Economy & Politics

Will Corona be a great opportunity for the automotive industry?

Ready to sell: new cars in a dealer’s parking lotGetty Images

There isn’t much going on in the glass sales building on the Halstenbek car mile west of Hamburg. Outside, heavy rain rages from a black sky. Inside: no customers. In the conference room, company boss Christian Rönsch grins under his mask. “Now there is at least a small impulse,” he says. The VAT reduction will help, even if Rönsch would have preferred the scrapping premium for the entire industry.

Schleswig-Holstein’s largest BMW dealer sold 31 cars in April. There were 72 in May. Before Corona, an average of 110 went from the farm per month. “At least, it’s starting again,” says Rönsch – even if many customers were still waiting in June to see what politicians would decide.

Rönsch, who worked his way up to becoming a co-owner of the May & Olde car dealership chain with annual sales of around EUR 120 million from a small background, was at times quite depressed. His chain loses a quarter of a million euros a month to the crisis. Fortunately, the BMW Bank quickly helped the dealer with a loan. Things don’t always go so well between car makers and sellers. Rönsch, who is active in the BMW dealers’ association, also had a row a few years ago with the bosses from Munich when they wanted to withdraw their sellers from the lucrative trade with business customers.

Glass palaces like the one in Halstenbek, where the thunderstorm is now shaking outside, are the heart of the car business. Here it is decided whether it will start again after Corona. To do this, the dealers now have to attract the buyers they know very well. Rönsch’s salespeople called 3,000 customers during the lockdown: What is their health, how is the woman, is the car still running?

At the same time, the dealerships represent the dilemma of the traditional auto business: the distribution costs are high, new customers are difficult to reach, and the digital deals that all manufacturers hope for are difficult to conduct through dealers. Tesla has only a few elegant showrooms in the city, places test vehicles in front of the customer’s door and otherwise processes orders and services digitally and centrally. Sometimes they would like that in the corporate headquarters. But now the advertising campaigns for the VAT bargains are starting – the old sales structures are still needed for now.

The big question

It’s the big question, especially for German manufacturers: Will Corona once again cement the old business that corporations have been trying to get out of for years? Or does the crisis make change possible? If the industry manages to organize sales faster and more digitally, to slim down the bloated product ranges, to organize the small-scale supplier world and to accelerate the switch to climate-friendly drive technology, then the crisis was an important impetus. If not, the automakers would have missed an opportunity.

“Corona has relentlessly revealed how deep the structural problems in the industry go,” says Andreas Radics, who as managing director of the Berylls industry consultancy is one of the best-wired auto experts. He prays down the list of flaws: that suppliers are unable to go through even a month without orders; that manufacturers can barely hold out vital investments in times of crisis; that they are dependent on Asia and certain customer preferences (if you don’t have a big SUV gasoline engine in China, for example, you can pack); Finally, that everything new must be financed from existing business. “The advantage,” concludes Radics, “is that the crisis shows that the industry must change sustainably.”

Failure as an opportunity

It is still unclear whether and which manufacturers will seize the opportunity. It would be easier now: because the internal vested rights defenders are weakened; because investors reward expenses for dismantling, rebuilding and reconstruction; because the half-hearted turn to
E-car gets new drive through tax billions. There are already the first signs of hope, especially for the Germans. In China, the market is picking up again surprisingly quickly – and the upper class, who like German luxury cars, are particularly keen. In addition, the crisis creates an unexpected grace period for the CO limits in Europe, which will mean billions in fines for industry from 2021. “We expect that adapting to the CO rules will be easier and cheaper for manufacturers,” says UBS auto analyst Patrick Hummel. On the one hand, the purchase premium boosts sales of e-cars, with margins that are no longer so far below those of combustion engines. Their weakening share of the overall business also reduces the manufacturers’ emissions balance. In addition, Germany is still the most stable of Europe’s major car markets, despite the 60 percent drop in new registrations.

Corona a chance? At first glance, the virus was nothing but a catastrophe for the auto industry. The rating agency Moody’s anticipates a 30 percent market decline in Western Europe this year, and 20 percent worldwide. The Paris-based company PSA, owner of Opel and soon Fiat Chrysler, even calculated a drop in half in a stress test. The Moody’s experts have downgraded the creditworthiness of all German manufacturers. One beacon was that the three listed German manufacturers VW, Daimler and BMW were together for the first time worth less than electric competitor Tesla. In addition, the slump hits an industry that, unlike the financial crisis, is not caught in a boom, but has had problems before.

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