The Automotive Sector at a Standstill
By Dr. Anita Barta, Automotive Lawyer
30 March 2020
The car rental industry has entered a dramatic downturn, car dealerships are struggling, service centers are operating with difficulties, and domestic vehicle production has come to a halt. The significant developments of recent weeks have left a lasting impact on the current state of the automotive sector.
As a result of the challenges caused by the coronavirus pandemic, all major Hungarian automotive manufacturers announced the suspension of their production activities. Audi’s plant in Győr, Suzuki’s factory in Esztergom, Mercedes-Benz’s plant in Kecskemét, and Opel’s factory in Szentgotthárd all halted production. On 11 March, a state of emergency was declared due to the coronavirus outbreak, and the government introduced extraordinary measures and restrictions affecting both private individuals and economic actors.
The “#stayhome” movement quickly gained widespread support and spread like wildfire throughout Hungary, encouraging solidarity and collective responsibility. As a consequence of the virus and the situation it created, the domestic automotive industry was also forced onto the sidelines. Dealerships remain open, and service centers have not been subject to restrictions on operating hours, since vehicle repairs may often be essential. The question, however, is whether consumers are willing to visit a service center or purchase a vehicle during this period. Opinions vary, but in most cases the answer is “no.”
Some companies, such as Suzuki Barta, introduced exceptionally strict hygiene measures in customer service operations, minimizing or completely eliminating direct contact between customers and employees. In Paks and Szekszárd, customers can book appointments and complete contract preparation online in advance, ensuring that the actual purchase process is fast and conducted safely, maintaining appropriate distance while using masks and gloves. Sales and service activities can therefore continue under controlled conditions. Senior colleagues have also been asked to stay at home in order to protect their health. This sales model applies only to vehicles currently in stock, as companies no longer expect deliveries of new vehicles from manufacturers, creating an alarming outlook for the coming months.
Vehicle Production Comes to a Halt
At the same time, the fleets of smaller car rental companies, as well as the several-hundred-vehicle fleets of larger rental operators, have shrunk on average to one-half or even one-third of their former size. These declines have had a particularly painful impact on those working in the rental car sector.
From midnight on 16 March, border closures came into force throughout Hungary, including at Budapest Ferenc Liszt International Airport. In practice, this meant that only Hungarian citizens were permitted to enter the country, while foreign nationals were barred from doing so. This measure resulted in a substantial decline in business for car rental companies operating at the airport. Beyond the fact that tourism had almost ceased to exist in recent weeks, airport vehicle rentals came to an effective standstill as a direct consequence of the restrictions.
Border closures also took effect at Budapest Ferenc Liszt International Airport.
But how long must the automotive sector endure these conditions? Certainly for the next several months. Not only has the global pandemic triggered a severe economic downturn, but protecting the health of employees and customers has become an even higher priority than current economic concerns.
The management of AVIS Car Rental is also taking no chances. In addition to implementing stringent hygiene protocols, the company is ensuring that all rental vehicles are thoroughly disinfected before being made available to customers, thereby contributing to efforts to contain the spread of the virus.
Dealerships and Service Centers Facing Difficult Times
Overall, it can be said that in these challenging circumstances, the automotive sector is primarily characterized by a wait-and-see approach and the introduction of cost-reduction measures. This situation may continue for an indefinite period and could easily extend over several months.
According to optimistic market analysts, the coming weeks and months will be particularly demanding. However, it is likely that both the damage caused by the crisis and the subsequent recovery period will extend throughout the entirety of 2020. Market consolidation and contraction are expected as a direct consequence of the situation, not to mention the numerous legal questions arising from force majeure circumstances.
The legal assessment of these issues varies from case to case, but in many instances there may be widespread failures to fulfill contractual obligations. This raises an important question: what exactly does force majeure mean, and when does it apply?
Force Majeure and Contractual Obligations
In cases of force majeure, the events leading to a breach of contract and resulting damages fall outside the control of the contracting party. Therefore, if a party is unable to fulfill its contractual obligations and is consequently in breach of contract, but can demonstrate that the breach was caused by circumstances beyond its control that could not reasonably have been foreseen at the time the contract was concluded, the breaching party may be exempt from liability for damages suffered by the other party.
More specifically, a party may be able to invoke the coronavirus pandemic as grounds for exemption if:
The circumstance is directly related to the virus;
At the time the contract was concluded, the coronavirus outbreak and its specific consequences could not reasonably have been anticipated;
The effects could not be prevented or mitigated through reasonably expected measures; and
The circumstance was not foreseeable at the time of contracting.
Such situations may currently arise on the side of manufacturers, sellers, and buyers alike.
© 2023. Barta Csoport · Minden jog fenntartva
Weboldal: Impressive.hu
