Two Years Later – The New Resilience in Automotive

As the world commemorates the one-year anniversary of the global pandemic and lockdown, industries begin to look at what some have called the Next Reality and the World Aftermath as we move ahead into a post-vaccine world. While there will remain health challenges – including poverty, malnutrition, and the continued threat of new epidemics – mobility will improve, with easing restrictions over the coming months and into 2022.

When SAP made a case for Operational Resilience in the early days of the lockdown, we did so with the understanding that the underlying financial structures of many companies were inadequate by 2019 standards, let alone what the impact COVID-19 and nearly three months of business shutdown would have on the automotive value chain. While companies have rebounded, according to the Original Equipment Supplier Association (OESA) there still exists financial strain on the supply base. This strain has manifested in buyouts, ownership changes and extended financial and payment terms by vehicle manufacturers to ensure the health of the supply chain. We expect that this will permanently reshape the value chain in automotive, leading the next wave of consolidation as we head into the mid-2020s.

Another aspect of Operational Resilience that we expected was the area of supply chain and logistics of itself, and the movement of goods and services from place of origin to destination of assembly. While most of the early pandemic “wobbles” seem to have worked themselves out of the system, continued shortages of electronic chips, battery storage and management systems, and even non-essential components – from sunroofs to high quality noise abatement foams – are in short supply. While the order fulfillment process may look fine on paper, the physical limitation of shipping containers and backlog of consumer items on freighters (most ports like Long Beach and Jacksonville resemble maritime parking lots) has further exacerbated basic shortage issues. These challenges have prompted the US federal government to review its ability to ensure the industrial base flows as needed and into market where needed, with the level of war-time scrutiny reserved for ventilators and other personal protection equipment (PPE) found in the early days of the pandemic.

Finally, what we build and how we build vehicles is at a tipping point. With major vehicle manufacturers stating mid-2030 goals for the electrification of its light passenger vehicle fleet – in addition to California exiting the sale of internal combustion engine (ICE) vehicles for personal use by 2035 – the transformation to battery electric vehicle (BEV) production has moved to the next gear. While shifting the fleet from a modest 2-3% of BEVs as percentage of total vehicles on the road to 10-15% may seem small by total fleet standards, this represents the introduction of millions of additional electric vehicles every year. How these vehicles are made, sourced, and serviced will have profound impacts to the industry. GM’s premier brand Cadillac announced a major culling of its dealer network in North America as part of its transition, offering buyouts to those dealer franchise holders who could not invest +$200k minimum to update service bays, equipment, show rooms and add charging stations. This opening negotiation is expected to flow through the GM family of brands, with other large vehicle makers following suit in due course.

The pandemic has shaped and accelerated many basic and fundamental changes in the automotive industry, changing how we work, what we drive, and how we move from place to place for decades to come. As we move to the next stages of post-pandemic society, this acceleration will only continue to find greater speed across the many facets of this and other industries.

Listen to my conversations on the podcast series "Automotive Insiders, presented by OESA" on VoiceAmerica internet radio or on Apple Podcasts. Join me (@william_newman) for Clubhouse Automotive chat based on these and other topics every Wednesday at 4PM ET beginning March 31.