Deloitte survey findings call for collaboration and transparency across the automotive value chain to sustain industry beyond COVID-19

Johannesburg, - The African automotive sector is facing major volatility at all levels of its value chain as a result of the ongoing COVID-19 global crisis.

Stakeholders across the sector, from traditional Original Equipment Manufacturers (OEMs), new entrant automakers, dealerships, suppliers and financial services providers are going to have to evolve and act immediately to succeed in the face of the pandemic.
These are some of the key findings of the 2020 Deloitte COVID-19 survey: The economic impact on the Automotive Value Chain (AVC), which surveyed 127 respondents from four industry associations representing the AVC across Africa.
“The automotive sector is one of the pillars of a country’s economy and is facing shocks at all levels. All players must rapidly evaluate the influence of the pandemic and take the required action to overcome its challenges hand-in-hand with customers and employees,” says Dr Martyn Davies, Automotive Sector Leader, Deloitte Africa.The survey, the first of its kind focusing across the value chain in Africa, asked the associations to provide their opinions and analysis regarding a variety of critical issues impacting the automotive value chain during the pandemic.
“The overall goal of our study was to provide a new view and answer important questions that would help inform companies’ focus their priorities and better position business strategies and investments with government, financial institutions and others in the automotive value chain,” says Adheesh Ori, Automotive Strategy Lead, Deloitte Africa.
“Findings from our survey indicate that COVID-19 brings with it an opportunity for the automotive value chain processes to innovate, to become more customer centric and serve the needs of the market during this period and coming out of it.”
The state of play of the AVC was already under pressure prior to the pandemic, with 66% of the respondents reporting a decline in earnings and 57% already focusing on new ways of working, changing operating models and developing cost-saving initiatives.

“Strategic innovation and digital transformation have expanded the way in which the automotive sector in Africa thinks about how to operate and why. For Africans, there are local nuances that demand a shift in operating models and strategies for the future. Survey findings revealed that only 12% of businesses are looking to spend 50% and upward of their investments on strategy and innovation. It remains unclear which businesses will still be around in the next 5 to 10 years,” says Ori.
Considering the eminent disruption in the global Auto sector and the expected Africa COVID-19 pandemic peak, the automotive value chain in South Africa has begun to shift, by slightly increasing its focus on international markets. In SA, it will be important to create visibility for businesses’ supply chains to make agile decisions and improve liquidity to counter the effect of an expected further tightening of the market. From an extrinsic level, changes to operating models and community engagement remain areas for growth.
Currently, 51% of respondents estimated budgeted earnings would be halved or more. A post-COVID-19 level 1 outlook revealed that 63% of respondents are expecting to reach a “break-even” point in less than 12 months, with liquidity being a top continued area of focus.

A shift of focus towards non-African markets, employee well-being and fast-tracked planning are seen as key response activities. Creating a safe return-to-work operational plan that fits the compliance standards set by the government has been a key focus for most companies in the sector, where less than a quarter of the workforce can work remotely, placing an emphasis on earnings reductions over employment cuts. Digitally upskilling the workforce to be able to work remotely and think differently remains a historic challenge.

A change in operating models and implementing new digital ways of working remain an area for growth.Investing in new processes, rethinking business strategies and partnerships to create a clear visible value chain will lead to collaboration across companies. This, in turn, will lead to the right decision-making process because it is transparent, inclusive, and collaborative. Such collaboration means it can no longer be about working in isolation.

An increased focus should be placed on reinforcing upstream and downstream collaboration to improve supply chain flexibility and the ability to address changing customer demands. “This knock-on effect we are seeing in the industry is a result of a symbiotic relationship across the supply chain, which requires a balance between demand generation and supply. Neither can survive without the other,” says Ori.“In Africa, it is really about unlocking the great potential on the continent especially from a regulatory and policy perspective in order to enable the Africa growth agenda but more so in policing that policy to ensure it implemented with effect” he adds.

Meanwhile, further transparency in the value chain will open up opportunities to explore a multitude of digital innovative technologies that will provide more efficient and cost-effective solutions, driving efficiency at a Supplier level, manufacturing level, parts optimization, to sales and retail. It is no longer a case of “this is my “IP” and I'll do it in isolation”.

“The sector can not merely outlast the economic effects if the pandemic. It’s time for speedy, decisive action to ensure cooperation and transparency between these role players,” concludes Davies.