Restructure, Rebuild

Restructure, Rebuild

Editor's Desk June 2020 Restructure Rebuild

Dear Readers,

Just how bad is the COVID-19 pandemic for the automotive industry? If the slowdown in the sector post FY 2018-19 wasn’t enough to wreak havoc across multiple segments of the industry, the virus outbreak has forced economic, political, and social disruptions unlike anything we’ve seen in the past, ruining businesses, human lives and homes. Even as the world is trying to get back on its toes, accepting the fact that we all got to live with this virus for the rest of our lives, there is this incessant fear about the unknown.

Job losses have become commonplace, reduction of capacity, toning down operations, and even factories have been shut to ensure businesses remain viable in the long term. We’ve witnessed unforeseen disruptions in the manufacturing supply chains. With losses mounting, there is pressure on CXOs to undertake economic, financial and operational restructuring.

In the Indian automotive industry context, getting back to peak volume levels of 2018-19 may take up to six years, predicted Bosch, the largest automotive supplier in the country and the world. The company expects demand to contract by up to 30 % in the 2020-21 timeframe, highlighting the level of distress in the industry.

Late last month, announcing its FY2019 financial results and mid-term plan announcement, Nissan offered a rather bleak outlook, with announcements ranging from capacity reductions globally, to shutting down factories to job cuts and complete withdrawal from markets. While its operations in the ASEAN region will undergo significant changes, no specific mention was made about the Indian businesses. However, considering Nissan and Datsun’s struggles in this market, the company’s decision to “systematically right size operations or exit some of the markets” in the future might hint at India being in its watch list.

Having said that, most large corporations worldwide have been rebuilding their businesses with the future in mind. Continental, for example, had warned of an emerging crisis in the auto industry, and spoke about how it saw the technological transformations led by digitalisation, rapid shift to battery-powered vehicles, improved emissions and fuel-efficiency regulations, as a growth opportunity.

Many senior executives agree this has been the worst they have seen in their lives. None of them repudiates the long-term promise of the Indian market, but much of their strategies built over the last few years have come a cropper, or at least have pushed them behind by a few years. All of that now gets compounded by this pandemic, which threatens to alter consumer preferences. Shared mobility, one of the global megatrends, is likely to be hit the worst as consumer preference for public transportation falls, and demand for smaller cars increase. There is a ‘new normal’, and the world will build on it as we move forward.

June 2020, New Delhi