Can automakers survive the pandemic?

The coronavirus pandemic is wreaking havoc on the auto industry around the world. In Japan, where auto plants sit idle and many showrooms have been dark, domestic new car sales have seen their biggest drop since 2011, when an earthquake and tsunami devastated the economy. In other countries, the numbers are even worse.

Christopher Richter, Deputy Head of Japan Research at CLSA Securities Japan, says the impact globally is likely to be far worse than during the great financial crisis of 2009. He’s forecasting a 34% drop in sales.

Richter predicts the ultimate outcome will be the strong getting stronger and the weak getting weaker.

Manufacturers with strong balance sheets can keep investing. Toyota is a prime example. Though the group is forecasting a 79.5% drop in operating income this fiscal year, it’s also earmarking more than a trillion yen, about 9 billion dollars, for R&D.

But companies with fewer resources will need to focus on cash preservation. Nissan and Mitsubishi will have to strengthen their alliance with Renault and share development costs more efficiently. Richter says this may be one silver lining for Nissan, whose relationship with Renault was turning sour before the pandemic.

Richter says, “Nissan went into the crisis with pre-existing conditions of depressed profitability, an old model lineup, and too much capacity.” Now it may have no choice but to rebuild the relationship with Renault.

The pandemic is expected to force long-term changes in how the firms produce their vehicles. Factory floors may have to be redesigned with social distancing, mask-wearing and other infection prevention measures in mind.

Richter says it will change the way firms make automobiles, and, perhaps, the cost of making them.

The auto industry was in the middle of a major upheaval before the pandemic hit. Firms had been shifting to developing the technologies of the future, collectively known as CASE -- connectivity, autonomous driving, car sharing, and electric vehicles.

“I don’t expect any change in the rush to electrification,” says Richter, who believes governments will continue to support that development.

But, he says, the sharing economy may take a hit, as people will be understandably cautious about being in a vehicle with strangers.

Richter says many automakers have been showing off designs for shared vehicles at trade fairs. “Unless they can find a way to turn these into vehicles where each person can have their own environment and not be exposed to the virus, there’s probably going to be a slowdown in these types of projects,” he says.

So, what should automakers do to survive in the with- or, possibly, post-coronavirus society?

“What they need to do is look at people’s transportation needs,” Richter says.

New delivery services have already started in some countries. Autonomous robots bringing food or goods to customers don’t fit from the traditional notion of cars. They are all about mobility as a service.

That’s one area in which Richter believes there will be a long-term market, with opportunities for automakers far into the future.

Christopher Richter, an automotive analyst at CLSA Securities Japan, talks about the rough road ahead for automakers. (3:05)