Face the challenge and plan for the future, advices to auto industry on human capital planning during the epidemic    

The impact of the COVID-19 epidemic continues to interrupt many industries. The automotive industry, one of the pillars of China's economy, faces shocks at all levels of its industrial chain. OEMs have suffered huge fixed-cost losses because of work stoppages, spare parts companies' default risk has increased due to force majeure, and dealers have had trouble collecting payments and accessing credit. Over the short term, businesses will struggle to survive due to the epidemic. Over the longer term, they will have difficulty managing cash flow, supply chains, risks and strategy.

In this article, Deloitte's automotive industry team shares observations and comments based on its service experience and insights, helping businesses in the automotive industry smoothly and quickly resume production, overcome difficulties, seize opportunities and plan for the future.

1. Three major HR challenges after resuming work:
1.1 The automotive industry is labor-intensive, so work stoppages and temporary changes in employment will challenge personnel management

Although robots have replaced some assembly line workers, the automotive industry remains highly dependent on manual labor. The "epicenter" of the epidemic, Hubei, and several affected areas including Guangdong, produce high volumes of vehicles. Given the industry's large number of OEM and spare parts workers, factors such as work stoppages, recruitment difficulties and employee sentiment will hinder the recovery of production.

At the same time, telecommuting during the epidemic has transformed how people work. Automotive companies will face substantial HR challenges, particularly how to adjust relationships given the blurred boundary between employees and companies after work resumes.

1.2 Intensified competition and higher short term labor costs will require enterprises to prioritize management optimization by reducing costs and increasing efficiency
The Chinese automotive industry, which has already undergone transformation and upgrading, will see "the strong get stronger, while the weak get out" due to the epidemic. Market volatility will promote transformation and reform through cost reductions and efficiency improvements, with businesses systematically enhancing their organizational management. HR managers can ensure the smooth application of advanced digital tools and business model transformations by building agile organizations and efficient teams.

Businesses will increase sanitary and epidemic prevention measures, pushing up labor costs. They can avoid layoffs by adopting short-term measures such as salary and role adjustments, reducing labor costs while ensuring stability.

1.3 Zero-touch services during the epidemic not only require that employees adapt to telecommuting, but also learn how to serve customers remotely
The impact of the epidemic on offline sales has accelerated the transformation to a new retail model that integrates online and offline platforms. This new model, which brings the online purchase experience to consumers, will become an important factor in companies' survival and development. Over the short term, companies use of telecommuting for the first time has meant their level of service has been lower than usual. Automotive businesses therefore need to accelerate their development of digital tools and reshape management as digital organizations, promoting digitalization, helping employees adapt to online service models, and digitally transforming their processes.

2. Planning and response recommendations for HR management:
In the aftermath of the epidemic, businesses need to restore order quickly, meet market demand and adjust their organizational capabilities. We suggest the following three-stage course of action.

2.1 Resumption: Reduce costs, increase efficiency and smoothly resume work and production.
2.1.1 Establish a task force and conduct continuous monitoring
Interim crisis management committees or epidemic prevention and control taskforces established during the epidemic should continue to monitor the situation, make decisions, communicate with the public and allocate resources. They should also help to establish sound emergency collaboration systems with good crisis awareness and highly efficient cooperation to improve crisis perception and response.

2.1.2 Control costs and optimize structure
With a temporary decline in profits, HR managers should adjust organizational structures, personnel structures and headcount to control labor costs and avoid unnecessary losses arising from ill-considered streamlining. Although streamlining can cut labor costs in the short term, employee turnover costs as well as re-recruitment difficulties and expenses could cause huge losses. Before any streamlining, a businesses should analyze labor costs and value to improve how employees are matched with their roles, optimizing their personnel structure and avoiding the loss of key talent.

2.1.3 Adjust systems and promote normal employment
To address sudden personnel demands or shortages, HR managers should analyze fluctuations in personnel demand and supply, adjust flexible employment systems, establish which roles have flexible employment requirements, and redesign corresponding systems based on their enterprise's business development needs.

2.1.4 Promote transparent communication and create a positive atmosphere
Businesses should give employees a sense of direction through open and transparent communication, helping them build confidence in coping with negative emotions arising from the crisis. First, they should communicate key information to employees including operating conditions, follow-up measures and career development prospects. Second, they should establish an atmosphere of collective, proactive business recovery as well as guide employees' thoughts based on a unified response strategy. This can prevent employees from experiencing negative emotions and encourage them to work with colleagues and customers to get through tough times. Finally, they should establish an internal communication mechanism, increase employee participation in major decisions, and help them build confidence in their ability to overcome difficulties.

