Transcript Blog- The Global Impact of COVID-19 on the Automotive Industry
On this episode of Industry Insights by SAP, Josephine Monberg interviews Moncombu Raju, Director of Solution Management for the Automotive Industry at SAP. Raju discusses the short- and long-term impacts of the coronavirus pandemic on the automotive industry and how technology can help aid in the recovery from this crisis.
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Welcome to the industry insights by SAP podcast series. My name is Josephine Monberg and I am your host. You are now listening to the COVID 19 special edition of our show. Welcome to our podcast. Hi everyone and welcome to this episode of our podcast. As you all know cause you just heard the introduction, we are taking a closer look at different industries and how each industry is being impacted by COVID 19. Today we are looking at the automotive industry and to help us better understand how this industry is being impacted. I’m joined by Raju who is right now a little bit far away from me, but luckily an expert in the automotive industry. So I’m super excited that we can talk to Raju about what’s going on. So Raju, thank you so much for being with us today.
Thank you. See, glad to be here on this podcast.
And Raju, you, what do you do at SAP? Me, you’re an industry expert in the automotive industry. What, what’s your role include?
Good question. So, uh, so as part of the industry, automotive, uh, business conduct, automotive, I’m part of, uh, the solution management. So global solution management and my area focused has been, uh, customer experience. So what we typically call a customer facing processes. So it also includes the overall sales service, marketing processes, and of course our latest and newest, uh, focus area, which is the experience management. So focusing on that topic as well. So, so I covered the North America and the South America region, but we as a whole, from an industry point of view, we are global organization,
So you have a global perspective. And where are you based? Where in the world are you sitting right now?
So I’m based in a beautiful suburbs of Detroit, so motor city, and it’s about an hour’s drive from the Detroit city and not Northwest corner of Detroit.
So I’m sure you’re usually very used to visiting customers and going out and meeting them in person. Now we’re living in a totally different world where that’s not possible. So I’m sure that’s also having a huge impact on the automotive industry. So I’m so curious to know what to find out what’s going on. But can we just, let’s start very kind of broad, basic. So what is the impact that you’re seeing right now on the automotive industry of covert 19?
Sure. So let me put, put in perspective where the industry stands today. So today, the automotive industry accounts for close to 6% of the GDP of, uh, in the United States. And, uh, we are talking about close to seven plus million jobs, which are associated with manufacturing, the, uh, vehicles, uh, the dealers and the suppliers in the automotive ecosystem. So having said that, the industry has been in a, in a bit of big shock, I would say, because the demand for all the vehicles, uh, has collapsed. Uh, and this has, uh, led to some other challenges for the industry itself. So, so as you might have heard, I’ve seen in the news, uh, automotive, automotive, uh, OEMs and suppliers, and even the dealer groups, you know, doing furloughs and layoffs, uh, which has caused a lot of, uh, challenges to the economy, of course, and not just that, the whole experience for the end consumer consumer who were in the market say for buying a new Wakil has completely vanished or has completely kind of disappeared.
So, so from, from that point of view, I think it has been a huge impact and slowly things are going to come back as, as we see, uh, in other parts of the world, you know, China coming up already and Europe starting up as well. So the other impact of course is the liquidity or the financial stability of these companies. And the close to what we see is a lot of, uh, OEMs uptaken uh, you know, financial measures by some of these hard measures. You know, what, you know, whether it’s for laws or you know, job cuts or even, uh, making people work from home of course, where it’s possible. So, yeah, it’s, it’s massive across, I would say, the entire ecosystem.
Yeah, huge, huge impact. I saw one of my friends lives in Los Angeles and he posted a picture of how there’s almost no traffic. I feel like that just says everything about,
that’s a very good point, Josie, what you mentioned. So if you think about that, if, uh, the traffic, uh, in our, uh, freeways and the roads, if they just disappeared, the impact has been huge on that one. Where you don’t see, uh, I think, uh, there were like few examples, like one in India, one in China where the, where the pollution has just disappeared or vanished and you are able to breathe clean air. So if you think about the number of vehicles which are impacting that, it’s just a completely a different perspective. And you’re right, there is no traffic. It’s unprecedented, you know, where it’s so quiet in there.
Exactly. And I’m, and you bring up a good point there too, because that’s one of the, I would say upsides of this current global pandemic is the decrease in pollution, which of course is mainly, or not mainly, but also caused by cars. So what’s going on right now? What are you seeing in terms of what automotives are doing to respond? I mean, you speak with customers, I’m sure not in person, but you still probably do a lot of, uh, zooming or, uh, Skype calls. So what do you speak to your about now? Like what are they doing to respond?
