Daily Management Review

Despite Uncertain Demand, European Car Makers Restart Production


Despite Uncertain Demand, European Car Makers Restart Production
The biggest factory of the biggest German car maker Volkswagen started to reopen on Monday even as the broader industry in Europe is trying to get back to work. The novel coronavirus pandemic has hit Europe very hard resulting in plummeting of demand and piling up of inventory.
Lockdown rules in Germany have been relaxed after a drop in infection rates. The auto industry in the country is depending on ability of the country to trace and contain any new novel coronavirus cases so that the industry is able to restore operations in the largest economy of Europe.
The owner of the Skoda, Audi, Bentley, Porsche and Seat brands, Volkswagen group, is also slated to restart production at its plant in Wolfsburg, Germany, as well as in its production plants in Portugal, Spain, Russia, South Africa, and the Czech Republic this week.
According to Andreas Tostmann, the VW brand's board member responsible for production, at the beginning of the resumption of production at the Wolfsburg factory, only about 10 per cent-15 per cent of the production capacity will be utilized.
"The restart of Europe's biggest car factory after weeks of standstill is an important symbol for our employees, our dealers, suppliers, the German economy and for Europe," he said.
Volkswagen's move to reopen the factories was preceded by similar moves by rivals Renault, Peugeot and Fiat Chrysler, in a wider effort to rejuvenate the auto industry that has been virtually incapacitated by the lockdowns as well as bottlenecks in the supply chain because of travel and production restriction to prevent the spread of the coronavirus pandemic.
While production at its Italian plant in Atessa has been restarted by Fiat Chrysler, it is also preparing to restart work at plants in Cassino, Pomigliano, Termoli, and Mirafiori.
Production restarting is also being planned by Swedish truck maker AB Volvo, whose brands include Mack and Renault trucks. The company had said last week that its net orders had turned negative since the end of March because of cancellations of orders by customers.
Auto companies are finding it hard to predict demand since dealerships were closed in Germany until last week. LMC Automotive analysts see an uneven pattern across the globe.
"We assume that light vehicle sales will bottom out in April in Europe and North America, but the recovery, while broadly V-shaped, is unlikely to be rapid in the subsequent months," they said.
For the entire of 2020, there is expected to be a drop in demand of between 20 and 30 per cent with the exception of China. However, LMC said that there will even be a 12 per cent drop in demand in the Chinese market for the entire year.
Production methods have been overhauled by auto companies in an effort to assure worker about their safety and security while returning to work.
While Hyundai Motor Co's South Korean workers have to pass through thermal cameras for measuring their body temperatures, Volvo cars is offering employees tests to check the oxygen levels in their blood.