The enduring situation owing to the outbreak of COVID-19 is bringing about fundamental changes to businesses, including those in the automotive value chain. As we were wrapping up the last few pages of this edition, news poured in about the central government’s decision to extend the current lockdown by 14 more days. It is, of course, anybody’s guess at this stage as to how long this situation would prevail. The longer the automotive industry continues to face this shutdown, the higher would be the extent of damage it will have to endure.
In a recent article, McKinsey wrote that the world is experiencing not merely another turn of the business cycle, but a restructuring of the economic order. Large manufacturers are under pressure, and many believe this deadly virus would lead some companies across the supply chain to even go under.
Over the past month and more, the industry has been replete with projections, predictions, analysis of the COVID-19 situation – some writing obituaries, while other painting pictures of hope. Reportedly, the auto component industry in India has witnessed a production loss of ` 10 bn per day in India during the lockdown phase. Not just the suppliers, the entire automotive ecosystem is under severe duress. For the first time ever, the industry reported zero sales in April 2020 – an unwanted historic development!
Getting the sector back on track would be a herculean task. It would also be in the interest of the government to ensure the industry finds its feet at the earliest. In returning to business, the government must ensure the automotive ecosystem is looked at in its entirety. A reduction in GST rates has been a long-standing demand of the industry. Alternately, the industry has pushed for the reduction of the total cost of ownership by offering customers direct benefits through lowering of loan interest rates.
The other big need for the automotive sector is the passage of an incentive-based vehicle scrappage policy. There can’t be a better time for the government to bring about this policy, which promises to trigger replacement of older vehicles and drive demand for newer vehicles. This is particularly important for the commercial vehicle sector.
On their part, vehicle manufacturers are doing the best they can by creating opportunities through digitised sales processes to enhance online sales. The demand revival in China, post COVID-19, is being seen as a ray of hope for all automakers, and many expect the same to happen in India – a demand surge for private cars, as consumers consider them a safer option compared to public transport or ride-hailing.
DEEPANGSHU DEV SARMAH
May 2020, New Delhi