The Outlook for the Automotive Industry Looks Promising in 2021

January 11, 2021

The Outlook for the Automotive Industry Looks Promising in 2021

After several years of steady growth, the automotive industry suffered huge losses in 2020 due to the global COVID-19 pandemic. The automotive industry has had its fair share of ups and downs over the years, but this one was caused by an unprecedented global health and economic crisis.

Historically, the automotive industry has not always been able to bounce back quickly after rough years. For instance, this industry was hit hard by the economic recession in 2008. It took about five years for the industry to recover in the United States, but it took almost a decade for the European automotive market to fully recover.

But fortunately, experts believe that the automotive industry will not need to wait years to rebound from the effects of the pandemic. In fact, automotive insiders are optimistic about the outlook for the automotive industry in 2021.

The State of the Automotive Industry in 2020

Nearly every industry was negatively impacted by the COVID-19 pandemic, but the automotive industry was among the hardest hit. 

Demand for vehicles in the U.S. started to drop in March of 2020, which is when COVID-19 was officially declared a national emergency. This is also when many local governments implemented lockdown or stay-at-home orders for the first time. 

Factories, manufacturing plants, and corporate offices were forced to temporarily close or move to remote work as a result of these government orders. This disrupted the supply chain and led to significant production delays.

As the virus spread throughout the U.S., the automotive industry continued to suffer. Data reveals a clear correlation between COVID-19 infection rate and automotive sales. In other words, the states with the worst infection rates experienced the largest declines in automotive sales.

The economy slowed and the unemployment rate skyrocketed due to this public health crisis. This led to a sharp decline in buyer confidence, which dropped nearly 30 points from May 2019 to May 2020. The lower the buyer confidence score, the less likely consumers are to spend. 

Because consumers were not optimistic about their economic future, they decided to hold off on purchasing or leasing vehicles. At the height of the pandemic, over one-third of consumers who wanted or needed a new vehicle were putting off this purchase because of economic uncertainty. At the time, most consumers were only planning on putting off these purchases for two months, but many predicted that they would not purchase or lease a vehicle for another six months.

The automotive industry as a whole continued to suffer even after lockdown and stay-at-home orders were lifted. Many consumers are still concerned about their job stability and the uncertainty in the market, which means they are hesitant to make large purchases right now. Despite lower financing and ownership costs, sales did not return to their pre-pandemic level. By the end of the year, new automotive sales had dropped nearly 15% to 14.5 million vehicles.

The Outlook for the Automotive Industry Looks Promising in 2021

Will the Automotive Industry Recover in 2021?

There’s no question that the automotive industry suffered immense harm in 2020, mainly due to the global COVID-19 pandemic. But there is hope that the automotive industry will make a solid recovery over the next 12 months.

Economists from the University of Michigan recently discussed the future of the automotive industry at the 68thAnnual Economic Outlook Conference. These economists revealed that they believe the sales slump caused by the global pandemic has created enough momentum for the automotive industry to rebound quickly in 2021.

The panel of economists predicted that new automotive sales will climb to 16.3 million units by the end of 2021. Furthermore, these economists believe that the automotive industry will continue to grow in 2022, predicting that manufacturers will record 16.7 million new vehicle sales during this year.

The University of Michigan economists aren’t the only ones who are predicting that automotive sales will increase in 2021. Cox Automotive, an international automotive services company, predicts that automotive sales will fall between 15.6 million to 16 million in 2021. This figure is lower than the one predicted by the University of Michigan economists, but it still represents a significant increase over 2021 sales.

Some people are skeptical about these predictions, but early data shows that it is very likely that the automotive industry will bounce back over the next year. 

As previously mentioned, data reveals that automotive sales were correlated with the COVID-19 infection rate. As the infection rate increased in a state, automotive sales in that state declined. But this data also reveals that the opposite is true. As the infection rate decreased, automotive sales increased. This indicates that automotive sales could return to pre-pandemic levels after widespread vaccination in the U.S.

