The automobile industry is deep within the Covid-19 crisis – but faces a potentially even bigger one when the virus is beaten.
In times of crisis, such as the one we are currently facing, individual focus tends to narrow to personal and immediate needs – leaving ‘bigger picture’ thinking to corporate bosses and government, hoping like hell they will come up with the right solutions.
On a global level, the auto industry has either shut down completely or is only now beginning to reawaken, depending on the lockdown status of the particular country. This applies equally to all the suppliers to the industry, from the smallest (and most vulnerable) to the largest of the global networks.
Locally, the industry is still tightly shut but President and CEO of Toyota South Africa Motors (TSAM), Andrew Kirby, says: “We at Toyota are gearing up for business whatever the shape or form. Our top priority is the safety and welfare of our customers as well as our employees. The key challenge for us, will be to implement social distancing throughout our operations, suppliers and dealerships.
“We have prepared a comprehensive set of risk-adjusted measures to ensure that we create an environment where our employees and customers are protected.”
TSAM’s proactive interventions when the Coronavirus hit South Africa ranged from supplying staff with necessary hygiene products as well as introducing social distancing measures at the workplace before the country was put on a five-week lockdown.
However, as an organisation that sees itself as corporate citizen first, TSAM had to step in – offering technical and operational support to Toyota and Hino vehicles being utilised in essential services.
According to Senior Vice President of Sales and Marketing at TSAM, Leon Theron: “Our technical team and Field Technical Managers are also prepared for remote technical support. A skeleton staff is operational at the Parts Warehouse to manage VOR (vehicle off road) parts supply for large Toyota and Hino fleets involved in essential services.
“Also, up to 167 Toyota and Hino dealers across the country are on standby, to support the operation of essential services during this lockdown period and, in fact, to date we have assisted 321 vehicles (and a total of 922 parts) involved in these essential services. These include food delivery services, medical support services, selected municipal services and emergency services. Taxi-industry suppliers responsible for transporting essential-services providers such as bank personnel, supermarket or hospital staff also eligible for support.”
Internally, Kirby says TSAM is doing everything in its might to guarantee the security of its employees.
“Starting with our workforce – that is the 7 883 employees on our physical payroll –to instill security and ensure business continuity, we have secured full pay for all our staff during this lockdown period. Those in a position to work remotely have been doing so at full speed and will continue to do so to varying degrees in order to facilitate social distancing, which will still very much be an issue going forward.”
Kirby says there is no doubt Covid-19 is causing dire consequences for the global economy, with the latest casualty being the price of oil that recently plunged below zero for the first time in history:
“But what is the situation here at Toyota? The Toyota plant in Prospecton Durban which produces Corolla Quest, Hiace, Fortuner, Hilux and also assembles several Hino models, is presently in lockdown and was mothballed on the March 26.
“In real terms this means by the end of lockdown, production volume lost will be 13 443 units. Of course we do not know exactly what form start-up will take or even when – we are of course looking at a number of possible scenarios including a staggered start – but as you can see the impact is considerable. In monetary terms it is hard to put a price on this as it’s not just the value of the lost production that needs to be taken into account, you’ve also got to factor in a workforce of line workers who are essentially idle,” says Kirby.
Globally, and generally to an even greater extent, the same applies – but what about going forward?
Recovery for the motor industry means ramping up as quickly as possible to full production and selling large volumes of product while keeping any unneccessary expenditure to an absolute minimum. Right now, carmakers around the world are running out of money. . .fast.
The big problem – and one that will impact South Africa in the longer term – is the raft of new legislation impending in Europe relating to emissions standards, all of which require massive investment in new technologies.
In the UK/EU (European Union) a corporate average level of CO2 emission was set at 95 g/km in January this year, to be tightened again next year with really radical numbers planned for 2025 and 2030 – with Draconian fines for manufacturers failing to meet these standards.
Ultimately, it is expected both the UK and the EU will push for a complete ban on internal combustion engines in favour of battery electric vehicles (BEV) and, possibly, hydrogen fuel cells – but this is a colossal investment programme.
Volkswagen, for example, is spending R690-billion on an entirely new range of models to be built at two brand-new factories in Europe. And, while the European market for BEVs is still low, it has overtaken North America and is now the world’s second largest behind China, with this year’s European pre-Covid-19 sales growth predicted to be the world’s fastest.
In terms of European car sales, several companies including Toyota, PSA Peugeot/Citroën, Mazda, Renault, Fiat, Chrysler and Ford are quite well placed to meet the required corporate emissions with a fairly low percentage of sales of BEV’s – it is the luxury brands that might struggle to avoid hitting the fine ceiling.
This all means little for South Africa in the short-term. However, it will be forced to follow suit over time as volumes of BEV’s grow and the range of internal combustion options starts to dwindle.
Right now, price is a major issue in driving up BEV sales – so, for carmakers being able to manufacture the product, does not necessairly translate into the profits needed to refill coffers decimated by these lengthy lockdowns.
The Jaguar I-PACE that recently was crowned South African Car of the Year by the SA Guild of Motoring Journalists is monstrously expensive, even though its was a deserving winner in a competitive that is about automotive excellence and not the ‘best-selling people’s car’.
Unless BEV prices (and here I include hybrids) are driven down significantly, sales will continue to remain sluggish – with China likely to score big as it has a huge battery manufacturing industry and several carmakers keen to expand their BEV’s into world markets.
The long-term fallout directly resulting from Covid-19 could still be devastating for automakers and may well see some pulling out of markets where they cannot meet the regulations or, worst case, closing up completely.
Locally, although Toyota is doing a number of things to assist communities, Kirby admitted he was concerned for the viability of some of its smaller parts suppliers.
“We are hoping we can start production soon enough to ensure all our suppliers are included in the process and start their own recovery.”
During this global pandemic around Covid-19, Toyota affiliates across the globe have supported the public with donations and production of safety equipment. In South Africa, the Toyota team in Durban has utilised the technical expertise of the production engineering department to design and prototype a face shield for mass production.
Toyota South Africa has the capacity to produce 20 000 face shield a week and they will be used locally at Prospecton Plant in Durban, at Toyota dealerships, at Toyota suppliers and will be also supplied to local hospitals as well as first-time responders. The mass production of these face shields started on April 20, and the first delivery will be made to Prince Mshiyeni Hospital in Umlazi.
Kirby explains: “Our approach is to produce over 100 000 face shields which we will deliver free of charge but then to hand over the business to an SMME and create a new supplier who can then continue operating.
So we would like to use this as an opportunity to support the country’s need for safety equipment but also use this opportunity to create jobs and a new business opportunity.”
Kirby also said Toyota will be supporting disadvantaged communities – through the distribution of food parcels – in areas around Prospecton Plant, Sandton office and Atlas Road Warehouse. “Our focus will be on informal settlements – as our President reminded us these are some of the neediest people in our country.”
“It is not going to be business as usual, so we have put measures in place to ensure employee safety first by providing for multiple scenarios, including a staggered start-up, strict hygiene protocols and numerous remote working options.
“And, from a business point of view, we have put numerous measures in place to ensure we pick up the pace, keep our cash flow healthy and keep Toyota SA’s favourite brand,” concludes Kirby.