As automakers reopen factories and dealerships that were hurriedly closed amid the rapid spread of the novel coronavirus, they must now consider how to chart a course through what could prove a radically altered retail environment.

Long-standing assumptions about what cars consumers want and how they will pay for them could now be up in the air amid huge economic uncertainty and lifestyle changes brought about by the pandemic. Larger, less economical SUVs have been among the most popular models in recent years and have commanded greater profit margins for carmakers.

But companies will note motorists' lurch toward cheaper-to-run cars in the wake of the global financial crisis in 2007-2008, a repeat of behavioral shifts seen during the 1970s oil crises when automakers rushed "econobox" products to market.

"People are going to be looking at this and going, 'What do I actually need? Do I need a bigger car?' The market is still very much SUV dominated," said Jim Saker, director of the Centre for Automotive Management at the U.K.'s University of Loughborough.

"People will probably keep hold of their vehicles longer. They won't want to trade in or trade up. ... The last time we had the shock in 2007/8, people bought smaller cars and bought used. People didn't upgrade. They downgraded. So therefore, the companies that are likely to do well are those that have got products at the lower end."

This crisis comes in the middle of an automotive industry transformation marked by a shift toward electrified powertrains and a movement away from car ownership enabled by leasing, subscriptions and shared mobility services. These changes add to the complexity of plotting a route back to a business-as-usual scenario.

On the other hand, the competitive pressures the industry has faced in recent years have led to increased consolidation, including cost-saving joint vehicle development and mergers and acquisitions, bolstering automakers' resilience in the face of this new crisis, analysts say. Government aid schemes for covering wages, loans and cash injections will also buy time for some to ride out the storm.

Emergency stop

Global new car sales are forecast to fall 20%-30% in 2020 and few are counting on a release of pent-up demand when lockdowns end given the extent of the economic uncertainty, analysts say. Automakers do not expect sales to even approach normal levels until the second half of the year, and many plan to ramp up production cautiously to protect workers and avoid bloated inventories.

Peugeot SA plans to fulfill the large number of orders that have been on its books since before the shutdowns, CFO Philippe de Rovira said on a conference call earlier in April. But he warned that short-term rental companies, which account for a significant share of new car registrations due to regular fleet renewals, suddenly "do not want cars." With tourism at a standstill, existing rental fleets have accumulated little mileage and wear and tear. The same goes for millions of private cars on a break from daily commutes, school runs and weekend city exoduses, raising the likelihood of buyers deferring a change.

A more positive prospect for automakers is a potential uptick in demand driven by nervousness about using public transport, and even car-sharing services, because of the potential for coronavirus infection, de Rovira said.

The reawakening Chinese auto sector has seen signs of this with increased demand from those who do not already own a car. Researcher Ipsos said in March that the number of people in China who planned to travel by private car doubled by the tail end of its coronavirus lockdowns, while the number who said they would use public transport halved. Respondents said they were also more reluctant to use taxis or ride-hailing services.

"There will never be a situation where people will clean up the car after each ride. There is no way," said Dieter Becker, head of the automotive division at KPMG.

Carmakers had lamented a downturn in China's car sales, the world's biggest market, in the last two years after roughly two decades of uninterrupted growth. Now they are counting exposure to it as a blessing as consumers return to showrooms and breathe some life back into what is the world's only functioning major car market.

Scrappage schemes, like the "Cash for Clunkers" program introduced in the U.S. in 2009, are being mooted again as a way of stimulating demand. They offered generous government-sponsored trade-in prices for older cars to drivers nervous about the cost of upgrading. For automakers, the schemes have the added benefit of helping encourage uptake of new lower emission models amid growing regulatory pressures, particularly in Europe.

The average age of cars in Europe has crept up in the last decade, increasing the pool of potentially crushable cars. Media reports say German politicians are preparing to debate a new trade-in scheme and the possibility of making any financial incentives contingent on the purchase of either a low- or zero-emission hybrid or battery-electric car.

Several automakers have announced eye-catching seven-year, 0% finance offers in the U.S., deals that could entice the many buyers who look at affordability based on monthly payments rather than overall cost. That could help avoid cash-price discounts and the knock-on effects on residual values, which are a direct risk for vehicle leasing providers selling end-of-contract cars into the second-hand market.

Lopping hundreds or even thousands of dollars off sticker prices could also prove to be a time bomb for manufacturers when they try to lure today's customers back in a few years.

"[Automakers] are going to offer some really, really big incentives, so they're going to take big margin cuts on selling vehicles," said David Riemenschneider, a senior automotive adviser at investment bank GCA Altium and chairman of U.K.-based auto software company Autofutura.

"That has a big impact on your ability to sell new cars later on because the customer trading in the vehicle finds it is worth less, which means they've got a bigger gap to get into a new vehicle. ... When you do something to incentivize the vehicle sale up front, you do end up paying the price a bit later."

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