COVID-19 Casts Industry Globalization in New Light

The globalization of the auto industry may have run its course as the COVID-19 pandemic takes a heavy toll on the car business around the world, according to a long-time industry analyst and executive.

John Casesa, senior managing partner with Guggenheim Partners, says the deadly coronavirus has created unprecedented challenges for the auto industry that will require difficult choices and new approaches.

Automakers have migrated toward the concept of a truly global industry for the past 30 years, Casesa says, noting mergers and alliances such as Renault-Nissan-Mitsubishi were built on the need for a broad product portfolio that could be sold in all markets.

“Many of the ideas of that may not be as valid an assumption anymore. The world seems to be shifting from globalization to regionalization with tariff wars and geo-political tension,” he says during a webinar organized by Automotive News as a substitute for its World Congress, held annually in Detroit.

Going forward, automakers will achieve scale in a particular market and become “that regional or national champion,” says Casesa, a former group vice president at Ford where he helped launch new ventures such as Argo AI, a developer of autonomous-vehicle software.

“You can see Toyota slowly consolidating the Japanese industry, acquiring stakes in many of the other independent companies. It’s happening in a very methodical way,” he adds.

“You can see the consolidation activity in Europe because it’s taking place among European companies. Opel was merged into another European company. Fiat Chrysler, which is hugely European, is being merged into another European company.”

Casesa pegs the start of globalization to the 1989 fall of the Berlin Wall.

“So, this trend toward regionalization could go on for decades. I think CEOs have to think about that. This is a time for great consideration of the macro and geo-political trends that could affect the industry’s structure,” he adds.

Casesa notes the COVID-19 pandemic is certain to prompt governments in the U.S., China and Europe to provide relief for automakers.

“All governments are protective of their auto industries and the jobs they provide,” Casesa says. The amount of government aid to the industry during the pandemic easily could surpass the assistance provided during the 2009 recession, when the U.S. bailed out General Motors and Chrysler, he predicts.

Recent supply-chain disruptions as the virus spread, in addition to ongoing trade wars, “have prompted many companies to take a hard look at where their products are made,” notes Ray Telang, head of PwC’s automotive practice and moderator of the webinar.

Companies will face very hard decisions with limited resources as they move to protect their core business and invest in new technology, Casesa says, pointing out that many companies already are dealing with liquidity problems. “I would expect restructurings, business failures and bankruptcies. You will see fewer companies doing the same thing. Merger activity will get more intense,” he says.

Meanwhile, the industry is in the midst of “a long difficult transition period” that requires major investments in new technology, the Guggenheim analyst points out.

“I think the crisis is more intense this time around because it comes as the industry is investing a lot to change how it does business.”

The chaotic, uncertain environment created by the spreading pandemic around the world has set up a “violent re-ordering of the industry,” Casesa says. Consumers are seeing their incomes reduced and are not likely to be shopping for new vehicles any time soon. Even before the COVID-19 crisis, the industry was ripe for consolidation, he notes.