The Covid-19 pandemic took the world by storm soon after its first reported case in December 2019 in Wuhan, China. The study of this novel’s economic impacts has been coined with the term “coronomics”. The outbreak was accompanied by “loss in stock markets, loss in travelling and shipping industry, the burden on interest rates and consumer isolation.” (Khan, 2020). China is a major producer of automobile parts, including those assembled and sold most widely in Pakistan. Thus, due to supply chain disruptions caused by global lockdowns, the industry sank into exponential loss following the rise of the pandemic.
Additionally, due to the failure to repay sales tax proceeds, the manufacturing industry faced a drastic liquidity shortage. When demand began to rise in the markets after the lockdown was lifted, the production sites found themselves unable to meet the sudden surge. Thus, production losses also began to occur. However, perhaps most importantly, during COVID-19, the “Pakistani rupee [devalued] against [the] US dollar”, and “additional custom duties [were imposed]” on automobiles, thus hindering growth and lowering profit margins within the industry (Mufti, 2022). At the same time, the burden of severe inflation and rising oil and gas prices also led to a market shift away from the purchase of automobiles.
Moreover, the first wave of this virus was accompanied by disastrous economic effects as “unemployment rose by 34.1% while mean income fell by 42%” (Arab News, 2021). These factors added to the growing shift in consumer tastes away from automotive purchases. Lastly, the pandemic led to an unprecedented increase in the demand for electronics, a significant component of which is semiconductor chips. Supply chain issues and the inability to cope with the sudden surge led to semiconductor shortages. Since safety systems within cars, including airbag deployment, anti-lock braking systems (ABS), and stability control, depend on this commodity, the effects on the automotive industry are drastic.
Considering these factors, we must reflect on the leadership decisions made as pandemic restrictions were eased to strategize for the future. More employees began to work from home, and thousands had to be let go to ensure factories were not overcrowded and to minimise costs as little to no revenue was being generated. “For supply chain resilience, the firms increased the inventory turnover ratio and recruited local firms as suppliers to prevent the supply shortage” (Kaeo-Tad, 2021). Companies also began to invest in new technologies and digitalisation of work to at least a partial extent. Many believe that COVID-19 “accelerated trends that were already in motion, ranging from increased automation to supply chain assessments to workplace and workforce changes.” (Moutray, C., 2020) Therefore, a ‘new normal’ for the automotive industry came with team structure and working methods changes. Self-contained teams are perhaps the most distinct difference in organisational structure; they have clearly defined tasks and are as different from each other as possible. Although they may be fruitful in the future, their short-term effects risk reducing company output and agility. Therefore, to adjust to this new landscape and recover from the financial onslaught that the virus brought, “firms will need to think strategically about where they source their products” (Moutray, C., 2020). Thus, there must be more domestic production and accelerated use of new technologies. Lastly, companies must use this opportunity to “train employees by upskilling, reskilling and providing new skills” (Kaeo-Tad, 2021). It is crucial to continue using the widespread automation of managerial tasks and upgraded telecommunication that became common during the pandemic. These resources will aid reasoning policy responses and help “prepare for potential disruptive events in the future” (Kaeo-Tad, 2021).
The key to surviving these disruptions is through leadership, experience, and technology. This entails “putting business continuity plans and risk management plans into action”(Moutray, C., 2020). Risk management plans entail ensuring “supply chain viability during long-term crises” (Moutray, C., 2020). This can be done using “a combination of repurposing, intertwining, scalability, and substitution. The proposed conceptual framework consists of three constructs, namely adapting supply chains and operations, rethinking sourcing strategy, and building intertwined supply networks, as well as five viability capabilities, including adaptability, agility, flexibility, collaboration, and visibility.” Supply chain managers can use the framework “as a guidance for creating supply chain viability using adaptation-based principles.” (Chervenkova, T. and Ivanov, D., 2023) One may take the example of the American automobile manufacturer – Ford. Following the spread of the coronavirus, Ford made use of a hybrid adaptation strategy, allowing it to repurpose its resources and integrate with other supply chains at the ecosystem level. Additionally, one may also look at Tesla’s supply chain model. Their in-house manufacturing of spare parts, including battery packs and electric engines, sets them apart from other automotive manufacturers who outsourced the production of such components before the pandemic. This allowed Tesla to have direct control over their production and avoid possible delivery problems in their supply chain network while the rest of the industry was in shambles. Thus, to avoid future problems in supply chain processes, it is imperative that Pakistan’s automotive manufacturers adapt to redesigning the infrastructure by encouraging in-house production of individual parts and using advanced digital technologies. This would also ease the burden on the country’s economy and help ease inflation by virtue of reduced imports.
