The Road To Recovery

While the coronavirus has been held at bay, the very measures required to successfully keep it in check and avoid a catastrophic health crisis have had a devastating effect on an economy that thrives on openness and the interaction of its residents and businesses.

The Economic Impact

The federal and state governments, and the medical experts who guide them, are now working towards the goal of ‘reopening’ the country and have revealed a plan for that to happen over the coming weeks.

That is a much-needed and welcome development, for while a medical disaster does appear to have been averted, the perfectly reasonable reaction of governments to shut things down to prevent a health catastrophe had the effect of immediately putting businesses on shaky ground.

Bricks and mortar retail businesses, travel enterprises, tourism and hospitality businesses, airlines – just about everyone was set back on their heels.

The automotive industry, locally and internationally, has been struck very hard.

According to the data analytics company GlobalData, in March global light vehicle sales were 39.4 per cent off levels of a year ago, with first quarter sales down 27 per cent on last year.

Looking at the April VFACTS new-car sales figures for Australia – released by the Federal Chamber of Automotive Industries (FCAI) at the beginning of May – gives an idea of how severe the impact has been at home. The 48.5 per cent fall in April 2020 compared to April 2019 is an astonishing figure and the 38,936 sales recorded for the month compared to the 75,550 in April last year was, the FCAI said, the largest single decrease of any month since the VFACTS recording system began in 1991.

“Clearly, the COVID-19 pandemic has had a major influence on the April sales result, and reflects a downturn in the broader economy right across the country,” said Tony Weber, chief executive of the FCAI.

“Figures recently released by the Australian Bureau of Statistics show that 31 per cent of Australian citizens have experienced a decrease in income due to the pandemic.

“In addition, 72 per cent of Australian businesses reported that reduced cash flow is expected to have an adverse impact on business over the next two months.

“These conditions inevitably impact consumer confidence and purchase decisions.”

Across the globe, manufacturers of cars, tyres and automotive components were forced to halt production and shutter factories. Some, such as Ford and GM shifted part of their manufacturing capacity to help fight the pandemic, producing ventilators and respirators.

Only in recent days are manufacturers’ factories beginning to come out of their mothballed or reduced production status and are doing so with stricter safety guidelines in place to protect staff.

Ford, for example, targeted a phased restart for its North America operations beginning May 18, after restarting production at facilities elsewhere.

“We’ve been working intently with state and federal governments, our union partners and a cross-section of our workforce to reopen our North American facilities,” said Jim Farley, Ford’s chief operating officer. “We have reopened our facilities in China, successfully begun our phased restart in Europe and have been producing medical equipment in Michigan for more than six weeks and are using the lessons from all of that to ensure we are taking the right precautions to help keep our workforce here safe.”

This good news follows recent announcements of first-quarter results from the major auto companies – results that were predictably horrifying. A snapshot of news from a handful of major firms reveals how tough things have been. Ford announced a quarterly loss of $US2 billion ($AU3.12 billion). General Motors squeezed out a profit of about $US300 million ($AU467 million) – down from $US2.2 billion ($AU3.43 billion) last year; Toyota announced a quarterly net profit decline of 86 per cent to $US587 million ($AU915 million); while VW’s operating profit dropped 81 per cent from last year to €0.9 billion ($AU1.5 billion). Bosch, the world’s leading auto parts supplier, revealed a 17 per cent fall in sales for March.

And it wasn’t just the manufacturers of cars and their components that were in trouble. Even the oil industry, a cornerstone of the world’s economy, was put on edge. On April 20, and for the first time in history, the price of U.S. oil went negative, meaning producers were set to pay customers to take oil off their hands.

This happened in part because, with many nations in lockdown, no one was driving. The resultant fall in prices at the bowser – which in Australia saw prices in some areas fall to around 80 cents a litre – were no doubt tempting to car owners but, with the lockdown in effect, no one was able to take advantage of the price fall.

The decline in sales and profits at the major companies are a sign of the problems facing all auto businesses. If the public is in lockdown – and rightly concerned about the potential of becoming sick – then even businesses deemed ‘essential’ and that have been able to keep operating are going to struggle for customers.

The Australian Bureau of Statistics (ABS), in a recent Business Impacts of COVID-19 survey, recorded that, as of May 4, 72 per cent of Australian businesses reported that reduced cash flow is expected to have an adverse impact on business over the next two months; reduced demand for goods and services was expected to impact 69 per cent of businesses over the next two months, and 41 per cent of businesses expect a reduced ability to pay operating expenses.