Yeah, so I think automotive actually jumped into action, uh, across the board. And, uh, if you, if you’re talking to a lot of our customers, they reached out to us on how we can support them. So from an OEM point of view, I think nearly all the OEM. So, uh, like for example, Daimler in Germany, they looked at how they can leverage their existing infrastructure with three D printers and how they can quickly build a PP equipment. Uh, for example, face shields, they partnered with few other entities within the organization to build, uh, breathing AIDS, which are needed for the hospitals. And similarly, Jaguar land Rover, you know, they use their current prototype building operations to print, again, PPQ, pens or the visors, what they call, which are needed for the NHS or the frontline staff. And in the, in the U S of course, uh, if I just take two examples, uh, Ford and GM for example, they jumped to help build the ventilators, which are, which were highly in demand in the sense of the need across the, across the United States.
Uh, and they were able to ramp this up within, I think three weeks of, from the idea and taking an existing plant. For example, in the case of GM, they partnered with a company called Vintech and they were able to set that up and they are now, uh, planning to produce a close to I think 10,000 ventilators already. So they are, they are at that scale. And similarly, G is also responding to this challenge, whether it’s respirators, isolation gowns or masks or face shields. Uh, you know, they are also, uh, you know, going all the way and similarly, uh, not just the OEM, the suppliers also working with it. So for example, VW, for example, work with, for ACR to build these, uh, some of these equipments and they provided this to, uh, save the New York city, uh, center where one of the hardest hit, uh, for the, around the school situation. So, so I think automotive has kind of responded in a very, very positive way, I would say. And they continue to look, uh, in the ways to help through this pandemic.
Yeah, that’s amazing to hear. And I do see that across some industries that they’re taking the challenges and turning them around to say, how can we help and how can we restructure our business right now to better react, respond and help out. What are some of the challenges that the automotive industry is facing right now that’s different from before COVID19. I maybe would give you a little hint. What I’ve heard a lot is how supply chain, um, chains are being disrupted. Is that, I’m assuming that’s also something you’re seeing in the automotive industry.
Yes. You’re, you’re absolutely right. One of the big challenges what we are seeing is there are multiple, multiple, multiple problems in that, in the situation. So, uh, the reason is, uh, because of the collapsed demand, the OEMs have already built up a set of inventory. So they do have a lot of inventory which is in their dealerships, which, you know, which needs to be, of course they need to make money out of that. But at the same time, if they now want to restart, uh, for example in us, the restart happens next Monday. And so GM, Ford and others are going to start, uh, they need to make sure that their suppliers are viable and they are ready to provide the right components and parts. And so there we see a challenge where, uh, either the suppliers are in the state that they are not ready yet or they are just getting ready.
So some of the suppliers opened up this week, uh, trying to ramp up some of their production so that they can be ready to supply to the OEMs. So I think that will be one of the big challenges in the next, I would say two to three months because they need to be slow in ramping up the production. And one of the news coming out from China, I was also something similar where one of the plants had to be shut down because our, at least I would say for two days or three days because of one of the shortages in, in some of the parts and components coming across from the suppliers. Similarly, uh, I heard, uh, VW for example, in Europe last week had to kind of slow down their production because the demand is a little bit vanished in a sense. Uh, they don’t have like a quick demand yet. So, so they are, they are looking at that. And of course there is another challenge which is to make sure that the employees feel safe, you know, coming back to work and it’s not, you know, everybody’s eager. I think this, uh, the time off if you want to call it has also impacted on our employees and workers are looking at what should I be doing? Maybe I should be looking at some other industry or maybe I should be looking at some other possibilities during this. My
so huge or big challenges of course, and also something where businesses have to look ahead and say, what can we do to go back to, to come back from this, um, in, in, in thinking a new way. So what about when you look at, you know, um, technology, because I think that technology has a huge role to play in all of this. I’ve seen across all industries so far that it’s really, this covet, covet 19 crisis has really accelerated digital transformation for, I’d say almost all industries. So what are you seeing right now in terms of what the role technology plays in all of this?
I think technology plays a huge role here and I think that that is a sh that is shown based on some of the responses which we have seen. So some of the companies who are able to quickly transform or pivot to another manufacturing, whether it’s PPE, manufacturing or ventilators, whatever you want to call it, they were able to do that because of some of the technologies which were already there and where they needed support. So they had a, I would say the, the foundational tools to help them on the, on the extreme side of, uh, I would say the, the front front facing size where the actual vehicles are sold. There are a few companies and dealer groups or the dealerships which were able to leverage the online aspects of the sales where the digital sales were more convenient, where they could deliver the vehicles to the customer’s home.
