Back to Work?
The beginning of May saw the first steps towards re-establishing production at car plants across the UK. However, for many OEMs, these first steps remain tentative as much remains to be done, from resetting supply chains to managing the practicalities of social distancing across complex, multi-factor industrial sites.

If these challenges were not enough, the car industry entered the pandemic against a backdrop of many systemic changes - including autonomy, electrification and digitisation. And while the UK industry was contending with these structural changes, it also recorded a poor start to the year, with YoY registrations plummeting by over 7% in January and almost 3% in February before the halving of sales in March.

With year-to-date registrations based on April’s figures now down by 43.3%, the car industry that will emerge from the COVID crisis will undoubtedly look very different from its forebear. But the essential question is what sector attributes can we expect to significantly change as a consequence of these pressures?

Localisation
Expect cars to be made closer to market, says Majenta’s Monty Meghjee. We can foresee a retreat to valuing localised supply chain resilience in preference to globalised integration and efficiency as OEMs, backed by financial support from national governments, will look to absorb the costs of nearshoring as a protective strategy.

“This was a cyclical trend that was already underway in any case,” says Monty, “particularly in the case of design engineering where OEMs have started to emphasise quality over price. The impact of COVID will extend this tendency from design engineering to other parts of the supply chain including manufacturing. For Britain Plc, this move is probably a good thing in the run-up to Brexit, but of course, more onshoring to a high-cost market may result in more expensive showroom prices for domestic car buyers.”

Bringing car manufacturing closer to its customers has been a strategic decision already set in train by the recent Sino-US trade wars, a trend McKinsey & Company see accelerating after Covid-19 due to ‘global supply chains increasing exposure to health impacts, disruptive trade dynamics, and an uneven global recovery.’

The World Economic Forum shares this view. Michelle Avary who is the WEF’s Head of Automotive & Autonomous Mobility, suggests that there may be a short term tendency to knee-jerk towards localisation in the main manufacturing power blocks in the US, Europe and China. But she also warns against giving the trend succour as COVID was proving to be a ‘giant stress-test to mobility’ and global collaboration is now more important than ever if the industry is to find its way intact to clean, next-generation mobility solutions.

Automation
Car plants in the UK this month are broadly scaling to around 25% capacity, but how close the industry can return to its pre-COVID capacity in the fullness of time remains to be seen. The physical limitations within existing production lines, the workplace bottlenecks and alternative working patterns often fully resourced are factors likely to limit the return to full volume output.

Another Majenta Director and veteran automotive sector observer, Simon Ordish comments, “Expect COVID to precipitate investment decisions around automation. We’ve already seen the impressive capabilities of fully-automated lines in various plants in the UK, but capital investment has been slow in coming forward - we have, for instance, only 22% of the level of robotic automation per 10,000 employees in our manufacturing base compared to Germany and only 45% of the level of automation that currently exists in Spain, so we have quite some catching up to do.”

“However working from such a low base does present the UK car manufacturing sector with the opportunity to leapfrog other markets. If the physical limitations of factories mean we are going to have to re-think major structural aspects of how we build cars, it seems logical that major capital overhauls will focus on automation - if only because robots don’t catch viruses,” he concluded.

The push towards greater automation in the UK car industry is a long term consideration and will start to appear on OEM Board meeting agendas once companies have re-established a reasonable level of production and directors regain the capacity to look forward on a strategic footing. While a successful vaccine for COVID might temper the willingness to significantly transform from manual to increasingly automated car builds, the trajectory does seem set and the pandemic has been another significant catalyst for this inevitability.

Digitisation
Simon also points to other changes that will become routine across the industry. With much of Majenta Solutions’ work in the automotive sector focused on the integration of suppliers and OEMs to enable the digital transformation of design engineering, enabling engineers to work from home became a significant focus for the company when the pandemic took hold.

“However working from such a low base does present the UK car manufacturing sector with the opportunity to leapfrog other markets. If the physical limitations of factories mean we are going to have to re-think major structural aspects of how we build cars, it seems logical that major capital overhauls will focus on automation - if only because robots don’t catch viruses,” he concluded.

Simon believes that the moves necessitated by COVID-19 will reinforce more contingency preparedness across the industry, not just from supply chain resilience, but more focus on predictive supply chain monitoring and forecasting to help determine global ramp-ups and improve reaction times.

Monty Meghjee endorses this view with the benefit of hard metrics. In the four months to April 2020, Majenta had seen a 300% rise in subscription to its supply chain integration tools and over 100% growth of the use and volume of engineering design data being moved across the MX platform.

Digital transformation is the third major trend that COVID-19 will precipitate across the automotive industry. While it has been underway for some time, the pandemic has acted as an extreme accelerator, perhaps emphasizing this change more immediately and more significantly than the changes afoot in localisation and automation.

Next, we consider the demand side of the automotive industry: What impact will COVID-19 have for car buyers?