Covid19 hits automobile industry

The Coronavirus Effect on the Indian Automotive Industry

Suzanne Khan NEWS Leave a Comment

The outbreak of the deadly Novel Coronavirus (COVID-19), which originated in Wuhan, China in end-December 2019, is fast spreading its grip across the world and is having a major impact on each and every aspect of society, including the automotive industry. All through January as well as February, automakers and their suppliers have been struggling to keep the vehicle assembly lines bustling but March has seen the industry take joint action, in sync with the advisories of the government, to keep its personnel safe.

Automobile and component manufacturing plants have stopped production, compounding the effects of last year’s demand slowdown. The sharp drop in demand has presented a challenge for the Indian automakers to plan a recovery after the end of the nationwide lockdown.

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The coronavirus crisis is expected to cost the Indian Automotive industry an estimated revenue of ₹13,000-15,000 crore. The Indian auto sector earns sales of around ₹ 2,000 crores every day and shutting down the assembly by the manufacturers will lead to a sizeable revenue loss, wherein the annual business of the industry stands at ₹7.8 lakh crore. Additionally, the industry has a contribution of 7.5 per cent to India’s overall GDP, which overall accounts for 49 per cent of its manufacturing sector.

The lockdown further compounds the slowdown witnessed by the Indian automotive industry in 2019. This has caused underutilisation of manufacturing capacity for many automobile manufacturers in India. The coronavirus outbreak has forced automakers to stop production completely and force their non-manufacturing employees to work from home. Manufacturers will have to rely on the launch of new models as well as the upgraded BS6 model to revitalize production.

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Dealerships are also affected in districts that are under lockdown. More than 12000 dealer outlets are shut in the lockdown states and cities and many other members have voluntarily shut their outlets even in areas where there is no mandatory lockdown to break the corona chain. Those elsewhere are getting few visitors. Dealers also face an additional issue of BS4 inventory worth ₹6400 crore remains unsold due to the impact of Covid-19.

Apart from the revenue loss, the Indian auto sector is also likely to suffer major job losses due to the virus, wherein the industry has witnessed a prolonged slowdown. The major job risk lies for the contractual workers who constitute over 55 percent of the overall workforce. Out of panic, many migrant workers also took to the highways walking hundreds of kilometres to reach home. Typically, workers wait for a crisis to end before returning. However, the waiting period may be much longer this time, and therefore the impact on labour cost, much larger.

To respond effectively to the post-coronavirus economy, the Indian automotive industry will need to recover from the revenue losses experienced during the crisis. The sharp fall in demand is expected to last for a little while before starting a recovery trend. Tapping into demand as the economy recovers will be crucial for manufacturers. Certain factors do work in favour of the automotive industry. The shift to BS6 compliance meant that many potential customers held off on their purchases. The end of the lockdown may see these customers bring the initial demand. The industry faces an uphill battle to recover, but with the right action plan, it is possible to effectively negate the economic effects of the lockdown.

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