Navigating the Inflection Point in the Automotive Industry

By Carrissa Pahl

There’s no doubt that COVID-19 has affected many industries including retail, food, hospitality, as well as automotive. What happens to sales when consumers lose their jobs, have a decline in revenue, or when the supply chain is disrupted? Here are a few tips and tricks to help navigate the coming obstacles.

On July 16, 2020, Plug and Play’s Adam Jansen hosted an event with Tom Wendt and Mark Gottfriedson, both partners at Bain and Company. They helped clarify the intensity of this economic crisis and different ways that we can go about preparing or preventing more damage. 

Some Key Takeaways

  1. High levels of uncertainty. The post-cycle “new normal” cannot be predicted reliably with industry fundamentals continuing to shift and consumer confidence remaining low.
  2. The worst is yet to come. 35% of top US suppliers can’t financially weather a prolonged downturn; the pressure of increasing costs will send the supply base into a serious crisis.
  3. We are at a critical inflection point. The biggest shifts in the market share happen in turbulent times. Those with high agility to respond will outperform their competitors.
  4. Actions to take now: now is the time to revisit your strategy. 

35% of US auto suppliers are not prepared for a prolonged slowdown -- sending the industry into a severe crisis. However, if the pandemic and lockdowns are prolonged, this number could reach up to 60%. If they have not already, companies need to start preparing for the worst. 

In for Lasting Changes

Covid-19 is bound to have a significant effect on the automotive industry, but it will also trigger some fundamental changes. If we take a fresh look at our business, we can navigate these changes in a successful way. No one knows what the new normal will look like, but Wendt and Gottfriedson give some important advice on how to mitigate the inevitable results. 

With consumer confidence at a low, even if factories are up and running, it won’t help unless there is demand. With inventory down 1.5 million, cars are becoming more expensive. This means consumers will push back their car purchases for at least six months in hopes of dropping prices. 

Companies should start to shift how they look at the future. Now is the time to evaluate from the start. Take a step back and re-evaluate how you plan, execute, and evaluate your company’s mission and initiatives.

Actions to Take Now

  • Revisit strategy: Protect your core and selectively invest in growth areas.

  • Reallocate funds: Be very smart about how you apply R&D and CAPEX rooted in your new strategy.

  • Unlock full potential: Drive operational and commercial excellence. Take out costs, zero base, go to the drawing board, and ask what costs you’d have if there was no crisis.

  • Shift to a scenario-based planning approach and learn how to respond to any new scenario as it comes. 

  • Invest in clean air vehicles due to increased regulations.

  • Make critical investments that have a high payback and are efficient in gaining capital.

  • Look at your competitive position and your segment attractiveness against other companies and evaluate yourself based on your standing.

  • Figure out how to generate cash.

Timing is Everything

If you haven’t started these steps yet, start now! Be smart about what you choose to do and be efficient. Innovation moves fast and you want to be seen as a strong innovator especially during these times. You can learn more about Bain’s point of view on the subject on their website