scenario-based organisational strategy and the current care and communication
workforce transition scenario
• Building future-focused capability • Establishing employee
building and digital fitness support services, e.g. a
dedicated hotline number
COVID-19 crisis: Impact on the automotive industry and navigating the turbulence April 2020
PwC 24Key industry-wise considerations for managing productivity
Focus areas for the automotive industry
Accepting the new normal Value stream management Workforce morale Productivity
• An otherwise brick and mortar sector • Depending upon the direct and indirect • Employee costs not exceeding 10% of • Productivity is going to be hugely
has shown tremendous resilience to suppliers, the automotive industry’s total costs for the sector; yet the governed by how productivity is
transition to work from home (WFH). plans of ramping up are going to be success dependence on employee defined in current circumstances.
different. inclusivity is high.
• The sector should prepare for a slow • Value to be delivered as a productivity
return to normal and manage plans • From an employee productivity • Working with executives, white- and norm by each function and level will be
around that. perspective, the downtime could be blue-collar employees, contractual critical to be defined and focused
used to build newer partnerships and staff and unions to manage scenarios upon.
avenues. for sustenance.
• The sector should capture learnings
from the COVID-19 crisis.
Newer norms and capabilities for Contributing to the ecosystem Preparing for the new customer The long-term bets
the future • An inclusive cash flow and productivity and employee expectations • Organisations in the sector should look
• Managing virtual capability as a way of management plan that takes into • Will the definition of mobility and social to ring-fence their critical talent.
life. consideration the success of the entire distancing change human • Upskilling talent for the future as
value chain will be a key preferences?
• Building leadership capability for a employees will have to be doubly
consideration.
virtual world. • Could workforce models across the productive as normalcy comes in.
• Planning with ancillaries, suppliers and entire value chain be shifted to core
• Coaching of leaders and staff for • Focusing on talent pipeline and
dealer/distributors for newer ways and and build service providers for non-
morale and resilience. making sure to engage them.
newer propositions could be another core areas across all players?
• Stress on future-focused capability key consideration. • Finally, working on the new processes
building and digital fitness. for enablement and decision making.
COVID-19 crisis: Impact on the automotive industry and navigating the turbulence April 2020
PwC 25Supply chain risk and resilience COVID-19 crisis: Impact on the automotive industry and navigating the turbulence April 2020 PwC 26
The global supply chain disruption will have a continued
impact on India for at least six months.
31% value from the top 10 auto component source Top 5 at-risk auto components constitute 79% of all Probable disruption risk to last 7‒9 months,
countries is currently at higher risk component imports by value peaking in Q1 FY21*
Auto component import share by country for FY20 (9 Risk profiles of top 5 imported component Disruption risk distribution across
months) categories 35% the year
32%
Moderate risk Higher risk
Singapore 6%
Germany 14% 30%
Drive, transmission
76%
and steering
USA 8%
Thailand 6% 25%
Electricals and
78%
electronics
Italy 3%
20%
Body and chassis 77% 10%
Japan 11%
UK 3% 15%
Engine components 74% 25%
Belgium 2% 10%
5%
Suspension and
S Korea 16% China 31% 100%
braking 5%
5%
0%
Country risk category Major import countries Assumed disruption profile Q1 FY21 Q2 FY21 Q3 FY21
Higher Peak disruption in May (>50% risk of
The US, Germany, Italy, Spain, the
(At peak/yet to peak from the disruption), with disruption risk easing Maximum risk of disruption
UK, France and Belgium
COVID-19 disruptions) starting in October
Minimum risk of disruption
Moderate Peak disruption in March (25% risk of
China, South Korea, Japan,
(COVID-19 disruptions peaked and disruption); with disruption risk easing *Based on the assumed risk profile of top 5 at-risk
Thailand and Singapore
the countries are recovering) starting in September imported components
Source: Worldometers, media reports, PwC analysis
COVID-19 crisis: Impact on the automotive industry and navigating the turbulence April 2020
PwC 27Supply chain resilience and risk management
• Simulate supply chain scenarios based on ramp up • Evaluate geographical risk (China, Europe and the US) to shift
expectations share of business (SOB) to India
• Identify ramp-up impact on availability and supply • Build visibility and resilience-readiness across Tier 1, 2, 3 and
capability 4 suppliers
• Design responses to enable revenue growth • Secure allocated supplies and overtime assembly capacity
• Simulate supply scenarios with regard to dynamic 1 • Activate preapproved parts, risk management (RM) substitutes
changes in the spread of COVID-19 globally into near 6 and alternated suppliers
control, peaking and declining rate regions • Transport available inventory to areas away from quarantine
Scenario planning Resilient zones and ports
and simulation sourcing
• Zero-based costing (ZBC) approach to all overhead 5 • Focus and allocate capacities on priority products
2
costs
Digital Supply chain • Enable workforce with safety, hygiene, healthcare
