INSIGHT
Manufacturing in a post Covid world
David Wright, Director General, UKLA
As economies start to come out of lockdown the question on everyone’s mind is “what next?” How do companies begin to react to re-stimulated consumer demand, can end users be encouraged to engage with product groups as they did before the advent of the coronavirus, and how long will recovery last?
Regardless of whether there will be a second wave of the coronavirus in the autumn, recovery could take years rather than months or even weeks.
A recent seminar by the UK Society of Motor Manufacturers and Traders (SMMT) suggested that the automotive manufacturing sector had suffered global falls of around 95% in volume since the coronavirus lockdowns in the spring.
More recently automotive manufacturing across Europe has begun to recommence but the twin issues of producers already sitting on high stocks coupled with sluggish consumer demand has created a squeeze for the OEMs.
Many economists today believe that the market is likely to be subject to a ‘u’ shape recovery that could take two years for demand to recover fully to pre-coronavirus levels rather than a sharper ‘v’ shape where economic activity returns more quickly to pre-lockdown levels, or a ’w’ shape where demand recovers, stutters and then recovers again.
According to a recent survey by Kline, the market in North America for lubricant additives is down 10.9% year on year, comparing May 2019 versus May 2020.
This is not really surprising as initial fill demand will be driven by automotive production, at the same time if vehicle owners delay or defer servicing or annual testing is delayed then the aftermarket or service fill sector is also impacted.
30 LUBE MAGAZINE NO.158 AUGUST 2020
What is perhaps more surprising is the monthly demand for North American lubricant additives has varied widely between March and May 2020 of up to 20%.
In response to recovery, manufacturers have to develop a strategic response to maintain their competitiveness in a post Covid world.
Cost competitiveness will be key to asserting their market prominence which will require a portfolio optimisation strategy of focusing on core assets, customers or markets including consideration of non-core assets in order to make companies more efficient in a lower cost price world driven by a lower oil price that, according to BP, might take years to recover to pre-coronavirus levels.
There are merger and acquisition opportunities arising from the post Covid scenario resulting from distress situations which could lead to industry consolidation, distress purchases or bolt-on acquisitions such as the announcement that Ineos would be acquiring BP’s petrochemical business for $5bn.
Throughout Europe there are a number of family- owned businesses, particularly in our sector which could result in mergers and acquisitions opportunities as they look for opportunities and alliances with institutional investors in the absence of a strong succession plan.
The challenge to the manufacturing sector is to assess, plan and transform coming out of Covid at these uncertain times.
Key issues are future forecasting of supply and demand in the short-term and addressing issues of oversupply by stimulating demand amongst nervous end users and customers.
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