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“The automobile industry's change will have an impact on chemical firms. Those who want to thrive in the new normal must confront the changes head-on and address three major themes.”

For chemical firms, the future of mobility looms enormous. Historically, the automotive industry has been a large end market for chemicals, accounting for more than 10% of total sales and even greater percentages for individual substances. The automotive market, on the other hand, has seen a significant increase in uncertainty during the last decade.

Even before the COVID-19 problem, many chemical businesses were feeling the strain of diminishing auto sales and profit margins in the automobile industry. Several reasons have contributed to these figures, including shifting import tariffs, increased and regulatory expenditures, and the slowing of the North American and Chinese car markets. Industry profit margins are likely to shrink dramatically in 2020 and beyond as a result of COVID-19. To make matters worse, OEMs are anticipated to encounter increasing disruptions in the future years, forcing chemical companies to adapt their business models to changing markets.

COVID-19 has posed a number of challenges

The global automotive value chain is being disrupted by COVID-19. Here are a handful of the industry's most pressing issues, along with advice for how to fix them quickly:

1. A supply chain that has been disrupted

OEM supply networks were instantly impacted since they rely primarily on just-in-time production. Nearly two-thirds of vehicle manufacturing in China was directly impacted by the country's industrial shutdown, which also had a significant impact on their suppliers. Furthermore, the scarcity of Chinese-made components has harmed global output.

How to deal with the situation now:

• Using big data, intelligent systems, and connected ecosystems, assess the dangers and create complete transparency. This alerts all points along the supply chain about shortages or other issues, allowing them to plan, adapt, or change accordingly.
• To orchestrate the response and configure the risk response, set up a command center. And all the while, keep your wits about you.
• Operate risk mitigation as usual after the crisis: integrate risk mitigation workflows, scenarios, and (reaction) protocols into daily operations to easily switch from normal to disruptive response if necessary.

2. Manufacturing plant closures

While the situation in China is beginning to improve5, the majority of US and European automakers are unsure when they will be able to restore normal production. OEMs are shifting engineering, assembly, and even procurement capacities to build and source medical equipment at the same time. Whether the halts are caused by health and safety regulations, legislative inaction, diminishing demand, or a shortage of parts in the supply chain, the repercussions are the same: job losses, an anticipated 16 percent decline in automobile production, and thus a significant impact on GDP.

How to deal with the situation now:

• Maintain continuous communication with your suppliers to ensure a speedy ramp-up when the market recovers, and adapt your production levels and schedule accordingly.
• Consider taking extra efforts to guarantee the safety of your employees, such as providing for physical separation and using professional cleaning providers.
• Increase efficiency and develop (future) shock procedures by embracing Industrial-IoT principles.

3. Availability of funds

Cash is king and it's even more important in these circumstances. With minimal operating cash flows, the remaining cash reserves of some OEMs are exhausted in less than two months on average. As a result, a number of OEMs have agreed to increase their credit lines. In addition, the substantial decline in market capitalization will almost certainly hasten industry consolidation. Some players are at risk of going out of business unless they can secure extra cash. This financial difficulty will have an influence on revolutionary investments in connected, autonomous, shared, and electric mobility, which will most likely be postponed.

How to deal with the situation now:

• Establish a working-capital crisis mode that prioritizes payment responsibilities and maintains close communication with major banks (e.g., verify credit lines).
• Enter a stage of emergency fixed-costs mode. Consider using AI in treasury management to create real-time cash flow estimates and overviews.
• Pay attention to the financial condition of your suppliers and dealers, as well as your overall partners. They are also in financial difficulty.

4. Vehicle sales are down

The world's largest market for light automobiles is currently China. The more than 80% reduction in sales in February 2020 compared to January is a significant indicator of the global market's trajectory, and the impact is already obvious. Forecasts for global light car sales in all major regions forecast a 12 percent decline in 2020, and it is doubtful that this situation will improve anytime soon. Changes in customer behavior as a result of the "lockdown," such as reduced mobility and increased online buying, may persist after the crisis has passed.

