COVID-19

Impact on the
Automotive Industry
Four Step Approach to Assessing Impact of COVID-19 on New Vehicle Sales

Epidemiology Macroeconomic Automotive

and measures development demand
Epidemiological • Depressed household and Demand simulation:
situation: business confidence Longer-term • Correlation with GDP
• Infection rate and • Depressed spending and investment effect • Short-term impact with
casualties • Increase in insolvencies deferred purchases
• Containment strategy • Rising unemployment
and measures • Overall decline in GDP Different situation and
impact in each region:
Governmental
• China
countermeasures:
• Restrictions and the • Europe
shutdown of public life
Immediate
and direct impact • US
• Restrictions and the
shutdown of industry • Immediate liquidity management
Short-term
• Consumer lockdown
effect
• Deferral of car purchases
• Forced closure of car dealerships
• Closure of factories

Source: BCG analysis. BCG’S COVID-19 AUTOMOTIVE DEMAND MODEL

A Shock Like COVID-19 Can Be Described as a V-U-L Scenario

Historical flu shocks have mostly been V shaped

V shaped U shaped L shaped

125 125 125
Return to preshock Growth resumes at Growth resumes at
120 120 120
level (trend)… lower level (trend) lower level (trend)…
GDP 115 115 115

levels 110 110 110

105 …and growth rate 105 …but at preshock 105 …and at lower
100
(same slope) 100
growth rate (slope) 100 growth rate (slope)

6 6 6
Growth overshoots Lost output during recession is Loss in output perpetuates
4 on rebound 4 permanently lost, but no perpetual loss 4
GDP 2 2 2
growth
(%) 0 0 0

-2 -2 -2
1 2 3 4 5 6 7 8 9 10 1 2 3 4 5 6 7 8 9 10 1 2 3 4 5 6 7 8 9 10

TIME PERIODS TIME PERIODS TIME PERIODS

Classic economic shock leading to an intertemporal Shock that breaks a growth trend, even as the Shock that perpetually breaks a part of the growth
displacement of demand; growth resumes on growth trend remains the same; the cause is model; a structural impact that shifts the output
original output path typically a financial recession or major policy error path lower and establishes a lower growth rate

Source: BCG Henderson Institute’s Center for Macroeconomics. BCG’S COVID-19 AUTOMOTIVE DEMAND MODEL
 Our Simulation Is Based on Four Archetypes of the Crisis

1 ARCHETYPE
Contained V path 2 ARCHETYPE
Deep V skewed on U 3 ARCHETYPE
U path 4 ARCHETYPE
L path
125 125 125 125
GDP LEVEL

120 120 120 120

115 115 115 115
110 110 110 110
105 105 105 105
100 100 100 100

▪ Positive surprise in virus properties ▪ Virus properties stay or worsen ▪ Virus properties linger into 2021 with Consistent repeated shock:
▪ Rapid catch-up in mitigation measures ▪ Mitigation efforts are slow / unsuccessful continued fear of mutation ▪ To labor – potentially facilitated by a
Macroeconomic

and their effectiveness
▪ Significant monetary and fiscal response
▪ Household and business spending stays
largely in tact
▪ Few businesses fail, unemployment
recovers from initial dip
and have to be extended
▪ Household & business confidence falls &
remains depressed (08/09 crisis)
▪ Rebound through governmental support
in investments, business sector and
households
▪ Mitigation efforts are intense, yet
ultimately unsuccessful
▪ Mitigation effort have to be sustained for
an extended period
▪ Household & business confidence collapses
and remains depressed
▪ Financial system begins to show cracks
repeated deadly pandemic
▪ To capital – potentially facilitated by
inability to invest as in the past
▪ To productivity – potentially facilitated
by a break in the capacity to learn

▪ Government backed incentives and cheap ▪ Confidence remains low & consumers ▪ New vehicle sales remain ▪ Disruption to auto supply chains
credit spur quick recovery continue to defer major purchases depressed as market moves into
Auto

▪ Continued shutdowns – e.g.,

▪ Deferred automotive demand recovered ▪ Demand partly recovered, yet significant prolonged economic downturn manufacturing, dealers, etc.
to large extent portion of sales lost in ‘20 ▪ Significant portion of sales lost ▪ Immense loss of sales
Assumptions

▪ Short-term crisis impact: ~3 months ▪ Short-term crisis impact: ~6 months ▪ Short-term crisis impact: ~9 months ▪ Short-term crisis impact: >12 months
▪ Macroeconomic impact: ~9 months ▪ Macroeconomic impact: ~18 months ▪ Macroeconomic impact: ~24 months ▪ Macroeconomic impact: >24 months
▪ GDP drawdown: ~2.0 p.p. ▪ GDP drawdown: ~5.0 p.p. ▪ GDP drawdown: ~6.0 p.p. ▪ GDP drawdown: ~7.0 p.p.

