“Halt!” said Coronavirus and the world came to a standstill. Everyone shut their doors and windows and the roads became empty.
Speaking of empty roads, the automobile industry took a massive hit when the economic market began falling, globally. In the month of April, manufacturers in India reported nil sales following the stringent lockdown and an 80-90% dip in domestic sales in the month of May. The steep downward trajectory however took a positive turn in the month of June with auto giants like Maruti Suzuki and Hyundai Motors reporting a slowdown in the decline pace.
In the midst of this, the manufacturing and R&D departments in automobile companies bore the maximum impact at the onset of the pandemic. For R&D personnel, the incubation period to showcase results is comparatively longer than the manufacturing department. For this reason, this team had to bear the maximum professional uncertainty.
To understand the recovery trajectory of this sector, we will have to draw a comparison with China which is said to be the origin of the virus. Let us take a look at how Mercedes-Benz fared there, which is also incidentally their biggest market. Mercedes-Benz has had a consistent presence in the auto culture of China and is considered the most preferred luxury automobile brand for the past decade. If you look at the graph below, you’ll notice that the past two years have been particularly good for the company.
Mercedes-Benz Vans set a new sales record once again in the FY2019, with an increase of 4% on the previous year’s figure resulting in a sale of 438,400 units. The Mercedes-Benz Cars division sold a total of 2,385,400 vehicles in 2019 and surpassed the record level of unit sales set in the previous year. However, during the pandemic phase in China, the luxury automobile sector in the region witnessed a drop of 14% in sales as compared to other countries across the globe.
Global v/s China Automobile Sales
During the first quarter of 2020, a visible drop can be seen in automobile sales in all markets across the globe. However, as China entered its recovery phase from the pandemic, the region began to show an uptick in sales.
China’s Recovering Automotive Industry
If you refer to the graph above, the number of vehicles being sold in the China market began to pick up in the months of April and May. However, sales across the rest of the world continued to fall at an alarming rate in the same period.
To derive an estimated recovery graph of the automobile sectors in markets outside China, it is imperative to take a closer look at the number of COVID-19 cases in China in the past few months as compared to India and the rest of the world. The trajectory of these cases have a direct impact on how we can perceive the market health of the automobile industry across all markets.
China v/s India
Similar to the dip in the number of COVID-19 cases witnessed by China in February 2020, India is also expected to see a steady decline in the number of cases in the latter part of the year. This indicates that the market recovery phase of India will also have a similar graph as China.
Stemming from this, let us take a closer look at the current Indian economic scenario, specifically in the context of the luxury automotive industry. This sector has witnessed a dramatic drop in sales during the pandemic. For Mercedes-Benz, it has been the worst sales dip in the last 7 years.
The sales percentage in India in the past few years shows how important the Indian market is for Mercedes-Benz but now it looks dismal for not only Mercedes-Benz cars but other luxury vehicle companies as well.
In a recent interview with Autocar Professional, Martin Schwenk, MD and CEO, Mercedes-Benz India, Pune, said, “We remain cautiously optimistic as we gradually ramp up our sales amidst the prevalent market challenges triggered by the pandemic. We are glad to witness a slow movement from previous months and we expect this trend to gather momentum. However, recovery will be slow and we currently expect customer sentiments to revive going forward, though the market conditions would continue to remain challenging. Our focus remains on generating demand and supporting the customer on their purchase decision with innovative financial solutions like WishBox 2.0.”
Even though some states in India are still under lockdown, it’s difficult for a company like Mercedes-Benz to sell their cars in the current scenario. Going by the recent sales figures and COVID-19 cases, the market situation is going to remain more or less stagnant for luxury vehicle companies like Mercedes-Benz for at least another couple of months. We draw this conclusion after looking at the trend in China a few months ago.
It was only after months of strict lockdown and safety measures that they were able to control the pandemic and the market slowly began to get back on track. Thus, a flipside to the situation is the sense of hope that the automobile sector can be derived from the China market’s recovery phase.
Also Read: Data Science in Automotive Industry
Survival of the Quickest
During the pre-pandemic phase, automobile companies in India looked at 10-15 year long vision goals. However, looking at the rapidly falling graph, it is critical for companies to think on their feet and concentrate on immediate solutions. To get cars back on the roads as soon as possible, solutions that are dynamic and with additional safety checks need to be added while balancing the rules and regulations.
Short term and long term ideas both have a very brief window of opportunity for automobile players. While self-driven cars may have a big market looking at the future, the dire need today is safety and features that will add to the new normal life experience. The players that act quickly and find a balance between short-term and long-term goals are the ones that will probably make it to the finish line.
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