• Reduction in travel spend Ramp up services and incentives
optimisation resilience and manufacturing
• Enable digital connectivity of overhead • Staggered shift operations to enable social
costs response distancing
• Revaluate office and dealership real estate costs
• Design a resilient manufacturing operation
4 3
• Adjust customer allocations to optimise profits on near-term Dynamic supply Unlock fulfilment • Deploy asset-based service providers
revenue or to meet contractual terms or higher demand demand balancing and logistics • Hedge export logistics with contract and spot rates
• Shape demand by offering discounts on available inventory • Enable functioning of parts warehouses (WHs) by engaging
• Introduce new products previously destined for China to India-based service providers (SPs) for labour availability
plants • Build resilience in mode by leveraging multi-modal
• Focus on aftermarket parts availability and enabling services at infrastructure of rail and road
convenience points or door delivery • Inbound and parts warehouse automation
• Engage customers proactively about delays
COVID-19 crisis: Impact on the automotive industry and navigating the turbulence April 2020
PwC 28IT readiness and security COVID-19 crisis: Impact on the automotive industry and navigating the turbulence April 2020 PwC 29
Information technology readiness and security
Target work from home (WFH) workforce/functions IT and security tools
• Identify functions and number of employees and infrastructure. • Provide sufficient internet connectivity and bandwidth.
• Ensure secure practice awareness. • Ensure 24x7 availability of crisis management team.
• Provide contact details of IT and information security (IS) teams. • Ensure virtual private network (VPN) coverage in the complete network.
• Provide laptops/mobiles/desktops/audio-video enabled voice over internet protocol
(VOIP).
IT and cyber security governance Hardware and data centres
• Make sure that a central repository of critical process documentation is available. • Provide policy clarity on personal device usage and special attention.
• Access management processes and policies for different time zones/shifts. • Issue laptops/handheld devices to the extent possible.
• Have in place stringent security policies for the internet. • All data centres to be equipped with live/hot network.
• Have a robust and scalable security infrastructure.
• Ensure IT services partner is adequately staffed.
Software and licensing Bandwidth sizing and data backup
• Have an optimum mix of traditional and cloud-based solutions. • Make sure internet service provider (ISP) and VPN solutions have both upstream and
• Prioritise critical daily usage software. downstream sufficient bandwidth.
• Prioritise software with easy remote access and installation. • Plan for peak-load scenarios.
Cyber security considerations Remote working ways
• Be aware of possible modus operandi of cyberattacks. • Train workers with remote working nuances.
• Authorise resources based on relevance. • Disseminate guidance templates to make remote working self-explanatory.
• Plan for multifactor/adaptive/risk-based authentication.
• Update identity management solutions.
COVID-19 crisis: Impact on the automotive industry and navigating the turbulence April 2020
PwC 30Building for the medium term: Every crisis is an opportunity
Reorganise for future growth while transforming the cost
structure
• Reprioritise strategic initiatives and investments to
PwC’s Fit for Company’s strategy make organisations fit for future.
Growth framework
Build industry-leading capabilities Transform cost structure Reorganise for growth
• Invest to build 3‒6 differentiating • Rationalise stock keeping units (SKUs) • Define the right mix of products and
capabilities (e.g. technology, and programmes services portfolio for the future
service levels, Agile SC and low
• Drive production and logistics efficiencies • Ensure finance continuity
costs)
• Amend vendor contracts for payment and • Enhance innovation pipeline
• Invest in start-ups to acquire Identify higher Enable
pricing terms (e.g. large-size enterprise • Invest in special projects (e.g. brand
futuristic capabilities (e.g. digital value-added resource planning [ERP] projects) and
tools, blockchain, electric vehicle priorities for sustain positioning, process streamline and
and advanced driver-assistance investments • Reduce supporting infrastructure and automation and lean)
systems) tools cost (e.g. manufacturing assets) • Rationalise roles and resources
• Co-create with peers for shared • Eliminate low value-add work
• Define the project management office
investment in new technologies (PMO) for execution
Enable change and cultural evolution
• Minimise management through spans and layers • Improve talent effectiveness through reskilling and defined programmes
• Improve consistency through standardisation • Optimise workload by redefining service levels and process change
COVID-19 crisis: Impact on the automotive industry and navigating the turbulence April 2020
PwC 32Every crisis is opportunity to emerge stronger
Low attractiveness High attractiveness
Business restructuring Differentiated capabilities Unlock value Product portfolio
Create independent scalable Leverage low valuation to acquire Identify low-performing businesses Develop new products considering
business units with resiliency for capabilities for future through and assets for sell-off to improve new customers (Tier II and III) and
Strategy future. mergers and acquisitions (M&A). liquidity. their health, hygiene and
connectivity needs.
