COVID-19 AND

AUTOMOBILE
INDUSTRY
TABLE OF CONTENTS
INTRODUCTION ....................................................................................................................... 2

AUTOMOBILE INDUSTRY ............................................................................................ 2

THE IMPACT OF COVID-19 .......................................................................................... 3

WHAT CAN THEY DO? ................................................................................................. 3

USE OF TECHNIQUES TO IMPROVE PERFORMANCE.......................................................... 4

LEARNING CURVES ..................................................................................................... 4

JIT SYSTEM .................................................................................................................. 5

TARGET COSTING ....................................................................................................... 6

VALUE ANALYSIS ........................................................................................................ 7

FUNCTIONAL ANALYSIS ............................................................................................. 7

USE OF BALANCED SCORECARD ......................................................................................... 8

WHAT THEY CAN DO ................................................................................................... 8

HOW IT HELPS ............................................................................................................. 9

CONCLUSION ..........................................................................................................................10

REFERENCES .........................................................................................................................11

TABLE OF FIGURES
Figure 1: Components of an Automobile ............................................................................... 2
Figure 2: Impact of Chinese Exports ...................................................................................... 3
Figure 3:Volkswagen is preparing for a steep learning curve .............................................. 4
Figure 4: Toyota production system....................................................................................... 5
Figure 5: Target Costing Practical Example........................................................................... 6
Figure 6: Value Analysis Practical Example........................................................................... 7
INTRODUCTION

AUTOMOBILE INDUSTRY

‘Automobile’ or ‘Motorcar’ is commonly a four-wheeled vehicle made for passenger transportation, driven
by an internal combustion engine and volatile fuel. Toyota, Volkswagen, Ford and Daimler are some of the
Companies that manufacture automobiles.

Automobile industry is one of the fastest growing sectors in the world and known to be a symbol of ‘technical
marvel’ by humankind. It has a strong multiplier effect on a country’s growth, therefore a critical driver of
economic growth.
(Purdy, 2020) (UKEssays, 2018)

Figure 1: Components of an Automobile

(Purdy, 2020)
THE IMPACT OF COVID-19

COVID-19 has made a swift and significant influence in the Automobile industry. COVID-19 has disrupted
people’s occupations, reducing their disposable income. Therefore, automobiles are an inferior need to
less-waged people, leading to fall in consumer demand. Factories may get shut down.

The various lockdown scenarios, may result in a global recession leading to loss of consumer confidence,
impacting the manufacturers’ revenues.

Suppliers around the globe struggle to export vehicle parts during quarantine times and lockdowns. (Ex:
disturbance of Chinese parts exports caused manufacturing interruptions in USA)

.
Figure 2: Impact of Chinese Exports

(Deloitte, 2020) (Accenture, 2020)

WHAT CAN THEY DO?

Simply put, Companies need to properly identify cost-out throughout the enterprise to reduce unnecessary
costs.

Customers will seek affordable prices, hence increasing selling prices will be adamant. As an alternative,
they can boost vehicle sales through engaging interest with customers through online platforms.
(Accenture, 2020)
USE OF TECHNIQUES TO IMPROVE PERFORMANCE

The techniques used to improve the company performances are discussed below.

LEARNING CURVES

Learning curves depicts that the average time taken to produce an output with repetitive tasks will be
decreased over time. Thus, the employees will start to work faster and efficient. Labor hours will decrease,
with labor cost decreased correspondingly.

Companies know the labor rates and labor hours paid. It can be used to calculate the cost of a single
product. A well-placed employee will reduce that cost of a single output over time.

Learning curves calculate costs more accurately, therefore it can be used for production planning, cost
forecasting and logistic schedules.
(Kagan, 2020)

Figure 3:Volkswagen is preparing for a steep learning curve

(Automative News Europe, 2017)

JIT SYSTEM

Just- In-Time is when goods are manufactured, or the raw materials are aligned only when the customer
places an order.

COVID-19 has caused decrease in automobile demand. Although, there won’t be unnecessary stockpiled
up, since JIT System doesn’t start production until demand requires. Costs associated with inventory and
warehouse will be less or nil, thus decreases the waste and improves the efficiency in the company.

Employees in JIT share knowledge to find more effective production methods. They can learn and share
with each other about solutions to face the pandemic successfully.

Toyota produces high quality, low cost automobiles with a diversified product portfolio with a clearly
implemented JIT System.
(Banton, 2020) (UKEssays, 2018)

Figure 4: Toyota production system

(Toyota, n.d.)
TARGET COSTING

This is where product prices are determined by external factors, and company has little control over the
selling price thus, cost is set out according to selling price and expected profit.

The sales of Electric Vehicles were resilient during the pandemic rather than diesel, petrol cars. There’s a
possible chance that electric cars might be the future, with the government’s support for them to meet CO2
emission targets. Manufacturers can carry out researches to find out the price, consumers are willing to
pay for an ‘affordable electric car’ during a pandemic.

