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Implications of COVID-19 for the German automotive industry

With the Corona Virus spreading more and more throughout our globalized world, it is yet unknown until when this new normal will last. Nonetheless, the effects of this situation can already be felt in many areas of our society, be it privately, politically and, in particular, economically. All sorts of businesses are struggling to cope during this crisis that calls for isolation and caution.

In the last week, the news about Corona have snowballed and far-reaching measures and restrictions on public life have been introduced by the government. Although no one can yet foresee what effects the current crisis will have in the medium to long term future, one thing can be said with reasonable certainty. This pandemic will undeniably change our world economy and our view of a globalized and highly interconnected world. In order to keep the financial impact on the German economy as low as possible, extensive financial aid packages in the billions have been announced. The German and other European governments, as well as state governments are taking action and introducing new funds and other means to help business owners of all sizes and affected workers to hopefully subdue the severity of the repercussions we will face.

Due to the Corona Virus and the resulting restrictions, the Kiel Institute for the World Economy (IfW) currently expects the German economy to decline between five and nine percent. How high this decline will ultimately depend on the duration of the pandemic. It was also said that the vehicle construction industry would temporarily cut back its production by up to 70 percent. However, there are good prospects for the coming year. A strong catch-up effect and growth of 7.2 to 10.9 percent is expected.

The Impact of Corona on the German Automotive Industrie

In a recent study, “Coronavirus Impact index by Industry”, the research firm Computer Economics investigates the impact of COVID-19 on different industries. Apart from the travel industry, the manufacturing industry scores particularly poorly in all four areas considered, such as personnel, operations, supply chain, and revenue.

That is obvious to that extent as the manufacturing industry is strongly networked globally and economic problems and shortages in one region spread quickly. It is also evident in the case of the corona crisis in China, where they have been struggling with this since December and have taken appropriate measures. For this reason, there are currently supply shortfalls worldwide in the supply of parts. As the virus first spread in China, Chinese production was halted and car sales declined by more than 80 percent (source) in February alone.

This could have a particularly severe impact on Germany. In addition to the automotive industry that has been struggling for quite a while due to new trends such as electric mobility and autonomous driving but also weak markets, mechanical engineering, and plant construction, as well as the aerospace industry, play a major role in Germany.

Due to the worldwide low demand and lack of orders as well as problems with the availability of parts due to delivery difficulties, the production lines of all German automotive OEMs have been at a standstill since this week. This applies not only to European plants but also to several other production sites around the world. Additionally, suppliers like Continental, Benteler, and Magna are temporarily stopping production as a result of the Corona crisis. The temporary shutdowns are planned until the end of March or until after the Easter holidays in mid-April.

It does not seem quite as devastating for development service providers. They are trying to maintain business activity in the engineering businesses as long as possible and to continue operations, but also react dynamically and flexibly to current events, according to statements by various companies. Since they often work in so-called project offices with a direct connection to the customer’s IT infrastructure and systems within the scope of service contracts, the biggest challenge for them at the moment often lies in setting up the necessary IT infrastructure and authorizations together with their customers to enable work in-home office.

However, while the medium to long-term effects in the production area is immediately apparent in the form of the low unit and sales figures, these effects on product development cannot be easily estimated and will only become apparent gradually.

It is clear, however, that the work in the operative and administrative areas is also strongly influenced and limited. As far as possible, employees are doing home office, personal meetings only take place in exceptional cases and are replaced by video conferences and business trips have been canceled in most cases. All this has an enormous influence on the cooperation in distributed development projects as they are predominant in the automotive industry. In addition to this, employees are unable to work due to illness, which results in longer reaction times caused by e-mails and phone calls that are not answered.

Chances for Digitalization

But however devastating, tragic and unpredictable the current situation may be, there is no darkness without light. It is precisely in these times that we as a society have the opportunity, even the social responsibility, to rethink our actions and set the course for a sustainable future.

Of course, this also applies to companies which, in these times, not only have to fulfill their social responsibility but also do so with outstanding ideas and a strong awareness of responsibility. As Manager Magazin so beautifully describes in a recent article “Wie Corona die Arbeitswelt langfristig verändert”, “the economy is being ejected into the digital future”. Many companies that have long resisted the issue of digitization and the new work culture that comes with it, are now forced, for better or worse, to push ahead with innovative ideas.

Currently, Germany is lagging behind its international competitors in the field of digitization.

  • In many areas, such as development projects that take place with the involvement of development service providers who work from a project office, working in a home office has not been possible up to now, due to information security risks and occupational safety guidelines.
  • It was the same with virtual meetings, that couldn’t be held via web conference due to IT security concerns.
  • The introduction of collaboration software in the company is a long and rocky process, as it requires a cultural change in the working environment and all employees must be involved.

But now, within a few days, they have achieved what countless change management projects and hordes of consultants have not:

  • Employees work in their home offices without any problems
  • Meetings are held almost exclusively virtually
  • New tools and methodologies are introduced and adapted to enable collaboration in different projects.

However, even though much has changed in recent weeks regarding digitalization, there is still room for improvement in many areas. This includes the management of suppliers and partners along the entire supply chain when it comes to development projects. Although many companies succeed, frequently at great expense, in aligning parts of their IT infrastructure and systems for home offices, there is still a lot of catching up to do when it comes to enabling a continuous process across all involved parties. Even if it is still unclear to what extent global supply chains will develop in the future, it cannot be assumed at present, particularly in the automotive industry, that value creation will shift and will increasingly be performed in-house once again. The increased cost pressure and the associated decline in individual development projects are particularly indicative of this. Especially in product development, a lot of outdated and obsolete systems are still used, which makes the management of agile and dynamic projects with different development partners considerably more difficult.

The goal should be to recognize the current developments as a beginning and an opportunity to make changes in many areas, often drastic ones, in order to prepare for a digital future.

Cesonia as an open application technology platform enables secure, efficient and data-driven collaboration across company boundaries. As a non-cloud based platform, it is based on a decentralized peer-to-peer network and allows end-to-end encrypted data exchange as well as full traceability of all activities thanks to blockchain integration. A uniform user interface also supports a “single point of truth” and provides functions for collaboration and coordination. This helps to increase performance and protects valuable intellectual property.

Thank you for reading and don’t miss out on our blog post about Product Development in the Automotive Industry.

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