Unlikely archetype COVID-19 crisis is most likely in the range of these archetypes Unlikely archetype
Source: BCG analysis. BCG’S COVID-19 AUTOMOTIVE DEMAND MODEL
Note: p.p. = percentage points.
Archetypes per Region Are Combined into Scenarios

China European Union US

Start of crisis: January 2020 Start of crisis: February 2020 Start of crisis: March 2020

Optimistic
scenario 1 Contained
V path 1 Contained
V path 1 Contained
V path

Most likely
scenario: I 2 Deep V
skewed on U 2 Deep V
skewed on U 2 Deep V
skewed on U

Most likely
scenario: II 2 Deep V
skewed on U 3 U path
3 U path

Pessimistic
scenario 4 L path
4 L path
4 L path

Source: BCG analysis. BCG’S COVID-19 AUTOMOTIVE DEMAND MODEL

Forecasting Sales Decrease of ~20% in 2020...

...with risk of a sales decline of as much as 40%

Monthly sales forecast for China, European Union, and US

(vehicle units and monthly sales in millions)

Most likely 2020 2021 Optimistic 2020 2021

Forcast: ~61.8 ~62.6 Forcast: ~61.8 ~62.6
scenario: I Adjusted total: ~52.0 ~60.3 scenario Adjusted total: ~58.8 ~62.5
~-9.8 ~-2.3 ~-5.0 ~-0.1
(16%) (4%) (8%) (<1%)

01 02 03 04 05 06 07 08 09 10 11 12 01 02 03 04 05 06 07 08 09 10 11 12 01 02 03 04 05 06 07 08 09 10 11 12 01 02 03 04 05 06 07 08 09 10 11 12
20 20 20 20 20 20 20 20 20 20 20 20 21 21 21 21 21 21 21 21 21 21 21 21 20 20 20 20 20 20 20 20 20 20 20 20 21 21 21 21 21 21 21 21 21 21 21 21

2020 2021
Most likely Forcast: ~61.8 ~62.6 Pessimistic 2020 2021
Forcast: ~61.8 ~62.6
scenario: II Adjusted total: ~47.8 ~58.9 scenario Adjusted total: ~37.0 ~51.6
~-14.0 ~-3.7
(23%) (6%) ~-24.8 ~-11.0
(40%) (18%)

01 02 03 04 05 06 07 08 09 10 11 12 01 02 03 04 05 06 07 08 09 10 11 12 01 02 03 04 05 06 07 08 09 10 11 12 01 02 03 04 05 06 07 08 09 10 11 12
20 20 20 20 20 20 20 20 20 20 20 20 21 21 21 21 21 21 21 21 21 21 21 21 20 20 20 20 20 20 20 20 20 20 20 20 21 21 21 21 21 21 21 21 21 21 21 21

Source: IHS Markit, light vehicle sales forecast, January 2020; BCG analysis. BCG’S COVID-19 AUTOMOTIVE DEMAND MODEL
Note: IHS forecast data with limited coronavirus effect was used as a basis for scenario development.
 The Response to COVID-19 Requires a Comprehensive Approach

1 Situation monitoring
Governmental-action Consumer and
COVID-19 monitoring
monitoring customer monitoring

2 Crisis management
Staff engagement Stakeholder engagement (such as,
Contingency planning Tight financial steering Takeover defense
and communication state, union, and supervisory board)

3 Respond 4 Stabilize and ramp up 5 Leverage

Immediate actions to protect Sales and HR and Leverage crisis to build
R&D Procurement Operations Supply chain
workforce and company after sales tech lasting advantage
Stabilize and run the company in the crisis
Health and safety measures Advance structural changes
Supply Revenue Crisis
Cash office and liquidity Safeguard Supplier Running
chain and protection working Strengthen business resilience
management critical review and operations in
inventory and customer mode and IT
projects stabilization crisis mode
management outreach stabilization Pursue M&A opportunities
Short-term supply chain
management Prepare ramp-up to win in the rebound Make bold organizational
Shutdown management Portfolio Supplier changes
Operations Supply chain (Re)conquer Workforce
(re)priori- steering and
ramp-up ramp-up market share (re)activation Implement bold strategic moves
Governmental action utilization tization commercials

Source: BCG analysis. BCG’S COVID-19 AUTOMOTIVE DEMAND MODEL