Financing rates and ownership costs are expected to stay low for now, which could also help the automotive industry’s recovery. These low interest rates and ownership costs could convince consumers who are on the fence to give in and purchase a new vehicle.

What Challenges Will the Automotive Industry Face in 2021?

It’s true that most experts agree on the automotive industry’s ability to recover in 2021. But that does not mean that the road to recovery will be easy. To achieve success, automotive companies must be prepared to deal with a number of challenges that they will likely face in the year ahead.

One of these challenges is the COVID-19 pandemic, which has not yet been resolved. The several vaccines that have been produced will minimize this threat, but it remains to be seen how long it will take to distribute the vaccine and get the pandemic under control. 

Until this happens, the COVID-19 pandemic could continue to disrupt normal operations within the automotive industry. Just last week, General Motors was forced to make changes that will affect their supply chain as a result of COVID-19 outbreaks at assembly plants in Mexico. Other automotive companies will undoubtedly face similar problems in 2021.

These continued disruptions—along with production delays caused by lockdown and stay-at-home orders in 2020—will most likely lead to low inventory levels in the automotive industry in 2021 . Low inventory problems could limit consumers’ options and negatively impact the industry’s ability to recover.

The Outlook for the Automotive Industry Looks Promising in 2021

Automotive companies must also be prepared to deal with consumers who are hesitant to visit dealerships in person due to the threat of contracting COVID-19. Unless other options are available to consumers, this could hinder the automotive industry’s performance this year.

Economists believe that the first half of the year will be the hardest for the automotive industry since the world is still grappling with the pandemic. To make it through this difficult time, economists believe that the automotive industry will need government assistance. This means the automotive industry’s ability to rebound could depend partly on whether or not the government passes additional stimulus packages over the next few months.

Rising costs are also an issue for automotive manufacturers, according to a group of industry insiders who participated in a summit hosted by the Society of Automotive Analysts. These experts warned automotive manufacturers to prepare for rising labor, freight, and raw material costs, which could drastically reduce automotive profits.

How Can Automotive Companies Succeed in this Uncertain Market?

Recovery will not be easy for the automotive industry, but it is possible. There are certain steps that automotive companies can take now to increase their chances of succeeding and growing their business during these uncertain times.

Automotive companies should be willing to invest in the digital world in order to make it through this challenging year. A growing number of consumers are embracing the idea of purchasing a vehicle online rather than in a dealership. In the U.S, 17% of consumers said they would like to complete the entire process of purchasing a new vehicle online, whereas 12% said they would like to complete at least some of the process online. 

The Outlook for the Automotive Industry Looks Promising in 2021

This shift to digital automotive sales will appeal to younger, tech-savvy consumers. It will also appeal to consumers who are still unwilling to visit a dealership in person due to concerns related to the coronavirus pandemic. Investing in a digital sales platform could help automotive companies win this segment of the population over. 

If moving the entire sales process online is not an option, automotive companies should consider moving select aspects of the process online instead. For example, allow consumers to take a virtual test drive online. Or give them the option of scheduling a test drive online. Then, deliver the vehicle to their home for a contactless test drive experience.

Automotive manufacturers should also focus on promoting special deals and discounts to consumers, who are still hesitant about spending large amounts of money. Highlight the record-low interest rates, declining ownership costs, and other financial benefits to purchasing a vehicle right now

Focus on other areas of business, too. It’s estimated that 95% of people put off vehicle maintenance and 52% delayed vehicle repair last year due to the coronavirus pandemic. Now that everything has reopened, target these consumers. Reaching out to these consumers could drive foot traffic, increase revenue, and more importantly, build relationships with customers who may need to purchase new vehicles in the future.

The effects of the global COVID-19 crisis will continue to linger in the automotive industry in 2021. However, if experts are right, the automotive industry could start to return to some state of normalcy in the year ahead.