According to the Pakistan Association of Parts and Accessories Manufacturers (PAPAAM), “car prices have inched up by 149% in last five years … whereas car parts prices have seen a jump of 33% to 112%” (Faruq, O. 2023) This rise in prices is a direct result of increased taxes and customs duties. By producing and sourcing raw materials locally, the costs of inputs would decrease significantly. This would, in turn, reflect on the final price, leading to increased demand. On the other hand, while the pandemic did escalate the turmoil that the automotive industry is in, the state of the economy has also affected the industry significantly. Both of the price hike factors discussed above are a result of general economic instability in the nation. The pandemic significantly escalated the effects of political instability and energy insecurity on the automotive industry. Therefore, to bounce back from the financial onslaught, the government must take steps to stabilise the economy. This includes deregulating the energy sector, decreasing dependence on foreign debt, and curtailing widespread corruption (Roberts, J.M. and Sattar, H., 2015). Perhaps the most important of these steps is that pertaining to reliance on foreign funding. The government must reduce its spending and focus on increasing revenues through taxation. This can be done by “broadening the tax base…bringing the informal business sector into the tax system, … [and decreasing] tax evasion through tougher law enforcement” (Roberts, J.M. and Sattar, H., 2015). Expansion of the tax base would lead to leniency in hefty taxes placed on the sale of automobiles. Thus increasing demand with lower prices. Lastly, the deregulation of the distribution of power generation would lead to more predictable electricity rates. Currently, firms depend on alternative sources to meet electricity requirements as government supplies are often unreliable. Therefore, deregulation would reduce raw costs for the industry – making production less costly and encouraging customers to purchase.
In conclusion, in order to troubleshoot the effects of the novel coronavirus on the automotive industry one must seek risk management, adaptive and business continuity plans. This may entail locally producing and sourcing of raw materials and easily adapting to changes in market conditions. However, firms must also assess the economic landscape in order to combat heavy taxation and customs fees. Although adaptation is possible though the supply chain management plans detailed above, it may prove to be infeasible due to deep rooted corruption within the government
References
Arab News PK. (2021a). Pakistan unemployment rose 34.1%, mean income fell 42% during COVID-19 first wave — study. [online] Available at: https://www.arabnews.pk/node/1837961/pakistan.
Chervenkova, T. and Ivanov, D., 2023. Adaptation strategies for building supply chain viability: A case study analysis of the global automotive industry re-purposing during the COVID-19 pandemic. Transportation Research Part E: Logistics and Transportation Review, 177, p.103249.
Kaeo-Tad, N., Jeenanunta, C., Chumnumporn, K., Nitisahakul, T. and Sanprasert, V., 2021. Resilient manufacturing: Case studies in Thai automotive industries during the COVID-19 pandemic. Engineering Management in Production and Services, 13(3), pp.99-113.
Khan, M.F., Ali, S. and Aftab, N., 2020. The coronomics and world economy: Impacts on Pakistan. Electronic Research Journal of Social Sciences and Humanities, 2.
Faruq, O. (2023). True Story Behind the Car Price Hikes in Pakistan. [online] PakWheels Blog. Available at: https://www.pakwheels.com/blog/true-story-behind-the-car-price-hikes-in-pakistan/ [Accessed 17 May 2024].
Moutray, C., (2020). In recovery mode: Manufacturers try to bounce back after COVID-19 disruptions. Business Economics, 55, pp.240–252.
Mufti, A. (2022). A Framework for Sustainable Recovery from Pandemic and Its Policy Implication in Pakistan. SSRN Electronic Journal. Doi:https://doi.org/10.2139/ssrn.4155947.
Roberts, J.M. and Sattar, H., 2015. Pakistan’s Economic Disarray and how to Fix it. Heritage Foundation.
This exclusive research article has been published in Automark Magazine’s June-2024 printed edition too.