COVID-19: Deloitte measures impact on South Africa’s auto industry

What’s the impact of the coronavirus crisis on the automotive industry in South Africa? That’s the question Deloitte sought to answer in a report out now. In short: the situation is grave, help is needed, but hope is on the horizon.

The global dimension of the current standstill is staggering: over 80% of the world’s economy is in some form of lockdown. When the dust of the pandemic settles, many fear we’ll have to deal with an equally unprecedented economic recession. Goldman Sachs predicts a contraction of global GDP by 1% - a larger decline than the one caused by the 2008 financial crisis. 

450,000 people

No country, no industry will remain unaffected. Moody’s predicts global demand for passenger vehicles will shrink by 14% in 2020, for instance. So what will the effect of COVID-19 be on South Africa’s all-important automotive industry (pictured: VW plant in Port Elizabeth) – directly and indirectly employing more than 450,000 people and generating almost 12% of the manufacturing value added to the nation’s GDP? 

While some commentators warn of a ‘lost decade’ for the global auto industry, the challenge lies in governments and industry working together to minimise the damage and maintain consumer demand. 

Speedy restart

As has been done in other countries, various new and existing funds are being positioned to help industries and workers in need. Ultimately, the best help will be a speedy restart of shuttered factories, both of the OEMs themselves and further down the supply chain, as soon as possible after the three-week forced closure ends. 

The main problem, however, will be to restart demand, both at home and especially abroad. Last year, South Africa exported just under 390,000 vehicles, a 10% increase over 2018 and more than 60% of total production.  “With the collapse in demand and a very uncertain outlook, the auto industry (in South Africa) will undergo rapid consolidation,” predicts Deloitte. 

Right-sizing

So, how to respond, recover and thrive? The COVID-19 issue comes on top of already rapid, profound changes in the mobility paradigm. This crisis will push OEMs even more urgently to adjust to a suppressed market by right-sizing their cost base. 

China’s gradual re-opening after the worst of the crisis is over, is a sign of hope: only two of VW’s 33 plants in China remain closed, for example. After vehicle sales fell by 80% in February, China’s OEMs are hoping for a rapid normalisation of the market. 

Will the same happen for South Africa’s auto industry? “Thriving in the next normal will be for those businesses who see these convulsive changes as opportunities not to be missed,” the Deloitte report concludes. 

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