How to deal with the situation now:

• Maintain contact with customers using online and mobile platforms.
• Concentrate your efforts on generating leads using online automobile customization tools that prospective customers utilize, and consider using virtual event platforms to compensate for trade fair cancellations.
• To meet health and hygiene regulations, consider establishing a contactless sales process.

The automobile industry's change will have an impact on chemical firms. Those who want to thrive in the new normal must confront the changes head-on and address three major themes.

For chemical firms, the future of mobility looms enormous. Historically, the automotive industry has been a large end market for chemicals, accounting for more than 10% of total sales and even greater percentages for individual substances. The automotive market, on the other hand, has seen a significant increase in uncertainty during the last decade.

The automobile industry is in a state of flux

While the coronavirus-related slowdown is projected to alleviate in the medium term, increasing city-level controls on private car ownership and the expansion of shared modes of transportation are expected to have a long-term negative impact on automotive sales. In our business-as-usual scenario, light car sales will only expand somewhat. However, given the predicted policy changes in major cities throughout the world to limit private car ownership, global sales in 2030 could be comparable to today's levels in a more muted scenario.

While ACES interruptions have a significant impact on the automobile industry, their impact on chemicals is less than projected. Autonomous driving, linked automobiles, electric vehicles, and shared mobility are the four disruptions that will most likely have the most impact on chemical companies.

The attention is on automotive non-core assets.

In the automobile sector, a new value chain is evolving in which mobility is purchased as a flexible service, and vehicles are connected, autonomous, and electric. The traditional automotive business model, in which privately acquired, hardware-focused, human-driven automobiles powered by internal combustion engines (ICE) are the norm, is the polar opposite of this.

Between the value chain and across geographies, the rate and scale of change vary. It's also oversimplified to say there's a traditional model and a future one, with winners and losers clearly defined. Emerging disruptive forces have a range of effects on organizations, ranging from positive to bad, and from sudden market revolutions to decades-long evolution. Regional differences in the adoption of electric cars (EVs), for example, are expected to be significantly faster in Asia and Europe than in the United States.

Getting the business ready to sell

During the M&A process, preparing a business or non-core asset for sale entails improving potential value and/or fighting against value leakage. This is generally accomplished through extensive sell-side materials. Carefully compiling and managing the information flow to assist buyer targeting, business positioning, buy-side due diligence, and transaction structuring is critical to a successful deal.

Investors are already wary of the sector's current uncertainty and risk, so any further uncertainty brought on by substandard materials will be tough to overcome. Risks and concerns can also be detected early and avoided or managed by a thorough process of developing business and sell-side materials. Off-balance-sheet/contingent obligations, ongoing liabilities, pension liabilities, and tax are all examples of places where value leaking can occur.

Major Market Highlights:

• BorgWarner Inc. and Delphi Technologies have announced the signing of a formal transaction agreement under which BorgWarner would acquire Delphi Technologies in an all-stock deal valued at approximately USD 3.3 billion. BorgWarner's power electronics products, capabilities, and scale will be strengthened as a result of the acquisition.
• Denso formed Denso Sales South Africa (Pty) Limited to sell aftermarket products and services in Southern Africa. Denso's product selection will be expanded in South Africa, mostly for automobiles produced by Japanese-affiliated automakers.
• Continental's new 48V high-power system for HEVs consists of an electric motor with integrated power electronics and a battery that cuts fuel consumption and CO2 emissions by roughly 20% compared to equivalent vehicles with combustion engines. The new 48V technology is also significantly less expensive than previous high-voltage systems.

Conclusion: Companies need to take bolder decisions

Companies must make daring judgments concerning non-core aspects of the business while staying true to the traditional automotive business model. While these components may not have received much attention recently due to the industry's focus on the rapid pace of technological and market developments, now is the time to pay attention to them and maximize the value they provide.