The coronavirus has taken a massive toll on the global economy and all the countries have taken the heat. Now that all the countries are exiting lockdown gradually, we can expect to see some changes in the graph. But will that change be enough? How long will it last?
There has been hardly any sector that has not taken the setback of partial or complete lockdown across the globe. From hospitality to textile to automobile, we have seen share market taking a nosedive in both developed and developing countries. But now that most of the economies are gradually shedding the lockdown and coming out of the shells, what can we expect to see in the next few months? Let’s talk about car manufacturers today.
The car production in the UK was down by 99.7% in April 2020 as compared to April 2019 owing to the nation-wide lockdown and a sharp fall in demand. This is the lowest level since World War II with just 197 cars produced during the month. The manufacturers instead focused on producing 700,000 personal protective equipment (PPE) for healthcare workers, to help them through the pandemic.
However, the showrooms opened on 1st June and gave the car manufacturers the much-needed boost. The dealerships that have been closed for almost 10 weeks opened their doors today. But according to experts, this surge is unlikely to continue for a long time. The uncertainty of the financial market and the job cuts amid the lockdown had a devastating effect on new car registration.
However, this is likely to change as the lockdown eases. Experts claim that once workplaces reopen, there would be a rise in the demand for new cars. Keeping their safety in mind, commuters are likely to opt for their own private transport option to get back to their day to day life. But this surge will soon take a backseat due to the massive layoffs witnessed in the past two months. No amount of price drops can help in the scenario. The situation is not likely to get better unless this turbulence subsides and new job opportunities are created.
Earlier in May, car manufacturers were also seen negotiating with UK and EU or subsidies to help boost demand for new vehicles. According to them, the subsidies could help to raise the demand in the coming days.
What does it mean for an investor?
Keeping in mind the above points, one can expect a momentary surge in the share price of the car manufacturers. However, since this surge is unlikely to keep up, it is advisable to not make any rash decisions no matter how alluring they look for the time being.
The world right now is unchartered territory. Something we have neither experienced nor heard of before is happening. It will break stereotypes and set new trends. Irrespective of sectors, we will need to be cautious and take informed decisions. While we don’t know what the future holds, it will need time and patience to rebuild what we have lost.