Auto industry in corona crisis: after the slump – when will the boom follow?

The German economy is in a recession, the gross domestic product is shrinking. The corona crisis is still in full swing, a second wave is not out of the question. On the contrary. What does that mean for the automotive industry? Four scenarios are possible.

We know from history books that epidemics have always existed, but humanity has survived them all. And just as there is life after Corona, there are also better times in the economy – especially in the so badly battered auto industry. An automobile crisis like the present occurred after the war only in 1973/74 in the first oil crisis and in the financial crisis in 2009. But every time followed a brilliant recovery phase. It is only unclear when the upswing begins and how strong it will turn out.

No recession is like the other, nor is there any recovery. Augurs have a particularly hard time this time. There are no historical clues from the past for scientifically sound prognoses after pandemic shocks, everything is new, everything is uncertain, even the character of the Sars-Cov-2 virus itself. Nobody really knows when "normal" life will start again . And when the auto cycle starts to recover.

That much is certain

After all: Michael Hüther, Director IW, Cologne, already sees light in the tunnel: "The valley of tears has been reached … the crash … has come to a halt." Only nobody has noticed the halt so far in view of the enormous financial burdens on companies, expected 2.5 million unemployed and 10 million short-time workers – an unprecedented number in Germany. All of them don't buy a new car for now, that's for sure.

It is certain that there will be an economic recovery, especially in the automotive sector. However, the opinions of the experts differ widely as to when it starts and how it proceeds. Pessimists even see no improvement before 2022.

In economic theory, there are four forecast scenarios for the upcoming recovery: According to the capital letters V, W, U, L, four recovery scenarios are conceivable. However, always provided that there is no second corona wave, but the pandemic slowly subsides. In the worst case, everything can turn out quite differently.

Scenario V

The business cycle takes the form of a V: a steep downturn and recession, followed by an almost seamless transition to an equally steep upturn. Similar to after the first oil crisis and like in 2009 after the financial crisis. In relation to 2020, the recession would last for two quarters, the turning point would come in summer and then in autumn there would be a strong recovery, with the continuation in 2021.

IW boss Hüther also sees the overall economy in a similar way: After the historic slump in gross domestic product in the second quarter of 12 percent, the third quarter will again be dominated by the growth path, which will continue in 2021.

We know from the auto cycles of the past few decades that automotive demand always slumped first and led the general recession, but then started the recovery phase just as early and, depending on the severity of the recession, was even very steep. That gives hope for the rest of 2020.

Scenario W

The W cycle scenario is the most unspectacular, but most common in the post-war period: the downturn is steep and short. This is followed by an equally steep, fiscal and monetary policy recovery, which, however, after the first pent-up demand of the economy has been met, initially subsides again. Then, usually a quarter later, the normal "natural", self-sustaining upswing sets in.

Scenario U

In this case, a longer crisis hike through the "valley of recession tears" threatens before there is a slow recovery in recovery – and not before 2022. The recession curve would then have the shape of a U. The upswing would come at some point, but too late. The auto industry would shrink considerably globally, the weaker suppliers, especially in the supply industry, would collapse in rows.

Scenario L

The "L" would be the worst-case scenario: if the recession were L, there would be no recovery and the global economy would be in a long-term depression for several years. In short: The capitalist economic system would end, the state would have to step into the breach. In principle, Karl Marx would see himself confirmed. This horror scenario is unlikely because everything would go wrong. To reassure you, economic policy in all countries proves with its economic stimulus programs that the lesson from 1929 has been learned.

Conclusion

If you weight positive and negative influencing factors and follow the many years of practical experience, the coming upswing will be a mixture of V and W. Economic stimulus packages and pent-up demand are having an effect. The upswing is relatively steep. This slows down, but does not stop, but continues in 2021 – initially cautiously, then stronger again with the support of the global and domestic economy.

In principle, the same applies to the automotive industry, just a little earlier: in the third quarter of 2020, the recovery begins, which intensifies in the fourth quarter, then flattens out again, in order to finally finally earn the title upswing in 2021. Everything carried by the burner.

However, the registration result in Germany of around 3.6 million vehicles in 2019 will clearly be missed in 2020. A drop of around 750,000 units, i.e. around 20 percent, is expected. 2021 will then be all about recovery: The auto industry should then regain access to the pre-corona level with the key figures.

So it is especially important for the suppliers to survive the next automotive "drought months" safely – until the recovery begins. It is certain that this will happen. However, only on the condition that there will be no further corona wave or a political shock.