Wadhera said the country's automotive industry will go back to the lows of 2008-09, if the government does not come up with urgent stimulus package
The Indian automotive industry is grappling with an exceedingly challenging market environment with the outbreak of COVID-19 throwing a spanner in its growth plans. In fact, the scourge of coronavirus dealt another big blow to the auto industry that was already reeling under a sustained slowdown for more than a year and a half. Never before had the auto industry witnessed a scenario of zero revenue and zero production for more than close to two months as the entire industry hit a pause mode, owing to the national lockdown imposed by the government to curb the spread of the virus.
Clearly, the road ahead for the auto industry will be replete with challenges. “Look, the GDP according to forecasts will witness a de-growth of 2 to 3 % this year and such a de-growth means the auto industry will decline in the range of 26-45 % this year. The last year was a very bad year for the industry as it witnessed a de-growth of 18 % due to vehicle prices going up, consumers adopting a wait-and-watch approach as the industry moved from BS 4 to BS 6 and the GDP growth was not going on expected lines. So if you look at last year and this year the industry will decline around 50 %,” said Rajan Wadhera, President, Society of Indian Automobile Manufacturers (SIAM) in an exclusive chat with Auto Tech Review.
The SIAM President said the auto industry desperately needs a government stimulus package to revive demand. “We have been engaging with the government to reduce the GST on automobiles from 28 % to 18 % in a bid to make vehicles more affordable. Capacity utilisation across the industry will between 50-65 %, which means that the industry will go back to the lows of the 2008-09 period in terms of volumes and numbers. The government must see it as their responsibility to improve consumer sentiments. One can understand the government’s focus on activities that will improve GDP growth, but they must seriously consider GST reduction as it is critical towards addressing the de-growth issue,” he said candidly.
The industry veteran asserted that it will be damaging for the auto industry if it is pushed back by a decade. “Over the years, the industry has built infrastructure, investments, manpower and capacities to grow further and a de-growth scenario will severely hurt the industry, which makes it imperative for the government to come out with strong interventions to lift consumer sentiments,” he observed.
Discretionary spending Wadhera insists, will take a hit going forward. “Car buying (cars and SUVs) is a discretionary purchase and consumers will cut back on discretionary spending as there will job losses, salary cuts and even loan availability will not be easy and so all these will lead to a huge correction in volumes,” he said.
There is a lot of talk about how the prolonged lockdown has triggered job losses in the auto industry. Wadhera offers his take. “It is tough to quantify job losses as there is no agency or any mechanism by which data can be collected. OEMs largely work with a permanent workforce and also have the wherewithal to hold the workforce for six months to one year in the hope of demand reviving. It is the Tier I or Tier II suppliers who operate with temporary migrant workers and suppliers unfortunately have to let these workers go,” he opined.
The SIAM President is categorical that migrant labourers returning to their native places will not pose any challenges for now. “Most companies are operating in one shift with 20-30 % capacity and of course they will ramp up capacity in due course of time. How much manpower you need for 30 % capacity utilisation? I don’t see migrant manpower as a challenge given the prevailing production levels,” he noted.
The industry veteran sees a strong preference for personal mobility given the COVID-19 scenario. “Consumer behaviour will change and prefer personal mobility so that they can meet the social distancing norms. People, who hitherto prefer local trains or metro or other modes of public transportation for daily commuting, may buy small cars or motorcycles/scooters to move around. E-commerce-related vehicles will gain more prominence as people feel it safe to order online, which means sales of two-wheelers and three-wheelers will get a boost.”
Wadhera shared his perspective on the government’s 320 lakh crore economic package announced to offer relief to the MSME sector that is largely represented by auto component suppliers. “You have to capture the spirit of the package as it is difficult to quantify as the auto industry resumed operations only recently. We will get to know about it has benefitted the auto component suppliers over a quarter or so. The spirit is in the implementation and all one hopes that the intentions do not remain on paper and fructify on the ground,” he remarked.
Wadhera also dwelt on the roll-out of the vehicle scrappage policy by the government. “We are looking forward to the vehicle scrappage policy as it has taken a lot of time in the making. All these old vehicles are heavily polluting, have no safety features and are fuel guzzlers - taking off such vehicles will not only ensure cleaner vehicles on roads but also create demand for new vehicles,” he elaborated.