Covid contingencies

The news over the last two to three weeks has not been encouraging in respect of Covid case numbers and new restrictions on people gathering in significant numbers.  There are obviously big differences between markets, and we should praise those countries who seem to have managed their response to the pandemic better than others – even more so given that they are not the ones you would have put money on six or seven months ago.  However, the reality seems to be that the majority of the European population will face more severe restrictions in the coming weeks than they have had since the early Summer.  Whilst the news on vaccines seems to be relatively positive, I have not seen any suggestion that this will be available beyond priority groups – which generally does not include employees of car manufacturers, suppliers, dealers, repairers and all those who support our ecosystem – much before the first quarter of 2021, possibly later.

What does that mean for our industry?  It seems quite possible, despite the economic harm it will cause, that workplaces will again be closed.  This may be selective based on Covid hotspots rather than sweeping directives, but in such an interconnected supply chain, a two to three week shutdown in a key supplier plant can stop car assembly in a number of dependent plants within days.  When that supplier is back up and running, another may go down, or the assembly plant itself may be directly affected.  I therefore believe that new car supply may be significantly affected for the next several months, having a direct effect on the profitability of the car manufacturers and suppliers.

Job losses, further furloughs and a partial return to home working will affect more customers, their need for cars, how they use them, and to what extent they will need service and repair.  With current distancing measures in place in dealerships and repairers, they may escape direct lockdown instructions, but if the demand softens, all these positive actions may prove futile if the business is not there to support even this limited sales and aftersales capacity.

What actions can be taken in the different parts of the industry to address these challenges and reduce the long term impact?  In my view, the key need is to maximise every opportunity, whether that is to maximise the profit through the supply chain of each new car built, move each available used car onto a new owner in the most effective way possible, and to ensure that repair capacity is used efficiently, pulling through the labour hours and parts business.  We may see lower total volumes across the sector for several months to come, but we can at least make sure that every unit – car, spare part or labour hour sold – delivers the highest possible return.

In practice this means that we need to build the cars that people want, and get them to where the customers are prepared to pay the highest price, avoiding the possibility that limited production slots are used to build cars that will sit in inventory in market, then be discounted to move them through.  Dealers need to ensure that they are actively buying the used cars that are in demand, at the right price and investing an appropriate amount of money in preparing them, rather than tying cash up in slow moving stock that may eventually have to be repriced downwards.  Repairers need to get the most out of every job card, for example by improving conversion on ‘amber work’, perhaps facilitated by a service plan or service finance scheme.  If crash repair volumes dip again, bodyshops need to look for different types of work – perhaps with a promotion that it’s a good time for car owners to get minor damage fixed when their need for the car is lower.

Hopefully we won’t face extreme challenges in the months ahead, but these measures make good business sense at any time, so whilst we are generally enjoying good business volumes at the moment, we should not put our heads in the sand and presume or hope that this will continue.  Let’s make sure that every production slot, labour hour and spare part is applied in a way that maximises the revenue and reduces the amount of capital tied up.