Auto sector braces for hard times under COVID-19

The auto industry, which has already been battling a severe slowdown, will suffer a per day loss in turnover of Rs 2,300 crore, if the plants operated by auto original equipment manufacturers (OEMs) and components remain shut as they are currently. These estimates collated by Society of Indian Automobile Manufacturers (Siam).

Most auto manufacturers have announced temporary closure of their factories starting Monday and these will remain unoperational either till March 31 or till further notice due to COVID-19 outbreak. Several state governments have announced a total lockdown forcing auto companies and their ancilaries to halt operations.

Ashish Kale, president of FADA, said: “We are yet to ascertain the full impact of the lockdown as it started five days back. Right now, dealers are holding on and following government orders hoping to break the chain (of COVID-19 transmission)”. He added that this was a dynamic situation and as more states announce full lockdowns the number of shut dealership outlets will rise. Kale also said that as of now there was no pay cuts or jobs lost for the staff in these dealerships.

Meanwhile, Federation of Automobile Dealers Associations (FADA) told FE that nearly 60% of dealer outlets are shut in India as of Monday. There are 26,000 outlets belonging to around 15,500 dealers in FADA’s network. Most auto manufacturers both two-wheelers and four-wheelers — Tata Motors, Hyundai, Bajaj Auto, M&M, Hero MotoCorp, Maruti Suzuki, Honda 2Wheelers, Suzuki Motorcycle, Toyota Kirloskar Motors — have announced temporary shutting of their factories.

Rakesh Sharma, executive director, Bajaj Auto, said: “Since dealerships have closed in almost 60% of the geographic areas, demand in the immediate term will also be proportionately impacted.”

The Pune-based two-wheeler company has decided to close down the operations at its plants located at Waluj, Chakan and Pantnagar from Monday till further notice. Bajaj Auto employs 10,700 people and about 5,000 contract or temporary workers. Sharma said that at this point of time it was their “resolve” to not let salaries and wages get adversely impacted.

Industry players said that they were preparing for longer shut-down period as it would take almost two months for the operations to become normal post the time when such activity resumes. For now, the closures are till March 31, however, experts believe that it would take at least three to four weeks for operations to begin and then another four weeks for operations to come back to normalcy.

Meanwhile, in an analysis made by FICCI, China accounts for 27% of India’s automotive part imports and with closure of the factories of major global auto part makers—Robert Bosch GmbH, Valeo AS and ZF Friedrichshafen AG there has been a delay in the production and delivery of vehicles in Bharat Stage Four (BS-IV) compliant models.

“Moreover, the situation has become more precarious after the decision of the Chinese government to limit all shipments by sea until further notice. Since air shipments are not suitable for auto components and forging industries, the Indian OEMs are finding it difficult to plan production beyond the available inventory,” FICCI has observed.

While the Indian auto sector was already reeling under pressure from lack of demand and piling up inventories, the COVID-19 outbreak may make the recovery more prolonged. In a recent report by Fitch, vehicle production in India is likely to contract by 8.3% in 2020 following an estimated 13.2% decline in 2019. Also, COVID-19 will also make the transition to Bharat Stage VI (BS VI) emission norms difficult which is schedule from April 1, 2020, FICCI said.