The automotive supply chain was stuck in reverse gear amidst the turbulence since the onset of the coronavirus pandemic that set off a chain of events leading to disruptions, amidst weaning sales due to stringent lockdown restriction. However, as operations slowly resume amidst burgeoning demand for the industry, we delve into what the impact of the pandemic has been on the industry and what lies ahead for one of the most prized sectors of the economy.
As the fourth largest in the world, the Indian automobile industry records an annual turnover of $100 billion and provides employment to 32 million people. As per data shared by Society of Indian Automobile Manufacturers (SIAM), the Auto industry declined by 75% during the 1st Quarter of 2020-21 in comparison to the same period last year.
However, as the lockdown opened, significant improvement has been observed in June 2020 for passenger vehicle and two-wheelers compared to previous months.
So, with such a major dip in demand, what has been the impact of the pandemic on such a burgeoning industry?
“Supply chain disruptions in the wake of COVID-19 outbreak coupled with weak demand for vehicles in India has upset the logistics of the automotive industry. The survival of the vehicle transport industry depends on the growth of the automotive industry and the industry had started showing a decline long before COVID-19 even reared its head”, writes Vipul Nanda, President – Car Carrier Association, Chairman and Managing Director – Pallia Trans logistics Pvt Ltd.
“While as a company we were struggling to survive, we have been able to manage to pay off our overheads. At the times of the industry peak in the year 2017, we were transporting 3 million cars a year and with growing industry we invested in our fleets accordingly. But in 2018, because of the GST sales coming down by 10% and another 6-7% being taken by railways and further, the NBFC defaults exacerbated the crisis further more. The sales further dipped due to Government policy change in Emission norms (BS IV to BS VI) in the last six months before the COVID-19 impact.”~Vipul Nanda, President – Car Carrier Association, Chairman and Managing Director – Pallia Trans logistics Pvt Ltd.
Harpreet Singh Malhotra, Chairman & Managing Director, Tiger Logistics India Limited feels that the onset of Covid-19 in India will have a negative impact on the automotive industry.
“It is estimated that there will be an overall revenue impact of at least $1.5 -2.0 billion per month across the automobile industry. If we talk about the logistics sector the situation is not so good at present. Even after we open up, there is very little work in comparison to before lockdown situation. At present, the situation is itself not much better as demand has also decreased in the International market, as a result, exports are affected.”~Harpreet Singh Malhotra, Chairman & Managing Director, Tiger Logistics India Limited
Sushil Kumar, former Senior Advisor, SIAM and former Industrial Adviser, Ministry of Heavy Industries, Government of India writes about how the past months have proven to be painstaking for the industry.
“As a long term strategy,stocking up for more months will~Sushil Kumar, Former Senior Adviser-SIAM and Former Industrial Adviser- Ministry of Heavy Industries, Government of India
prove to be instrumental. For example, if companies were stocking up only for 15 days, they should increase it to a month or two months. Dealerships can ask suppliers to have warehouses near their factories or even the OEMs themselves can have warehouses established near their factories where they can stock their components and goods for two months or so depending upon the finance.This would take care of the input requirement.”
IMPACT OF GOVERNMENT POLICIES ON THE SUPPLY CHAIN
The cascading effect of the pandemic on the economy is a known truth but some experts believe that the pandemic has brought about a lesser impact than the stringent state and central government policies that have affected the industry as a whole. KV Verma, SCM Head, Dura Auto India Pvt Ltd feels that it is not the pandemic that has impacted industries but government policies and state politics that has a chief role to play.
“The impact of the pandemic is minimal on industries, however the government policies and state politics are hitting hard on the economy. The overall governance in terms of lockdown, numbers of test conducted during lockdown, delay in restrictions on global travel and religious vote back are matter of concern on our economy.”~KV Verma, SCM Head, Dura Auto India Pvt Ltd
THE BS-IV TO BS-VI SHIFT
Earlier this year, the government had set a deadline of March 31 for all automakers to switch from BS-IV to BS-VI emission norms. The notification that was issued, had prescribed that sale and registration of BS-IV vehicles will not be allowed after the March 31 deadline. However, this did not go well for automobile bodies who argued that the lockdown had led to over 15,000 unsold BS-IV commercial vehicles and over 12,000 unsold BS-IV passenger vehicles. The number of unsold BS-IV twowheelers was pegged at over 7 lakh. Mr Verma says, “The India automotive industry has already seen difficult past few quarters due to BS-IV to BS6-VI change revival and this pandemic led lockdown couldn’t have been more ill-timed. We are no exceptional and are struggling with low demands,deferred forecast etc. However the OEMs were supportive in releasing all the pending payments on time during lockdown period”.
“In a highly volatile environment, flexibility is one of the key assets which can be leveraged by an organisation. Automotive companies are planning to keep overheads low, make production-related costs as much as possible variable. In nutshell, business continuity blueprints are being redrawn.”~~Vikas Kalra, Section Head – Logistics, Ex – Hero Motocorp
CURBS ON IMPORTS OF CERTAIN PNEUMATIC TYRES
In June, the Directorate General of Foreign Trade (DGFT) issued a notification by imposing curbs on the import policy of certain new pneumatic tyres used in motor cars, busses, lorries and motorcycles which was done to promote domestic manufacturing. These curbs would mean an importer would now require a licence or permission from the DGFT for imports. Earlier, the imports of these tyres were allowed without any restrictions.
AUTOMOTIVE HUBS IN THE OFFING
There are talks going on about establishing automobile hubs in the northern part of the country.The Indian Railways has been mulling over supporting the sector by providing facility and resources for two proposed automobile logistics hub in the state of Uttar Pradesh. Monica Agnihotri, Divisional Railway Manager, Lucknow Division had expressed the willingness to provide facilities for two proposed automobile logistics hub in Uttar Pradesh under the Lucknow (LJN) division of the Railways. “We are willing to provide facilities of having proposed auto logistics hub in our division at two locations at Bakshi ka Talab and Barhni”, she said in an interactive Webinar organised by SIAM. She also clarified that in case there is a better focal point than these two locations, thenher division would be eager to change the location of the automobile hub. “If the OEMs feel that there is another focal point, then yes we can convert that place also into an automobile logistics hub instead of that place”, she stressed. The confluence of the automobile industry and the mode of rail has been untapped in many segments but due to policy interventions and changes, the untapped potential is finally being explored.
FUELLING THE REVIVAL MOMENTUM
With the lockdown opening in the country, the demand for compact small cars mostly by first-time buyers is primary driving the car sales in India in addition to the piled-up demand due to stringent lockdown restrictions in April and May. The need for social distancing has instilled a fear in people, who were earlier dependent on public transport, to buy a car, as top executives at leading automobile companies believe. While urban areas have been more impacted by Covid-19 and the lockdown, industry players say that rural India is witnessing a faster recovery. Manufacturers are expecting the recovery trend to remain strong as the inquiries and booking are rising fast.
“I believe only a few big automotive companies in India are vertically integrated, this is the main point of execution that will help us become immune to the next pandemic or any crisis in the future.”~Swapnil Mankame, CEO, Mankame Automotive R&D Head, eMatrixmile Pvt Ltd
This is an abridged version of the original story that appeared in the August issue of the Logistics Insider magazine. Click here to read the complete and unedited story.