2.2 Development: Strengthen core competencies for steady improvements
2.2.1 Analyze the impact of the epidemic and adjust organizational systems
HR managers should comprehensively analyze the impact of the epidemic on their organization's systems, and make corresponding adjustments to ensure steady business improvements. Businesses should adjust work processes and performance management in response to the impact of the epidemic on operations and profitability, including by lowering performance targets and changing performance indicators for telecommuters. At the same time, they should update compensation and benefit systems based on changes in their cost and personnel structures to cope with pressure on personnel costs, while considering establishing long-term incentive mechanisms to address future risks. As work resumes, businesses should dynamically adjust their organizational systems, promptly inform employees of any policy adjustments, and plan for possible labor disputes.

2.2.2 Retain core talent and provide continuous impetus
It is vital to retain core talent, as this is the primary driver of a company's development and transformation. When the epidemic is over, businesses should optimize their talent structures based on their development goals, and identify key talent and positions as well as the optimal number of competent personnel that will ensure their operations run smoothly. Over the medium and long term, they should begin developing talent as soon as the environment improves, reserving strategic talent in advance, while continuing to pay attention to enterprise subsidies and other government policies to understand and implement employee welfare programs.

2.2.3 Control talent mobility and avoid personnel crises
Obtaining statistics on and monitoring employee mobility can help businesses avoid personnel management crises. Analyzing employee mobility trends based on onboarding and departure information can help identify the impact of the crisis on talent and predict future shocks.

2.2.4 Adhere to people-centric principles and care for employees
Businesses should adhere to people-centric principles, and make employee safety and health a top priority. Management should create a friendly, supportive workplace atmosphere to build trust between their company and employees, as well as provide guidance rather than repress employees' negative emotions to establish emotional boundaries. HR managers should provide employees with prompt, sufficient care in health monitoring, compensation, benefits and medical expenses during quarantine and treatment. Later measures such as health training and better medical security systems can establish a health risk defense system.

2.3 Long-term: Promote business upgrading and transformation
2.3.1 Improve organizational readiness and deal calmly with uncertainties

In an ever-evolving environment, risks can be everywhere. To build a strong organization able to deal calmly with uncertainty, businesses need a professional risk management committee to formulate a comprehensive risk response plan, all while improving their organizational adaptability to change. Through analyzing organizational elements including structure, management mechanisms, labor concentration and talent distribution, businesses can assess how adaptably and efficiently they respond to change, as well as formulate basic principles for crisis response to quickly predict the impact and take timely measures to cope with future crises. The committee can also conduct regular simulations to improve an organization's readiness to respond to rapid change and build more agile teams.

2.3.2 Open up organizational boundaries and leverage partners' strengths
In an uncertain environment, businesses that open up organizational boundaries and cooperate with other enterprises in their ecosystems have an advantage. The epidemic is an opportunity for them to consider adopting an open source model, establish partnerships and improve risk resistance. As the lasting impact of the epidemic becomes clear, businesses should consider working with upstream and downstream partners and even competitors to develop countermeasures and share resources. At the same time, the crisis also suggests they should contact multiple resources to improve their professional capabilities. For example, professional services agencies and other social resources owned by large enterprises, such as law firms and consulting companies, can provide strong support during a crisis.

2.3.3 Promote digitalization and respond to risks
The epidemic has become an opportunity for the development of digital organizations. It has proved that digitization is an increasing requirement for automotive businesses due to growing demand for online marketing and new sales models. At the same time, strong digital capabilities can also greatly improve organizational management to increase businesses' risk resistance. For instance, the collection, analysis and application of big data make personnel management more efficient. The development of digital office systems can empower telecommuting and improve work efficiency. The digital reconstruction of management mechanisms can align organizational capabilities with existing digital technology capabilities.

2.3.4 Develop corporate culture and fulfill social responsibilities
To adapt to uncertainty, businesses should develop corporate cultures centered on a sense of mission and responsibility that motivate employees and improve organizational vitality. Corporate cultures should also give employees internal motivation, mobilize them to focus on customers to develop opportunities, and help quickly resume operations after a crisis.

Many automotive companies have fulfilled their social responsibilities during the epidemic, improving their corporate images, making employees proud and laying the foundations for good corporate cultures. For example, automotive companies have made generous donations, manufactured negative-pressure ambulances, and transported medical materials. After work resumes, many businesses will continue to make contributions based on the impact of the epidemic.

The epidemic has challenged every business and every industry. It has tested enterprises' crisis management ability and adaptability. During the epidemic, a batch of market-sensitive, well-managed, and culturally-cohesive businesses promptly launched self-help plans and began to think about transformation. We hope businesses get through their difficulties, review changes in customer demand caused by the epidemic, as well as ponder whether their current models can meet new market demand and how to upgrade management. They should grasp opportunities presented by the crisis to become stronger and prepare for future growth!

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