Report: 3 global events impacting the auto industry
By Mike Gardner, VP Automotive Group at Fortegra
By 2030, the global automotive industry is predicted to reach $9 trillion, with new vehicle sales making up 38% of it.
While these numbers sound promising, a few current events have dealers, manufacturers, and auto repair shops thinking otherwise: United States-Mexico-Canada Agreement, the United States and China trade war, and the coronavirus.
How can the auto industry maneuver through these global events to continue generating a profit and attracting customers during this crucial time?
United States-Mexico-Canada Agreement (USMCA)
The USMCA went into effect on November 30, 2018, but American businesses are still feeling the impact today, especially the auto industry, from the manufacturing line all the way through to the auto repair industry. According to budget projections from the Congressional Budget Office, the USMCA is expected to cost the auto industry $3 billion over the next ten years. This is, in part, due to stricter guidelines on importing duty-free auto parts — or parts exempt from paying taxes when they cross borders — based on where the parts were built and labor rules of certain countries. For auto repair shops, they’re challenged with finding parts at a decent price to continue generating revenue and maintain customer satisfaction, while navigating the new guidelines under USMCA.
Other factors play into the impact on the auto industry. For example, 40% of vehicles must be manufactured in facilities where the minimum wage for employees is $16 per hour. Additionally, 75% of auto parts must be imported duty-free by 2023, an increase from 62.5% as stated in the former North American Free Trade Agreement (NAFTA). These can increase the production costs for automakers, and, in turn, influence consumer decisions. A survey by LevaData shows that 58% of automotive executives agree these factors will result in higher costs for consumers over the next few years. Higher costs will decrease demand, which will force automakers and the repair industry to significantly rethink their short- and long-term strategies to continue catering to customers while generating revenue.
United States/China trade war
According to the Center for Automotive Research, the trade war between the U.S. and China is expected to take a huge toll on the auto industry, causing it to lose a potential $770 billion in sales over the next five years. The same research predicts global sales of cars and SUVs will hit 77.3 million in 2020, a decrease of 84.4 million in 2017. While sales are expected to climb back to 87.9 million by 2025, it will be a slow and cautious increase because of the current trade war.
China will be hit the hardest, but Germany is feeling the impact, too, because China is a key market for the German auto industry. It’s clear the trade war will have a global impact in the years to come.
Last, but not least, the coronavirus is expected to have a negative impact on global auto sales as most Chinese automakers have halted production for the foreseeable future. It’s predicted the industry could see a 2.5% decrease in overall sales this year due to the virus. In fact, in the first half of February, China saw a 92% decrease in car sales, a detrimental hit to the industry. Nissan, which is headquartered in Wuhan, saw its share prices tumble 30% because of shutdowns. Hyundai relies on Chinese suppliers and as a result, has had to idle some of its plants due to the shortage.
Yet, there is a light at the end of the tunnel for automakers around the world in spite of the coronavirus. Within the last two months, Tesla reopened its factory in Shanghai, and Ford restarted production. Automakers, dealers and auto repair shops of all sizes should anticipate this to be a slow, but sure, recovery.
Adjusting strategies for future incidents
There’s no doubt it will take time and patience for the auto industry to fully recover from these crucial events. No matter how long they last, automakers, dealers and repair shops will need to adjust their strategies moving forward, and develop a plan for future events — both with their internal teams and their customers. Following events such as these, the industry should take it as an opportunity to re-evaluate current processes, technologies and partnerships and see what gaps need to be filled to overcome future incidents and continue catering to customers while generating revenue. In doing so, they are able to set a plan in place to overcome future events and come out of them stronger than before.
About Mike Gardner, VP Automotive Product Group at Fortegra
Calling on more than 30 years of experience in the development of automotive and consumer credit insurance products and programs, Mike cultivates client relationships with Fortegra’s third-party administrative partners and spearheads the advancement of F&I programs like CLIPS, customer contact and reinsurance. Aligning strategic risks, Mike guides shared partnerships using reinsurance and works with current TPA clients to drive business growth.