The sustained sales slowdown coupled with the outbreak of COVID-19 has literally broken the back of the automotive industry with the entire value chain (OEMs, component suppliers, dealers, etc) getting battered by the current market environment. There is a great deal of uncertainty about how the future will pan out, in terms of how demand will pick up and consumer sentiments get lifted. The automotive industry witnessed never-before-seen lows of zero production and zero revenue for close to two months, and the industry was witness to automotive production activities coming to a full stop - a sight unheard of in the history of the auto industry.
The outbreak of COVID-19 has clearly exposed the vulnerability of the automotive industry's over-dependence on China for meeting their supply chain requirements. Deepak Jain, President of the Automotive Components Manufacturers Association (ACMA) & CMD Lumax Industries, believes that the outbreak of the pandemic has thrown up challenges for the auto industry. "The COVID-19 made us realised the vulnerability of over-reliance on one region for addressing our supply chain needs. The industry needs to focus on how this over-dependence on one region for our supply chain needs can be reduced going forward," Jain said while speaking at Auto Tech Review's recently-held webinar on 'Effects of New Normal on Mobility Industry' under its TechChat series.
The ACMA President further elaborated on the substantial investments made by the automotive industry. "The industry has invested a lot in the BS 6 emission technology and deserves a pat on their backs for making the switch from BS 4 to BS 6 within a three-year timeframe. There is a need for the industry to focus on building robust business models and conserve cash in this COVID-19 situation. The new normal in the auto industry will neccessiate cash prudence on the part of all stakeholders," he stated.
Despite the clouds of negativity and uncertainty hovering over the industry, Jain harboured the hope that the automotive industry will walk down the growth road. "The country's automotive industry is a massive influencer on the national economy - it contributes around 15 % of the total GST collection. I believe the industry is very resilient and will stage a recovery and a lot of that will be defined by interventions from the industry and government."
He shed light on how the government came to the aid of the auto industry during the slowdowns of 2008 and 2014. "The industry had faced tough times before and we all know how the government slashed excise duty during the lows of 2008 and 2014 to revive market demand. The vehicle scrappage policy is another aspect that can trigger demand, but we are yet to see the policy being rolled out," he said.
The ACMA President all accentuated the importance of boosting domestic demand and not just focus on exports. "We want the auto sector to grow and that can happen by not just focussing only on exports but also conserving domestic demand. If domestic demand goes down for four-five years, exports will remain a dream as it is hard to do well on the export route without the strength of the domestic market," he opined. Jain thinks it would take around four years for the auto industry to reach the demand levels of 2018.