Bleeding Automotive Industry Needs a Well Laid-Out Roadmap

Bleeding Automotive Industry Needs a Well Laid-Out Roadmap

Auto Industry Bleeds Profusely in Q1 FY21, Needs Well Laid-Out Roadmap: SIAM
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SIAM President Rajan Wadhera has called for a well laid-out roadmap of technology as well as regulatory vision to help the auto industry achieve the Prime Minister Narendra Modi’s goal of becoming ‘Atmanirbhar’ over the next 8-10 years. He also reiterated the long-standing demand for reduction in GST on automobiles from 28 % to 18 % across vehicle segments, speedy roll-out of an incentive-based vehicle scrappage in form of 50 % rebate in GST, road tax and registration charges as well as an adequate funding-backed procurement programme for diesel/CNG buses by STUs similar to EV buses under FAME II

The going has been tough for the automotive industry across the globe and the scenario hasn’t been any different in India owing to the outbreak of COVID-19. The Indian auto industry registered its worst-ever performance over the last two decades in Q1 FY21. The dismal sales performance posted by the industry in FY20 further worsened as the auto industry clocked a de-growth of 75 % in the first quarter of FY21. Exports, that served as a ray of hope over FY20, registered a de-growth of over 63 % in Q1 FY21. The switch to BS 6 emission norms, sluggish Indian economy coupled with COVID-19-triggered lockdown contributed to the industry bleeding as well as nullifying the government measures announced for the auto sector in Q2 FY20.

The slowdown in the passenger vehicle segment has now extended to 9th quarter with Q1 FY21, the longest streak over the last two decades. Passenger vehicles sales stood at 153,734 units in April-June 2020, down by (-)78.43 % as compared to 7,12,684 units in April-June 2019. Against 208,310 units commercial vehicle sales in April-June 2019, the segment is down by (-) 84.81% and posted just 31,636 units sales in April-June 2020, wherein the goods carrier segment has declined by 83 % and the passenger CV s plunged by 96 %.

The three-wheeler segment has been the worst hit – its sales stood at just 12,760 units in April-June 2020 as compared to 1,49,797 units in April-June 2019, down by (-) 91.48%. However, two-wheeler sales was the best of the lot clocking 1,293,113 unit sales in April-June 2020, that is down by (-) 74.21% as compared to 5,013,067 unit sales in April-June 2019. The sales slowdown has also been the longest one for the two-wheeler industry spanning six decades now, wherein scooters witnessed a 78 % decline in sales in Q1 FY21 while the motorcycle segment was little better off at 73 %, posting an overall sales decline of 74 % in the two-wheeler segment. From the FY20 de-growth of 18-30 %, SIAM expects the auto industry to post a de-growth of 26-45 % in FY21 across segments.

Taking cognisance of the severe impact of COVID-19 on the overall economy as well as on the industry, Wadhera feels that there is a strong need for a demand stimulus – something that was provided to the industry during the earlier slowdowns 2008-2009 and in year 2014, in terms of cut on excise duty. Investments in BS 6 has already meant new capital induction, resources as well as increased import content in the range of 1-6% in the vehicles manufactured and thus requires a demand stimulus for survival. 

Given the challenging market environment, SIAM has already been consistently engaging in discussions will different government ministries for over the past ten months in pursuit of fiscal measures to boost demand. Thus, the auto industry association has suggested three measures to the government for demand revival. This includes -

1.      Introduction of incentive based vehicle scrappage scheme to generate demand, in form of 50 % rebate in GST, road tax and registration charges

2.      Announcing a major procurement programme backed by adequate funding for diesel/CNG buses by STUs, similar to EV buses under FAME II

3.      Temporary reduction in standard GST rate by 10 % across all vehicle categories

The SIAM reckons there is decent demand in the rural pockets of the country, largely linked to the agri-sector package announced by the government as well as good crop harvested and good monsoons in the country, leading to good demand for LCVs, small cars as well as two-wheelers. However, wholesale numbers have been lagging behind retail sales as the supply chain has still not become fully operational due to lockdowns in certain areas due to non-availability of manpower as well as delays in clearing of import consignments. The start-stop production mode as well as rising COVID-19 cases in and around the production setups have only added to the woes of the industry.

ROUND-UP

The country’s auto industry employs 37 mn people across the value chain that also includes dealers, suppliers as well as OEMs. According to the SIAM President, despite production levels currently being in the range of 20-30 %, there have been no job cuts for now among the permanent employees. However, the temporary workforce has gone missing as they returned to their respective hometowns during the lockdown period. The industry will have to come up with measures to reduce cost to survive and employee cost is a big chunk of that cost, observed Wadhera. All possible actions will need to be taken as investments are expected to dry up for new products as well as existing capacities lying under-utilised, he noted.

The SIAM President also stated that advanced technologies will continue to remain expensive if not produced at large-scale levels, which means the industry has no choice but to take the import route that will mean added costs and thus, demand boost will play a vital role in bringing back the auto sector on track. Wadhera said the auto industry will take at least 3-4 years before it gets back to numbers of 2018. SIAM has also announced a change in wholesale data-sharing, where only two-wheelers and passenger vehicles data will be shared on a monthly basis moving forward, whereas the CV segment numbers will now be shared on a quarterly basis.

 

Anirudh Raheja
Author: Anirudh Raheja
A technology lover by passion, and an automobile journalist by profession. Anirudh has been networking extensively with key industry stakeholders to understand the diversity of automotive industry and keeps himself abreast with the industry developments. He is always keen to learn new things and skills that keep him 'Committed, Resourceful and Motivated'. He tweets @itsme_anirudh