Here’s how innovation could help car companies hit by COVID-19

The far-reaching economic impact of COVID-19 is becoming clearer by the day. For many industries, the key challenge is not just to fight the pandemic but also manage its economic and social consequences and find the right measures to respond to them. This is particularly true for the already stressed car industry. The crisis has massively hurt liquidity, supply, production and demand. Companies have had to shut down factories and deal with plummeting sales and disrupted supply chains. As a result, revenues have dropped around the world.

In many countries, the car industry is a key driver of GDP as well as a major employer. Trouble in this industry will lead to serious challenges for the wider economy. To overcome these challenges, carmakers are already asking for support, and governments have responded with short-term measures such as supplying financial assistance and facilitating short-term work. However, more is required for the medium and long term. Governments and companies will need to start to prepare for what comes after the survival of the acute crisis. The question will shift from how to manage the crisis, to its longer-term impacts and its potential effects on the future of the industry.

One crucial step will be to encourage innovation. Simplifying and updating regulations around piloting and testing would be one way of helping companies innovate, and comes with the additional advantage of not needing extra financial input from the public purse.

The automotive sector is one of the most tightly regulated industries in the world. Many of these rules are necessary to ensure human safety and protect the environment. Others, however, were created to fit an idea of cars and transport that has since changed. A striking example of this is the emergence of autonomous vehicles (AV), such as driverless cars and delivery vans. Existing regulations are not suitable for this emerging technology. Current safety standards, for example, require human-operable control. Essentially, any permission to operate a self-driving vehicle on public roads includes exemptions from existing regulations and standards.

To make things worse, there is no internationally recognised standard for registering and certifying self-driving vehicles. Sometimes, this does not even exist on a national level. The 1968 Vienna Convention on Road Traffic (in the 2016 version) still requires a driver behind the steering wheel. This means driverless transport is not possible in compliance with this treaty.

Finally, the rules often differ from country to country, leading to a highly fragmented regulatory framework. The lack of worldwide harmonisation contributes significantly to the regulatory burden in this area, and also hinders change, leaving the rules rather static.

For companies trying to innovate and bring new products to market, this rigid and fragmented regulatory landscape has led to uncertainty and unpredictability. Regulatory complexity typically increases production costs in the car industry. It can also slow down and stifle innovation. This remains true and becomes even more relevant in an economic crisis, when a clear path to market is even more critical. Without it, there is a risk of losing the momentum for the development and future deployment of a technology, which has the potential to significantly benefit society, promising a safer, more environmentally friendly, efficient and accessible way of transport.

To realize the great opportunities of growth, which will be more important than ever before, as well as to ensure that the positive effects benefit society and mitigate the risks, governments should proactively shape the future of mobility.

It is difficult for traditional regulatory instruments to keep up with fast-moving technological progress. Here, agile and flexible governance could offer solutions that can track a continuously changing technology. Specifically, a relief of regulatory complexity around piloting and testing, could help companies innovate safely and more quickly. Regulatory clarity and certainty would speed up the deployment of self-driving cars. A transparent and inclusive dialogue between government and industry could respond to the industry’s need for predictability as they plan for the future and look for the right business model.

A crisis always offers the opportunity to break with old habits and experiment with new ways of doing things. To be prepared for what comes after the crisis, governments need to rethink regulations and design a framework that helps companies build the cars of the future.