“A decline of even 20% in sales volume can try even the most solid companies. An analysis conducted by Boston Consulting Group on several companies in this sector in Romania shows a very large potential impact: in a severe scenario, the EBITDA (earnings before interest, tax, depreciation and amortization) may fall by up to RON19 billion from a projection of approximately RON13.4 billion down to -RON5.5 billion, getting into negative territory, while sales loss may reach RON67 billion”.
Demand and sales have plummeted over the last two months globally, with many markets seeing a steep decline in new car sales, even by over 80% for those with maximum exposure.
”A simple explanation is that consumer confidence and economic performance go hand in hand, with both being affected on the short run: most consumers do not want to buy a new car at the moment due to economic uncertainties. On the backdrop of uncertainties, demand in the automotive industry is delayed.”
In these circumstances, companies in the Romanian automotive industry (original equipment manufacturers (OEMs), suppliers, dealers) are way better positioned now than they were during the crisis of 2008-2009, because they have improved their cash flow, boosted the capacity utilization, changed their product portfolios to meet buyer demand and imposed stricter discipline through retail incentives.
To cope with this difficult period, companies in the automotive industry ought to recalibrate their supply chain, relocate to Romania a part of the production of components, find solutions to stimulate new car sales, boost the efficiency of their distribution chains / dealers and revive sales through micro-segmentation of specific regions, and digital channels.
“Romania has been dominated for a few years (way before the COVID-19 crisis) by sales of used cars, which, in most cases, also cause environmental problems (due to larger emissions) and, even for traffic safety. In this context, the government measures aimed at discouraging the purchase of used cars, through pollution-based taxes, can help the environment and the economy”, per the analysis.