Auto industry hopeful of turning the corner

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The year 2020 was one of the worst for the automobile industry, which suffered losses of more than ₹2,300 crore in turnover for every single day of closure. However, the industry is hopeful of some revival in 2021 on the back of overall economic recovery.

Owing to the complete nationwide lockdown to contain the spread of the coronavirus, the auto industry witnessed the steepest downturn in years. As per the Society of Indian Automobile Manufacturers (SIAM), during this period, domestic sales stood at 15 lakh units, resulting in a 75 per cent de-growth, compared with the corresponding quarter last year.

 

Green shoots

The pick-up in sales slowly happened after three months of the lockdown (August), and right after that with the festival season, along with new launches. The growing preference for personal mobility and the festival season brought back some fervour in specific segments.

Now, “the overall economic scenario will determine the industry’s performance going forward,” Rajesh Menon, Director General, SIAM, told BusinessLine. “We will continue with our efforts to engage with the government on suggested policy interventions, going forward. One such important suggested intervention would be an incentive- based scrappage policy.”

Such a policy will support sales growth in the long run and, more importantly, reduce the age of vehicle parc on India’s roads, thereby reducing fuel import and air pollution. It is important that the scrappage policy have an incentive element to encourage consumers, he said.

Hope

“Next year, of course, will be better — there’s no doubt about that. How much better, I don’t know, but it’ll certainly be better,” RC Bhargava, Chairman, Maruti Suzuki India, told BusinessLine. “The economy is reviving, the vaccine is coming and therefore Covid will be under control. And, I think the government has also understood the need for accelerating development and industrial development.”

He said the auto industry is reviving, but won’t get back to consistent sustained/double- digit growth in the short term because of the conditions right now.

According to Guenter Butschek, CEO and MD, Tata Motors, 2020 has been an extraordinary year for the Indian auto industry. It had already been battling low economic activity, poor liquidity and subdued demand, while managing the transition from BS-IV to BS-VI, when Covid-19 struck. This placed unprecedented demands as the pandemic unleashed events of enormous scale and that too with extreme volatility.

“Going forward, we expect both sales and production to improve in 2021 on the back of overall economic recovery. We remain focussed on delighting our customers and comprehensively addressing their evolving mobility needs by introducing relevant products that are high on safety, efficiency, quality and comfort,” he said, adding that the demand for commercial vehicles is picking up as well, with consistently improving sales across segments.

New normal, new challenges

The coountry’s second- largest passenger car manufacturer, Hyundai Motor India (HMIL), said the new normal has set newer challenges for the industry. The biggest challenge is to sustain business operations and ensure the financial health of the organisation, it said.

“The performance of the automotive industry is linked to each stakeholder in the value chain, starting from vendors to our dealerships. Looking ahead, we are cautiously optimistic about the future, and clearly spot some green shoots of recovery in 2021,” said S S Kim, MD and CEO, HMIL.

According to a recent report by EY India, the key challenge for the Indian automotive supply chain would be to manage the cost escalation year-on-year, driven by rising fuel costs. Original equipment manufacturers (OEMs), therefore, need to explore the ability of key suppliers to fulfil orders from alternative locations.

“Organisations need to consider an end-to-end risk assessment of their supply chain, covering demand and supply risks, operational performance, global trade implications, customer impact and people aspects. These can be followed by simulating crisis scenarios and validating response tactics,” said Som Kapoor, Partner, Automotive Sector, EY India.

Veejay Nakra, Chief Executive Officer, Automotive Division, Mahindra & Mahindra, agrees. Due to the constantly changing environment in different parts of the world due to the pandemic, some of the supply chain challenges continue in the automotive sector, he said.

“Some of the newer challenges are shortage of steel and micro-processors (semiconductors), impacting electronic components and systems… Overall, there will be challenges given the uncertainty of the pandemic and its implications. These supply issues will continue for some time to come and will continue to create short- term challenges,” he added.

So, whether it is the passenger vehicles segment or two-wheelers, 2021 will depend on the economic front and how countries come out of the pandemic.

According to some experts, the ongoing farmers’ agitation and the Budget in February are also the two things that need to be closely watched, especially for the two-wheeler industry, as the majority of two-wheeler purchases are on loans and rural areas.

What to watch

For the luxury vehicles segment, companies are already prepared to woo the customers with new offerings. For instance, starting January, Audi and BMW have blocked the dates for the new A4 and 3 Series launches, respectively.

Mercedes-Benz India also said 2021 will be a “product-packed year”. Martin Schwenk, CEO, Mercedes-Benz India, said 2020 gave the industry a key learning that with accelerated innovations such as “contact-less sales processes” they can reach out to customers and still sell cars.

“The outlook of 2021 for Mercedes-Benz India is substantially better than that of 2020, and we will back it up with new exciting products and innovations in conducting business,” he said.

In the passenger vehicles segment, Tata Motors (new Altroz) and Toyota Kirloskar Motor (new Fortuner) are also launching new products in January.



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