Add to that, the May 14 release by the ABS data for April’s labour force statistics, and the overall picture is not a happy one – 594,300 Australians lost their jobs in the month and the unemployment rate across the nation rose to 6.2 per cent.

All this bad news was foreseeable as governments, both state and federal, prepared to attempt to control the spread of the coronavirus. And it was equally clear that businesses, small and large, simply could not be ignored when the trouble hit. Everyone was going to need a helping hand.

The Government Response

Acknowledging this truth, the federal government, and their state and territory counterparts, reacted to the lockdown with much-needed financial stimulus through a range of packages.

At the national level, a $1.3 billion package to help keep apprentices in their jobs was revealed in March enabling eligible employers to apply for a wage subsidy of 50 per cent of the apprentice’s or trainee’s wage paid during the nine months from 1 January 2020 to 30 September 2020. Employers will be reimbursed up to a maximum of $21,000 per eligible apprentice or trainee ($7,000 per quarter).

A range of tax relief programs were introduced, as was an increased instant asset write-off enhancement and a Small and Medium Enterprise (SME) Guarantee Scheme that allows businesses to access unsecured loans of up to $250,000.

The biggest ticket items were the JobSeeker and JobKeeper payments, with the JobKeeper payment enabling eligible employers to pay their employees at least $1500 per fortnight. Its intent is to help businesses keep those employees’ jobs viable until they can reopen or return to normal business conditions.

According to the government, under the Jobkeeper payment program, an estimated six million workers will receive the payment. All up, the federal government measures will cost around $320 billion, or 16.4 per cent of annual GDP. The Queensland government opened its treasury’s wallet too.
Payroll tax exemption and deferral measures, relief measures for commercial tenants and landlords, and $1 billion of funding for a 12-month interest-free loan program for COVID-19-affected businesses are some of the Queensland government measures.

Measures like this are vital and, for MTA Queensland, the state and federal governments’ approach has been one to be applauded. As Queensland’s automotive industry peak body, the Association has not only been a point of contact and information for its members, but has worked with both governments and been part of the deliberation process on what measures should be considered in the best interests of industry.

“We work closely with all levels of government to influence the business environment of our members,” said Dr Brett Dale, CEO of MTA Queensland Group.

“On the scale of potential catastrophe, I concede and commend that the Australian Government has done an exceptional job under the most trying of situations. We felt in sync with the government and at times ahead but not in contradiction, which is possibly another first.

“For us as an Association, we had a business continuity plan in place which we swiftly enacted and focused on the health and safety of staff. This allowed us to focus completely on members and clients and plan recovery. The government was planning how to manage the nation’s extraction from hibernation and pleasingly it has been about growth and enabling business, not generating profit through taxes and fees. This was also our angle when advocating to state and federal government.

“It seemed clear that the imperatives were the health and safety of employers and their staff, followed closely by the need to push through and trade to deliver essential services and generate revenue,” added Dr Dale.

“On that basis we pushed to emphasise the role of the automotive industry and its importance to the nation in a time of crisis – to be honest this took little persuading as there was great awareness that all supply chains are very reliant on being mobilized through the support of our industry.

“We focused on seeking as much advice about potential support to business and to ensure that all our members would learn about the support available and know where to find that support – we have been doing this through daily briefings and extensive member engagement. On many occasions we have provided industrial relations support to assist members with retaining staff under modified agreements. We maintained our government engagement to ensure that policy captured the needs of industry, and in most cases we were successful.”

The Road Forward

On May 8, Prime Minister Scott Morrison revealed a three-step plan for the economy to reopen. While it is being left to states and territories to make the ultimate decision on what opens, when and to what extent, the national plan laid out some guidance to the loosening of restrictions. Stage three – which allows for employees to return to the workplace and the reopening of business and the community with minimal restrictions – will, hopefully, be in place in July.

The Queensland Government was swift to follow up the Prime Minister’s plan with its own and, as of May 15, a slew of restrictions had been loosened, with them now allowing for a gathering of a maximum of 10 people in a public space; dining at restaurants, pubs, clubs, RSLs and cafes for a maximum of 10 patrons at one time; and recreational travel of a radius of up to 150km from home for day trips. Special allowance has been made for the outback regions where there have been no COVID-19 cases with dining in at pubs and cafes allowed for up to 20 locals; and recreational travel allowed to a radius of up to 500km.