Not just that, even the servicing aspect, because a lot of fleets and companies or the, even the personal cars which needed to be serviced, whether it’s frontline workers or other emergency providers, there was a need to service them. So, so the customers or the companies, which had those tools were able to stay operationally, you know, well off I would say. So they were able to move forward with those. And the companies which are challenged are the companies which are facing a lack of tools to kind of see, uh, for example, uh, just the liquidity as you know, as one example. You know, am I, am I able to see my entire supply chain, even though it’s, it’s a mature industry, automotive, but there are segments within the supplier, tier one, tier two, where the visibility into the operations is less. And so there are areas where definitely they can improve on. So technology definitely plays, I would say, a huge role here because I think without that, I think they will be, I would say going, going a little bit blind
yeah. Into the next, uh, the next phase of, of the endemic. Yeah. And what about if we look into the future? Um, we’ve talked a lot about what’s going on now, the challenges and how they’re responding and also re-imagining on a more, maybe short term their business models. But if we look ahead beyond COVID19 and, you know, coming out of this crisis, I guess two questions. One, how do you see the car buying and service experience changing service experience changing in the future? Because I have a feeling it will change. And also what should businesses do to be better prepared for, let’s see if there’s another Christ, another pandemic or any other crisis. I’m assuming the technology plays a huge role in all of this too. So in general, if you just talk about what you think will happen in the future and if automotive will reimagine their business models.
Yeah. So, uh, I’ll start with that last one first, which is, yeah, definitely there will be a reimagination on the whole selling process or the experience on that one for sure. Uh, I think more and more, uh, customers will be more, kind of feel more comfortable with more of the digital or I would say the touch Lexi experience, what they expect from their, uh, from this process. So today, uh, I would say the end mile or the last step of a typical sales process is always challenging. You know, you’re spending hours at the dealerships. So that process I think will dramatically change due to this pandemic on the manufacturing side. Uh, when we look at the, uh, look at the OEMs, I think they will be going through a complete transformation in that census. Yes. They will be looking at how best they can keep their employees and the, you know, the safety of the employees and, uh, the protocols which are needed going forward because I think this pandemic is not going to be gone tomorrow.
So it will be, and it will have an impact, I would say for a few more months and, or maybe another year. So I think so there will be a fundamental shift in how the worker safety is taken into account. Uh, the layout. Maybe even some of the, of the factories. And then of course, from a, uh, from a financial point of view, I think scenario planning, what we call the financial scenario planning probably will take more of a precedent where the OEMs and the customers will, sorry, the companies would look at that holistically to kind of prepare for any other downturns in this, uh, in this economy, uh, due to, uh, pandemic or deduce and other crisis which is on the horizon. So I think that’s where the digital tools will come in handy. And, uh, uh, and some of our customers are basically, uh, uh, using some of our tools to kind of, you know, be proactive.
So, uh, one of the examples with one of our large German OEMs using some of our AI and RPA tools to kind of, uh, make sure that the, the smaller suppliers get paid on time because you know, their survivability is impacting, you know, their operations. Similarly, you know, another large OEM, for example, use one of our tools, such as Reba discovery to make sure that they are able to supply to their, uh, PP manufacturing or the ventilator manufacturing and, uh, and make sure that that is addressed and that can be shared across their supply network, for example. So I think, uh, I would say we will see these changes coming through and, and automotive is pretty resilient from an industry point of view. So we will, uh, see, uh, changes and shifts in this, in this industry for sure. And, uh, and then as, as you know, there is industry itself is getting transformed because of the, I would say the electrification and uh, and the other needs. So the, the autonomous, uh, shared and electrification needs. Uh, uh, so I think we, we are going to see more disruptions here. Uh, so maybe a few mergers, a few acquisitions happening as well, or more collaborations, uh, to put it in, in a more positive way. I would say
more collaboration specifically. And what about industry for dud? Oh, does that play, uh, would that be accelerated? I guess also due to COVID19.
So yeah, so that’s a, that’s a very good point. So, uh, industry four. Dot two will definitely play a role, uh, in the, in the sense for large auto makers, uh, because the automation continues to be, uh, one of the topics which the OEMs are of course taking it seriously and going forward that the, this pandemic probably has accelerated, uh, this digitization or the, the concepts of industry for Datto, for some of the big suppliers. And they are looking at it seriously because they have been putting it off for whatever reasons if you want to call it cause of the financial crunch. But now that will probably accelerate in certain sectors but may not be so much in the case of lower tier suppliers in that. So, so we see some impacts coming from their task also.
Hmm. It’s interesting how covid 19 in two very different areas is accelerating and transforming. If you look at the digital part, the digital transformation, but then if you look at the human side of things, it’s also changing how we go to work. And I think also almost how human beings think, right? Because suddenly people might not want to travel as much, as much as they used to. They might not want to go to as many stores as they used to. So it’s really having this huge impact, well digitally, but also just on the human experience. So I really think that’s something that spans across all industries in that industry, leaders and company leaders need to really seriously think about. So let you thank you so much for coming on our shows. So interesting to talk to you and I really enjoyed getting so many insights about the automotive industry because I think it’s such a fascinating industry because it’s obviously hugely impacted, um, during this time that we’re living in right now. So thank you for coming on the show.
Thank you for having me on.
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