Leonardo Buzzavo, associate professor of strategy at the Ca' Foscari University of Venice, discusses the impact of coronavirus on the car industry in an interview. And he warns: “Flexibility, agility and creativity will no longer be optional”.
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The coronavirus emergency has already had extremely severe consequences for the car industry, from the initial crisis affecting components manufactured in China to the progressive halt of production activities, first in Europe, then increasingly across the rest of the world. This amounts to "a growing impact on the economic fabric and on businesses", involving the entire automotive sector, including distribution and service operators. What is the explosion of the coronavirus emergency generating for the car industry? Will it surpass the impact of the great global financial crisis of 2008? Will innovation serve "to hold ground on even more ambitious fronts"? Leonardo Buzzavo, associate professor of strategy at the Ca' Foscari University of Venice, retraces the consequences of the coronavirus emergency on the world of cars and, more broadly, on mobility, sketching out possible scenarios and explaining why "flexibility, agility and creativity will no longer be optional, but ingredients for survival — which, unfortunately, will not be guaranteed for every company".
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Recent events have brutally highlighted the astonishing volatility of our times. Beyond the severe impact affecting everyone as citizens, a growing impact is unfolding on the economic fabric and on businesses, which obviously also involves the automotive sector, including distribution and service operators. From images of areas of China in difficulty, perceived as very distant, with somewhat limited knock-on effects on supply chains, things moved swiftly to events such as the cancellation of key reference events (for example, prestigious motor shows such as Geneva, Detroit and then Paris), followed by restrictions on non-essential movement through to the closure of dealerships and factories in many countries. For dealers, this represents a double blow: one of a general nature on disposable income and confidence (factors that have always caused a contraction in car sales volumes), and the other on mobility itself, which is the core business of those who sell and service vehicles and the related services supply chain.
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The explosion of the emergency linked to Covid-19 has given rise to a series of immediate problems, such as logistical issues relating to the closure of premises (while maintaining the possibility of partly providing after-sales services), decisions regarding working arrangements and staff (remote working, smart working, holiday, furlough), the use, where possible, of digital tools (for example, customer interaction and the presentation of new products), and the management of financial stress. There is no doubt that this is generating an extremely intense — if unwanted — digital workout, both in terms of working methods and retail processes. Inevitably, for businesses such as dealerships, such a contraction in turnover set against a high degree of cost rigidity (premises, staff, equipment) represents an epochal challenge.
A recent study by Cerved assesses the impact of the crisis on the Italian economy by examining various sectors and considers two options: a base scenario in which the emergency lasts until May 2020 with two months needed to return to normality; and a pessimistic scenario in which the emergency lasts until December 2020 with six months needed to return to normality. In the first case, the expected contraction in turnover for car dealers in 2020 compared with 2019 is 24.5 per cent, while in the second case it reaches 55 per cent. Given that the way events are unfolding suggests a certain probability of the pessimistic scenario — without being able to rule out an even worse one — this is undoubtedly an impact that surpasses that generated by previous crises, including the great global financial crisis of 2008.
The economic resources that will need to be deployed in an attempt to mitigate the effects of the crisis and its developments are colossal; I fear we will suffer greatly under the weight of our already very high public debt. I also wonder how a country like Italy, which has historically relied voraciously on taxation revolving around the car and mobility, will manage to plug the collapse in tax revenues associated with a prolonged standstill. Perhaps this crisis may prompt some rethinking. At the international level, car manufacturers are calling for a revision of EU fines linked to emissions in order to cushion the economic and financial shock and its fallout. Italy also suffers from a long-standing difficulty in creating trade associations capable of lending strength and unity of direction at the institutional level. It is precisely in moments of crisis as intense and sudden as this one that one can appreciate how valuable an investment it can be for each sector operator to commit resources and a constructive contribution to strengthening trade bodies. It is never too late to put experience to good use.
As already noted, the picture that awaits us has unclear contours. For dealership and service businesses, using a human metaphor, there are certainly needs both for resuscitation and for rehabilitation. As always happens, every crisis is followed by a more or less prolonged recovery phase, which is then followed by a new normality. We do not yet know clearly whether the restart will be gradual, patchy, or driven by stop-and-go dynamics. Beyond a degree of atrophy in consumption (market data from China seem to indicate that even in the phase of emerging from the crisis, sales are unsatisfactory), it is likely that the new normality will be characterised by a changed landscape of consumer sentiment, shifting value frameworks and aspirations with regard to certain aspects (such as environmental impact) or market segments (consider, for example, premium and luxury). We should expect a fragmentation of different needs that must be understood more deeply. Companies will need to communicate less and listen more, in order to learn what is new.
Car distribution operators have been involved for several years in an innovation process that revolves around multiple levels: digital transformation (reviewing a company's structure and processes in an now deeply digitalised context), mobility transformation (evolving one's business model from a predominantly product focus to a predominantly service focus), and human transformation (remixing the set of competencies in the era of knowledge work, aligning individuals' attitudes with organisational objectives, bringing business and people closer together). Recent events are pushing innovation to cover even more ambitious ground, as Jay Rao, professor at Babson College in Boston, reminds us: innovation is a process that involves risk management, navigating uncertainty, and exploring ambiguity. This changes the way one experiences business.
We can expect this crisis to bring about a profoundly changed sector in an asymmetric way — that is, with different consequences for different players. In the 1970s, the oil shock and the sudden rise in petrol costs meant that small Japanese cars in the US began to dislodge the dominance of domestic manufacturers, which had always focused on large vehicles with fuel-hungry engines. This event marked the beginning of a new order that changed the world forever, with new balances of power between local brands and Asian brands — the latter destined to colonise the world on the strength of a lean production approach. In brief, we can hypothesise that this crisis will bring a threefold set of consequences for car distribution operators. First: a significant shake-out among operators, to the advantage of the most solid and efficient ones. In short: we will have fewer dealerships, accelerating a trend already under way. Second, a transformation in the way dealerships operate and work, with greater experimentation with new organisational and contractual forms of retail linked to various economic implications (smaller premises, agile working, agency formats). In essence: we will have dealerships or, in any case, retail operators that look very different from before. Third: the creation of innovative partnerships cutting across different product categories, with convergences and synergies that may even come as a surprise. In essence: we will have synergistic constellations involving operators from a variety of sectors.
As Andrea Fontana reminds us in his very recent and prophetic book Ballando con l'apocalisse, the catastrophic changes that have occurred throughout history do not lead to an "end of the world" but rather to the "end of a world", giving rise to new social, entrepreneurial and vital habitats. Recent events have made even truer what Paul Valéry once said: that the future is no longer what it used to be. We can expect, for some time, a slowdown in certain forms of shared mobility, both on a personal and a professional level, and operators will need to — and will be able to — respond, for instance by developing accessible offerings for a market hungry for safe mobility but on average impoverished in terms of financial resources and confidence. Flexibility, agility and creativity will no longer be optional, but ingredients for survival — which, unfortunately, will not be guaranteed for every company.