New business opportunity Increased online sales Re-evaluate retail format and Doorstep service
Shared mobility concerns can open Concerns about visiting showrooms network Service and sanitise vehicles on the
up increased 2W, PV and used- will lead to online/digital sales and Network footprint and showroom doorstep to bring in hygiene
Front end vehicle sales and pay-per-use model. marketing processes (manpower and sizes need to be revaluated transparency, thereby reducing
overhead cost savings). considering dealer viability. service centre footprint.
Be decisive Focus on data Build future-ready supply chains Manufacturing. and office space
Considering financial viability for the Build a digital thread across Redesign supply base (on/offshore, redesign
future, decide on operations operations for faster decisions, lower critical parts, alternative material) Reduced operations expenditure
Supply chain restructuring, leadership, and human intervention, pre-emption of real-time risk profiling (e.g. integrate (e.g. lease, energy and supplies)
and operations investments on hold. financial loss and remote support. blockchain). considering optimised manufacturing
(lower production)/office space
(remote work).
Policy restructuring Contract restructuring Shared services and IT Multi-skilled workforce
Restructure HR policies (e.g. health, Revisit labour union contracts (e.g. • Save through shared services like Understand the need for multiskilling
remote working, travel, visitors, pay, leaves, benefits) for shared risk- legal tax, finance and and conduct relevant training
Workforce immigration, leaves, pay) through impact ownership administration. programmes (e.g. coding) for the
crisis learning. for collaborative crisis management. • Build scalable IT backbone for workforce.
online and remote needs.
COVID-19 crisis: Impact on the automotive industry and navigating the turbulence April 2020
PwC 33Learning from China’s COVID-19 experience
The impact of COVID-19 on China’s automotive industry
Accumulated confirmed cases of COVID-19 and the impact period
January Early stage City lockdown period (varied across cities)
FebruaryMajor impact on the auto industry and related responses
Disrupted supply chain Sluggish customer demand Suspended offline sales Huge cash flow pressure
OEMs stopping production Postpone customer demand Major impact on OEMs Major impact on OEM and suppliers
• The outbreak has affected OEMs • As a necessity with long-term • Suspended offline marketing activities • OEMs and suppliers are experiencing
located in Hubei province the most. decision-making cycle, most of the • Delayed new product launch plan cash flow pressure due to declining
Other regions such as Guangzhou and demand will not disappear, but it may revenue.
• May also report additional losses due
Major impact and challenges
Zhejiang have also been severely get postponed to Q2-Q4 2020 or to Major impact on dealers
to the discontinued operations
affected. 2021 due to the pandemic.
Major impact on dealers • 3 months.
but the precise demand remains in 4S stores
plants and R&D centres of the world’s • Average funding gap for volume brand
top 10 suppliers are located in the unknown. • Delays in new car delivery due to
dealers is about 3‒5 million, for luxury
severely affected regions. Shrinking purchasing power suspension of logistics and staff
brand it may up to 6‒8 million
shortage
• Due to the high degree of integration • The epidemic had the greatest impact
and interdependence of value chain, on the service industry and affected • Stagnation of after-sales service, due Estimate Q1 cash flow gap: 6–8 million RMB
Luxury brand dealer
the replacement of suppliers is not people’s disposable income, thus to staff shortage and rotation
Expected cash Used car
After sales Rent Interest Others
practical, and the impact on upstream leading to shrinking purchase power. inflow
Salary
enterprise will gradually be transmitted Expected cash
outflow
April cash for STD
downward. Volume brand dealer Estimate Q1 cash flow gap: 3–5 million RMB
Expected cash After sales Rent Interest Others
inflow Used car
Expected cash April cash for STD Salary
outflow
Recovery of supply chain Seize first-purchase demand Online-offline integration Enhance cash flow management
Major reactions and
• Dispose of distressed assets and improve
• Continue production and operation to • Develop a marketing strategy to • Integrate online and offline activities
response
the ability to optimise capital structure and
generate revenue for both OEMs and address consumers’ current emotions. for operation.
restructure.
suppliers. • Promote more new channels of online
• Focus on demand in Tier 3 and 4 • Increase financial support to strengthen
• Enhance the construction of supplier cities. marketing and increase the conversion cash flow forecast.
risk prevention system and build rate via active engagement with
• Focus on compact model. • Cut unnecessary costs through labour and
ecosystem to resist risk together. potential customers.
other expenses.
