Digital Transformation is the Auto Industry’s Road to Recovery

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Even before COVID-19, the automotive industry had its share of challenges. Sales were down in many markets. Huge investments in electrification, autonomous driving and digital were hurting revenue and profitability.

The coronavirus pandemic turned those challenges into a crisis. Global vehicle sales have stalled, production facilities have been shuttered and many supply chains have ground to a halt. China saw total vehicle sales decline by 84 percent from January to February. Factory shutdowns in Europe created production losses of more than 1.2 million vehicles through March, affecting 1.1 million jobs. And global supply chains are being hampered by supplier shutdowns, border closings and curtailed operations by logistics service providers.

On a more positive note, we are already seeing signs of recovery as the COVID-19 risk is declining in China. Vehicle sales for March in China increased by 22 percent over February.  Chinese original equipment manufacturers (OEMs) and suppliers are ramping up production. And there are increased investments in digital footprints in manufacturing. OEMs in other parts of the world are offering incentives to drive sales: lease payment deferrals, interest-free financing and job loss vehicle buy-back programs to help spur purchases by mitigating consumer risk.

History tells us the automotive industry will very likely recover, and the winners will probably become stronger and more focused. According to a recent report from IBM, half of surveyed automotive executives say that to succeed or even survive in the next ten years, they need to reinvent their organizations with digital technologies, supported by data. In fact, 83 percent of executive respondents say they understand the strategic value of data in their industry. We expect the crisis to force automotive companies to accelerate their existing transition to digital sales, connected vehicles and autonomous driving. For those companies that have been slow to start the digital journey, this crisis will put them at risk for survival.

But the immediate challenges are daunting. Companies have had to enable employees to work from home and keep critical processes and systems operating remotely.

Across the world, OEMs and suppliers are retooling their plants to produce medical equipment and personal protective equipment (PPE), and are helping to distribute supplies necessary to avert deaths. In the U.S., Ford and GM are making ventilators and PPE surgical gear. Ford has plans to produce 50,000 ventilators in 100 days. Mahindra in India has embarked on a similar effort—with the caveat that they want to build personal ventilators with a $100 target price.

Looking to the Future

Industry leaders are most anxious about the inability to know how long this situation will last, how it may reshape the industry, and what the lasting effects will be.

From a consumer perspective, will the sharing economy lose traction as people reevaluate using someone else’s property? Will consumers prefer personal vehicles over public transport (trains, buses or ride sharing) for travel—which in turn will increase traffic congestion?

The global auto industry could see benefits from a relaxation of regulations, as governments try to revive national economies. In addition, the slump in crude oil consumption is driving lower gasoline prices, which in turn could generate more sales of SUVs and small trucks—the industry’s highest-margin offerings.

And all the while, the further adoption of digital technologies and cognitive business practices will help reshape sales systems, supply chain logistics and manufacturing processes.

That’s why, despite the current struggle, the industry will be wise to accelerate this digital reinvention—driving a more rapid transformation and digitization of the core business with such innovations as touchless car purchases and AI-enabled connected services for vehicles.

Modernization of IT infrastructures and development processes, embracing multi-hybrid cloud network architectures, and agile development and operations (DevOps) will help prepare the automotive industry to withstand future ups and downs.

Near-Term Measures, Long-Term Investments

In this era, cash conservation and risk management should be the major areas of focus. Automotive supply chains are critical to managing costs and risk and optimizing production. Key enablers include supply chain visibility tools, AI capabilities with location intelligence and predictive risk assessment. We also expect there will be rapidly changing demands as virus flare-ups happen in different geographies over the coming months.  Digital capabilities and cognitive processes will allow immediate manufacturing adjustments based on these changing demand signals, which will drive down costs and excess inventory.

As IBM supports the auto industry in this time of crisis, together we are making significant investments. We have teams around the world running large parts of the industry’s most critical IT infrastructure. We are providing laptops to automotive company employees so they can work effectively remotely, and we are expanding network capabilities such as VPNs to enable secure access.

We are also providing free tools to support employee engagement. IBM has developed a COVID-19 virtual assistant leveraging IBM Watson Assistant for Citizens, pre-loaded to understand and respond to common questions about COVID-19. This tool also provides company-specific guidance as things change and evolve.

Finally, we are offering global financing options to help automotive companies with potential financial burdens. Working with clients on cost reduction ideas and supply chain resilience programs are just a few ways IBM can assist automotive OEMs in these challenging times.

It is hard to predict the timing of crises like COVID-19. But we’ve proved as an industry that it is possible to prepare in advance and to react quickly and wisely. There’s much work left to do, and tougher times may remain in the short term. But together we will emerge as a stronger, smarter and more relevant industry.

To support our clients, IBM has gathered together a set of best practices and recommendations focused around four areas: employees, customers and partners, finance and operations, and community. Click here to access our COVID-19 Action Guide and related resources.

Members of the IBM Auto Industry Academy involved in this article were Karen Newman, VP of Services, Global Honda Account; Stefan Schumacher, Director of  Strategy & Solutions, Global Automotive, IBM Global Markets; Kohichi Kajitani, Automotive, IBM Research; and Sriram Lakshminarayanan, Partner and Industry Leader, Automotive, Global Business Services.