However, for existing products the current selling price may drop due to pandemic’s effect, and the only
way to maintain the same profit is to cut down costs. Target costing can be used, with cost reductions.
(Ewing, 2020) (Piparsania, 2020)

Figure 5: Target Costing Practical Example

VALUE ANALYSIS

This is an approach to reduce a product’s cost without deteriorating its value.

As discussed above, the new launch of electric cars can be examined under value engineering easily. The
management can analyse the product components to reduce costs and adopt to alternative solutions.

However, value analysis is a bit difficult to apply to an already existing product since manufacturers have
finalised and released the product. Changing the components will compromise the product value. Once you
launch a specific product, all the products of that type have to be in the same qualifications. Original product
must be given, even after a pandemic.
(Patil, 2010)

Figure 6: Value Analysis Practical Example

FUNCTIONAL ANALYSIS

This is an approach to reduce costs through examining the functions of a product.

As an everyday developing and improving sector, automobile industry uses highly technical functions which
can be expensive and costly. This may result in a higher selling price. However, due to COVID-19
consumers are financially unstable and unable to spend a vast volume of money just for transportation.
Manufacturers can carry out a functional analysis and figure out the customers’ expectation of a motorcar’s
essential functions. So that, they can implement a selling price which won’t compromise customer
expectations and maintain the target profit replacing alternative solutions for costly functions.
(Toyota, 2016)

USE OF BALANCED SCORECARD

Balanced scorecard is a set of measures that helps the management gain, fast yet a broad overview of the
company. It compliments the financial measures along with non-financial measures in an entity, in other
words it helps to get a 360 appraisal of performance. (Harvard Business Review, 1992)

WHAT THEY CAN DO

The method mainly focuses on four perspectives. They can follow the below strategies to gain a 360
appraisal of performance amidst a pandemic like this.

FINANCIAL PERSPECTIVE- How do we look to shareholders?

Due to COVID-19 the global economy is falling, and so does the automobile industry. The management
can cut unnecessary operational costs, to save profits from being lost. The financial stability reassures the
survival in the industry.

CUSTOMER PERSPECTIVE- How do customers see us?

Although, the physical purchasing of products is restricted, the companies should keep engaging with their
customers through online or mobile channels, where they can measure the engagement of the customers
as well. Companies can show commitment to solve the pandemic, so that it will create a better image to
the community.

INNOVATION AND LEARNING PERSPECTIVE- Can we continue to improve and create value?
Innovating new ideas is critical during a pandemic like this. The company’s ability to innovate, improve and
learn has direct ties with its company value. The ability to adapt to the COVID-19 environment along with
employees will determine the success of the company.

INTERNAL BUSINESS PERSPECTIVE- What must we shine at?

The internal performance of the company and its processes may be compromised with this pandemic.
Some factory branches may have to be shut down, machines will be idling, employees will lose the
productivity skills being idled for a long time, due to decreased demand, causing extra costs amidst these
hard times. Managers should take swift actions to eliminate unnecessary costs and do clear analysis of
cost reduction.
(Accenture, 2020) (Harvard Business Review, 1992)

HOW IT HELPS

• During these tough times, Balanced scorecard brings structure to the company. It considers
aspects rather than finance. Therefore, it brings different departments and leaders to one common
place to make a shared structure that clearly defines future plans, goals and new ideas to fight the
pandemic.

• It covers broad range aspects important to the business, other than financial performance. Amidst
COVID-19, automobile manufacturers cannot just focus on the profits. They need to protect their
customer base, their loyalty while keep innovating new products to meet consumers’ expectations.

• Internal and external sources of information are considered. Companies can ask for the customer
ratings, when a customer is exploring through their online websites. (Ex: asking to rate the online
website’s productivity)

• Short-termism in financial performance will be minimized. Financial performance mainly considers

in how to improve annually, in accounting periods, but non-financial performances consider about
innovating, increasing customer loyalty that will persist for a longer time.

• This will connect the individual worker to organizational goals.

(Harvard Business Review, 1992) (Heartpace, 2020)
CONCLUSION

The COVID-19 outbreak is causing economic hardship and disrupting the lifestyles of consumers,
businesses and communities across the globe. The automobile industry is one of the sectors that had hit
rock bottom due to the global pandemic in 2020. The manufacturers have to go back to the basics in order
to survive in the industry.

No direct engagement with customers is one of the problems they have to face. Although the use of online
platforms is not that effective, when it comes to automobiles. Customers need to feel the moto vehicles and
drive to get the best experience and make their choice.

On the other hand, the rapid fall in customer demand for automobiles has being tough for manufacturers
as well. Thus, they can use techniques namely, Learning effect, Just-in-time production, Target costing,
Value analysis and Functional analysis to successfully breakthrough the hardships of this pandemic.

The use of balanced scorecard helps the companies to get a 360 appraisal of performance in the whole
entity.

Overall, the pandemic had made all human lives suffer, and it will take a very longer period to recover from
the damage caused.
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