Stage Two, effective from June 13, allows for further relaxations of the numbers of people who gather in public of clubs and restaurants, as well as holiday travel within a person’s region. Stage Three will include reviews of border closures and allow for up to 100 customers in venues.

“These are sensible, gradual steps to a safe COVID recovery that reconnects our communities and keeps the economy moving,” said Queensland Premier Annastacia Palaszczuk.

“Last weekend we announced the first wave of eased restrictions and Queenslanders did us proud.

“Let’s keep it up to move to stages two and three. We want to keep taking steps forward, not backwards. We don’t want to undo all our good work.”
Things then, are starting to change for the better and there is light at the end of the tunnel. And in a May 12 statement, national Treasurer Josh Frydenberg, while sombre on the effects on the economy so far, suggested that the easing of restrictions would see an economic resurgence.

“The speed at which restrictions are lifted may differ in each state,” he said.

“So too the impact on jobs and GDP from the implementation of each stage. Treasury estimates that the benefits of just stage one being lifted will lead to more than 250,000 people going back to work and more than $3 billion in additional GDP.

“This includes 83,000 jobs and $1 billion a month in New South Wales; 64,000 jobs and over $715 million in Victoria; 51,000 jobs and $610 million in Queensland; 25,000 jobs and $435 million in Western Australia; 17,000 jobs and $178 million in South Australia; 5,000 jobs and $50 million in Tasmania; 4,000 jobs and $60 million in the ACT; 3,000 jobs and $40 million in the Northern Territory.”

Those are good numbers.

A Return to Normal?

We all hope that these measures work and that Australia can return to something close to the societal norms we were enjoying less than five short months ago.

It is possible that for some industries and sectors – those that are primarily office based – there may be some permanent changes: If there is one thing we have learned through the lockdown, it is that technology can enable us to hold meetings, to communicate and do some business remotely.
For automotive businesses too, there may be changes. The ‘COVID safe’ procedures that many businesses have introduced – infection prevention and control policies, for example – may be part of this ‘new’ normal.

The ideas that businesses have embraced to adapt to the lockdown may stick too, and owners may well find that the sharper focus they have put into ensuring their business survives will be a trait that sticks. For example, according to car subscription software provider, there has been a surge of interest from businesses that want to leverage car subscription during the COVID-19 outbreak. The company says it has seen a 52 per cent increase in dealership enquiries since the lockdowns came into effect. Is that an adaptation that car dealers will pursue?

And if some recent surveys concerning the public’s transport concerns prove to be prophetic, it may well be that the automotive industry can come back with real vigour. The preliminary findings of a University of Sydney national survey of Australians’ confidence in using public transport suggests there has been a deep dip in confidence in being able to stay safe from the coronavirus. Respondents would rather travel using their private cars with 84 per cent saying that was the option that made them feel most comfortable. Interesting.

Where else might things lead? Will there be a surge in interest in electric vehicles as customers see the well-reported improvements in air quality in cities around the world and want the better health outcomes that cleaner air provides? Or will the drop in fuel prices see a new appreciation of petrol-powered cars?

The global automotive industry was already undergoing great change before the pandemic hit. Australia’s automotive sector was facing the same disruption as elsewhere but has also dealt successfully with other unique challenges in the past few years – most notably with the end of mass automotive manufacturing – so a robust recovery, a return to normal, and confidence in the future seems entirely possible.

“The impact and reaction have been variable,” said Dr Dale. “For those who fought through and kept doors opened they seem to have done best. For those who shut down, it is more difficult to plan recovery. Many had areas in their business that dropped significantly but managed to capitalise in other areas to minimise loses. In almost every discussion I have had, there were remarkable stories of adaptation, and this is what business is about – constant change and adapting to market peaks and troughs – and many businesses did exceptionally well through creative and innovative responses.

“The exposure has been short lived, but a return to normal will be dependent on how we all respond and work to stimulate the economy,” added Dr Dale. “There is no argument that the impact on the economy has been catastrophic, and its time now to build our business and fight for market share as part of the recovery.

“We are a resilient industry and I hope we can look back in six months and be amazed at how well we have all contributed to a successful future. At MTA Queensland, we will continue to fight for maximum support from government and we will continue to strive for service excellence for our members and clients.”

Source: Motor Trader E-Magazine (June 2020)

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