Corona Virus Impact: Double Whammy for Indian Auto Sector

Avishek Banerjee Mar 25, 2020

With one full-year of slowdown, the Coronavirus pandemic is literally the last straw on the back of struggling Indian automobile industry. Yet to come out from the slowdown crisis, the worst ever to hit the domestic vehicle manufacturers in the last two decades or so, adding to the woes is the Coronavirus outbreak dampening the fortunes of the entire automotive sector, its supply chain and all local connect.

Latest developments suggest that the COVID-19 has already disrupted the supply chain leading to a disturbance in production. Society of Indian Automobile Manufacturers (SIAM) came out with a statement quoting its president Rajan Wadhera that it has urged its members in OEMs and auto Component Industry to consider plant shutdown for a limited period in the wake of the deteriorating situation arising out of COVID-19.

Ravi Bhatia, President of automotive business intelligence provider Jato Dynamics, maintains, “The manufacturers were already reeling with a dual whammy of economic slowdown and regulatory compliance pressure. The COVID 19 could not have come at a worse time for the OEMs & dealers. The drop in showroom has meant that there will be lot fewer new customers. Although March registration figures would be higher, however the next few quarters would be a big struggle.”

As per ICRA report, out of the $4.8 billion worth of component imports into India, China accounts for 27 percent of the total pie. The agency maintained that the domestic automotive industry is likely to be negatively impacted due to the recent outbreak of corona virus (COVID-19) across China and neighboring countries in South-East Asia as these countries play a critical role in the automotive supply chain and domestic OEMs source critical components and sub-components including fuel injection pumps, EGR modules, electronic components, turbo chargers etc. from these markets, which in turn directly or directly or indirectly depend on China.

Puneet Gupta, Associate Director, IHS Markit, states, “In the short term, the demand may wash out due to corona virus as government measures to restrict movement and social distance measure may further lead to the collapse of Indian auto sector in 2020. The only driver right now seems to be low inventory at dealers which can be filled by OEMs. But OEMs will be cautious and only do this if they see any hope of retails happening in short term.”

Meantime, Federation of Automobile Dealers Associations (FADA) on behalf of its members has once again approached the Apex Court seeking extension of the current deadline of retailing BS-IV vehicles beyond March 31st.

FADA President Ashish Harsharaj Kale, in an official statement said, “Owning to situations which are beyond our control and the fact that many of our members may face dealership closures if leftover with unsold BS-IV stocks, FADA has once again approached the apex body with a request for permission of sale and registration of BS-IV vehicles till 31st May’20 and hopes to get an urgent hearing in the Hon’ble Supreme Court owing to the criticality of the issue and the deadline of 31st March approaching fast.”

For Avik Chattopadhyay, founder, Expereal, the impact will be deep, across the entire ecosystem and the recovery would be slow, painful and full of friction. According to him, contract labourers would be jobless and the network sales force will be pruned down.

“Automakers will introduce 'safer' manufacturing technologies that use more robotics and low-contact systems. This might lead to a drop in even permanent workers on the shop-floors. I see labour strife happening in the next 6 months. The retained workforce will have to learn new skills, both on existing jobs as well as in alternate functions.” He also maintained that many automakers will have experienced the 'work from home' format working almost as well as the previous tradition of operating from offices and brick-and-mortar structures. “Once they are back on their feet, they may want to continue with the new system thereby saving on both manpower as well as operating costs,” added Chattopadhyay.