Source: PwC analysis
COVID-19 crisis: Impact on the automotive industry and navigating the turbulence April 2020
PwC 36Sales forecast and resumption of work
Overview and projection for China’s automotive market: The sales volume plunged in January and February, and while the market is likely to
recover in July, it is expected that the overall 2020 sales volume will drop approximately 10‒15% compared to 2019.
Estimated volume of PV sales in China in 2020 Status on work resumption*
Sales
volume
(million)
OEMs
3.0 Chinese OEMs:
2.5 • The average resuming capacity utilisation rate is over 70%, and it is expected that
production will resume from April.
2.0
• Chinese OEMs remain optimistic for the future and will maintain the planned
1.5 schedule, going forward.
2019 Actual
1.0 2020 Aggressive Foreign OEMs:
0.5 2020 Optimistic • It is estimated that foreign OEMs are resuming about 50‒60% of their normal
2020 Baseline operations.
0.0
Jan Feb March April May June July Aug Sept Oct Nov Dec Suppliers
Source: CAAM and PwC analysis
• Suppliers will resume work earlier than OEMs.
• Actual market demand for Q1: The January and February sales in 2020 • Chinese suppliers who mainly sell products to local OEMs are recovering at a
plunged by 20% and 79%, respectively. The sales volume in March is faster pace compared to those who heavily rely on exporting.
expected to decline by about 40%
• Forecasted market demand for two-wheel drive, high range (2H): Starting Dealers
from Q2, customer demand will recover gradually and the sales volume might • Resumption of work rate ‒ about 95% of dealers have resumed work.
jump back to the 2H purchase level in 2019.
• Customer traffic ‒ returned to approximately 60‒70% compared to last year.
• Forecasted overall impact: Based on the forecast, the total sales volume of • Sales efficiency ‒ returned to approximately 60‒65% compared to last year.
new cars in 2020 is likely to drop by approximately 10‒15%, compared to
2019. *Statistics till 31 March 2020
COVID-19 crisis: Impact on the automotive industry and navigating the turbulence April 2020
PwC 37Government of China’s support for the industry’s recovery
Financial incentives for enterprises
Auto market incentive policies Safety production support
post resumption of work
Extending subsidies for NEVs Insurance support Daily sanitisation and medical care
• Subsidies on purchase of neighbourhood electrical • Social insurance expenditure extension without • Daily sanitiisation for plants and offices
vehicles (NEVs) have been extended for two years overdue fine (within three months) • Newly added isolation area and medical area
till 2022 • Housing fund expenditure extension without • Closed-production area
Exemption on purchasing tax extended for two years overdue fine (before June)
till 2022 • Tax payment extension for three months
Subsidies for used cars Financial support Staff care supports
• Subsidies to be provided for purchase of State 3 • 50% interest subsidies in one year • Real-time guest and staff registration
emission standard used cars • Increase in credit loan quota and lowered financing • Sufficient masks for staff in plants and offices
• 50% reduction in value-added tax (VAT) for cost • Centralised pickup and drop-off management for
enterprise registered used car (2%) staff
• Exemption in VAT for personal used car • Maintenance of safe distance in workspace
• Centralised meal supply and management
Lifting restrictions on car plates Tax incentives
• Restrictions on the number of car plates issued in • Property tax cut for at least two months for small-
Guangzhou, Shenzhen and Hangzhou provinces and medium-sized enterprises affected by the
have been lifted pandemic
COVID-19 crisis: Impact on the automotive industry and navigating the turbulence April 2020
PwC 38Contact us Kavan Mukhtyar Rahul Bhargava Partner and Leader, Automotive Director, Automotive PwC India PwC India kavan.mukhtyar@pwc.com rahul.bhargava@pwc.com pwc.in Data classification DC0 (Public) All images in this presentation are protected by copyright, trademark, patent, trade secret and other intellectual property laws and treaties. Any unauthorised use of these images may violate such laws and shall be punishable under appropriate laws. Our sharing of this presentation along with such protected images with you does not authorise you to copy, republish, frame, link to, download, transmit, modify, adapt, create derivative works based on, rent, lease, loan, sell, assign, distribute, display, perform, license, sub-license or reverse engineer the images. In addition, you should desist from employing any data mining, robots or similar data and/or image gathering and extraction methods in connection with the presentation. © 2020 PricewaterhouseCoopers Services LLP. All rights reserved. In this document, “PwC” refers to PricewaterhouseCoopers Services LLP, which is a member firm of PricewaterhouseCoopers International Limited (PwCIL), each member firm of which is a separate legal entity. SG/April 2020 – M&C 5644
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