It’s been over a month and even more for some that life and business have come to a screeching halt as the world grapples with the novel coronavirus pandemic which has forced people in their homes and out of their workplaces. This has resulted in a major slowdown across industries, including automotive. So far, there isn’t a definitive timeline as to when will the situation go back to normal. The automobile industry in India makes up about 50 percent of the country’s industrial GDP and businesses are now anxious about the exit strategy from the lockdown and the subsequent recovery from the downturn.
Nomura Research Institute (NRI) Consulting Report lets us into some possible effects of the pandemic on the automobile industry and suggestions to best overcome the negative impact. The devastating effect of this crisis on economies including India is already visible and the impact is only expected to increase in the coming months.
The immediate effect of the lockdown has translated to a decline in car sales by 40-50 percent and more for some manufacturers. For example, Hyundai reported a drop of about 40 percent in car sales in March compared to the same month last year and the decline amounted to 70 percent for Honda. The effects are expected to last much longer as there is a substantial pileup of BS-IV inventory and that of vehicles that were sold but not registered.
Even when the lockdown is officially lifted, consumers’ buying behaviour is expected to have been changed. The NRI study suggests that understanding these changes in consumers’ needs will play a key role in the auto industry’s recovery in the post lockdown phase.
The major source of auto components – China, Germany, Japan, US are worse affected by the pandemic leading to supply chain disruptions for the Indian automotive industry. The effects of the pandemic will be long-lasting as this still appears to be a long battle. In India, the COVID-19 curve is on the rise with Maharashtra, Tamil Nadu, Kerala, Andhra Pradesh, and Delhi-NCR being the worst-hit regions.
Possible outcomes: The mitigation measures in terms of medical infrastructure and testing facility will strongly define the scenario outcome. The possible outcomes can be defined under three broad scenarios:
– A scenario where India recovers while the rest of the world still battles the pandemic. The social and business state return to normalcy soon with disruption in the global supply chain
– A scenario where India is badly hit while the rest of the world recovers. The nationwide lockdown is extended for a certain period, with a continued lockdown in hotspots for longer duration with significant effect on social and business affairs
– A scenario where the situation in India and rest of the world is equally worsened, a prolonged extension to nationwide lockdown. There are drastic changes in business environment. Global supply chokes owing to geopolitical tensions
Challenges for the automobile industry
The normal operating environment will changes, based on which a unique set of challenges lay ahead for R&D, procurement, manufacturing, finance, sales & service, and logistics.
The challenges for the sales & marketing ecosystem will be based on demand and sales channel. There will be challenges of lower retail sales due to reasons like drop in footfall at dealerships, impact on disposable incomes. Lower demand from fleet segment due to halt on taxi operations, preference for personal mobility, etc. Lower demand in CV segment due to reduced economic activity. Lower export demand as well.
Existing inventory of BS-IV and BS-VI vehicles, liquidity crunch and financial stress at dealerships, lower demand, unavailability will few of the reasons that would pose a challenge to the sales & marketing functioning.
Strategic imperatives for the industry
Immediate focus of the industry in the post lockdown recovery must be on product development and catering to the changing consumer needs. The reports suggests:
– Adoption of virtual vehicle certification so that travelling is not necessary – Adoption of Rapid prototyping (e.g. 3D printing) techniques to reduce dependency on prototype suppliers – Complementing efforts for localization of components vis spec rationalization/development of alternatives – Focused design cost reduction to shoulder weakening margins
– Adoption of cosmetic design changes to facilitate ease of surface disinfecting, easier to clean materials – Added features like flexi secure partition to enable isolation of driver from passengers especially in shared vehicles – New solutions for first time car buyers / buyers looking for basic safe modes of mobility – More comfortable, reliable and feature enriched trucks that minimize needs for stoppages and breaks
The next steps for the industry would be to work on alternative powertrains and improving time to market the product. The report suggests:
– In view of policy changes in favor of clean mobility especially with preliminary studies in the US suggesting correlations between city pollution and deaths, (in case of epidemic recurrence), continue to focus on alternative powertrain solutions
– Focused investments in platforms / modularization – Higher need for product feature mappings in variants and sub variants based one new emergent needs as well as emergent micro consumer segments
Apart from solving the existing supply chokes immediately, organizations also need to push for localization and ensure supply continuity going forward. OEMs can consider in-plant stay of labours, improve HSE practices and increase degree of automation to minimize impact on manufacturing.
Tracking and tracing of not just parts but also monitoring if an infected person could have come in contact will be vital for controlling in case infection spreads. Investment in digitization, innovations in financing, tweaking SoPs for health & extending value added service may pull back some lost demand.
The study goes on to identify the key government policies and guidelines for the automotive industry post lockdown. The government must define guidelines for safe working to start at factories, policies for interstate movement of goods (the study suggests minimised scrutiny of these trucks to maintain social distancing). On the economic stimulus front, the NRI study suggests easy loan disbursal, reducing interest rates, subsidies & scrappage policy, minimum employment support for workers.
Furthemore, the study makes a point for an increase in subsidies, incentives. It mentions that a huge opportunity exists due to reorganization of supply chains on account of geopolitical factors. India must be ready to meet this opportunity.
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