How COVID-19 is Changing the Car Industry

The COVID-19 pandemic has, at the risk of sounding cliché, changed everything. It has changed the way we travel, spend our time, and most importantly for the purposes of this article, it has changed the way that businesses are deciding to operate. The COVID-19 pandemic has generated an economic impact that many businesses are struggling to cope with, or at the very least, requires them to make significant adjustments, and the automotive industry is no exception. 

Whether it’s delaying innovative projects, or changing the way that cars are purchased and delivered, COVID-19 has seriously impacted the automotive industry, the its effects are likely to be long-lasting. In this article, we’ll look at some of the many ways that the automotive industry will be forever changed as a result of COVID-19. 

Car deliveries will look a bit different

Shaking hands: a classic car buying ritual likely to have fallen permanently out of style.

Purchasing a new or used car is typically a rather hands-on process. We visit dealerships, shake hands with salespeople, and spend time in a confined space with others during test drives.  The process looks vastly different now in the wake of COVID-19. Not only are handshakes denied, test drives are taken solo, and papers are signed in the service bays with a plastic barrier separating parties. 

I was able to experience this novel process when I recently went to a dealership with my father to purchase a new-to-him used truck. We called in advance to test drive, and the truck was left open with the keys in it on the lot. We were instructed over the phone to simply hop in and take it for our test drive, without even seeing the salesperson face-to-face. Negotiation took place over the phone, and the necessary papers were signed in the dealership’s service bay.

While this extraordinarily unusual process is unlikely to become the new standard, we can expect dealerships to develop less involved delivery processes to accommodate the current situation. This adapted process worked, but it calls into question the relevance of traditional dealerships, particularly in a post-pandemic world, especially for used cars. (A dealership and sales staff adds a lot of overhead costs when everyone’s trying to avoid contact with both as much as possible.) It seems that online car buying and selling has more advantages than ever, now and in a post-pandemic world.

Capital will be redirected

As auto manufacturers struggle with a sharp decline in the demand for new vehicles, they will be forced to divert capital away from innovative new projects and into the maintenance and survival of existing operations. This redirection will be felt by consumers as slower innovation and delayed release of new technologies.

For example, pipeline technologies that previously might have hit showrooms within the next few years may be put on the back burner, and now might reach consumer cars years later than originally planned. This comes as a result of auto makers needing to spend money funding and maintaining current projects and lineups, rather than focusing on the development of new ones. 

Expedited segment departures

Automakers will likely pare down to fewer models.

Along with the redirection of R&D capital to the maintenance of current projects, automakers may also eliminate less profitable segments to focus on the those that are most lucrative. Recent trends have shown automakers looking away from small cars and focusing more on crossovers and SUVs, and this focus may become even more narrow in the wake of COVID-19. As manufacturers attempt to recover from the financial losses of the economic slowdown, we may see them exit less-profitable or downward-trending segments sooner than expected, which can mean fewer options in the short and long term for consumers.    

Electric vehicle sales may suffer

The EV hot streak may cool off a bit in the wake of COVID-19, as oil prices remain low.

One of the hot topic global financial impacts of the COVID-19 pandemic has been a shocking and historic drop in oil prices. This drop in oil has been so severe that oil futures were closing in the negative at certain points in April. As we know, one of the primary benefits of purchasing an electric vehicle is not having to pay for gas, but what happens when gas is not nearly as expensive as it once was? With the potential for gas prices to stay low for some time, consumers may be less likely to switch to electric vehicles, and we can expect automakers to not only take note of this, but to adjust targets and funding and production accordingly. 

A shock to supply chains may inspire restructuring

Supply chains are experiencing profound challenges amid shutdowns and limited operation.

The automotive sector’s supply chains are notoriously complex, with cars being composed of parts not just manufactured by the automakers themselves, but by hundreds of other smaller manufacturers. Many car parts are outsourced to other manufacturers, from things as minor as electrical connectors to items as major as engines and transmissions.

Because of the truly global impact of COVID-19, the effect on supply chains will be widespread and highly variable as a result of how expansive supply chains are. Certain parts manufacturers will be squeezed tighter than others depending on where they are located, and some have been and still are operating at a reduced capacity as a result of pandemic-related restrictions in place. This can have a massive negative impact on production, and it may spur on automakers to manufacture more parts in house in the future, in order to be able to better adapt to the next shock to the world’s economy. 

Final Thoughts

The above changes in the automotive industry are just a few of the many ways that we may see automakers adjust their practices in order to deal with the impacts of COVID-19. Of course, the recovery efforts are still only just starting, and all of this may be subject to change as economic volatility remains high, though slowly steadying. Whatever does eventually happen, we are certain that the auto industry will come out of the COVID-19 pandemic looking at least slightly different than it did going in. I just have my fingers crossed that we don’t see any delays in all of the new and interesting cars that were planned to debut this year, though with auto shows likely to be postponed, any unveilings will happen differently from in the past.

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