Impact, Implications Of COVID-19 On Automotive Industry

Impact, Implications Of COVID-19 On Automotive Industry

Guest Commentary August 2020 Deloitte India Impact Implications COVID-19 Automotive Industry

RAJEEV SINGH is Partner & Leader, Automotive Industry, Deloitte India

The COVID-19 pandemic has pushed humanity and the global economy into a crisis not seen since The Great Depression. In their efforts to curb this pandemic, the Indian government, like many others, has enforced a national lockdown. While the lockdown may have helped limit the spread of the virus, it has severely affected the economy, disrupting the entire value-chain of most major industries in India and the automotive industry is no different.

The automotive sector had already undergone considerable slowdown over the last 12-18 months due to structural changes beginning with the goods & services tax (GST), shift to shared mobility, axle-load reforms, the switch from BS 4 to BS 6 transition, liquidity crunch, etc. The COVID-19 lockdown has had a multiplier effect – the industry has almost been at a complete standstill since March 24. A prolonged truncation of consumer demand due to the lockdown has significantly affected auto manufacturers’ revenues and cash flows.

In response, most companies are starved of R&D funding to sustain core operations, and potentially setting back the progress made on alternate fuel and mobility technologies by two to four quarters. Eventually, some companies may even take a strategic call to exit unprofitable markets and vehicle segments.


Auto dealers have been unable to deliver vehicles during the lockdown phase, and have reported 30-45 days of finished goods inventory, likely to be heavily discounted post-lockdown. Further, with BS 6 sales mandated from 10 days after lockdown ends (and sale of 10 % of existing BS 4 inventory until then), dealers face a significant burden to liquidate unsold BS 4 inventory, worth Rs 6,300 crore [1].

OEMs will need to financially support dealer groups, further stressing their own balance sheets. Auto suppliers have a high dependence on migrant labour, whose absenteeism is expected to further delay revival post-lockdown, resulting in a domino effect on the entire value chain. Suppliers facing liquidity issues may succumb to deteriorating market conditions, causing widespread disruption across the entire manufacturing ecosystem.

Captive finance companies are also likely to face the brunt, as loan defaults are likely to shoot up, and new loans are expected to drop, given the difficulties in determining customers’ creditworthiness, further denting the firms’ profitability. Lastly, the lockdown is likely to put a strain on mobility solutions, used-car, and aftermarket service providers, whose funding depends on aggressive growth projections. Shared mobility players (ride-sharing, car-sharing, ride-hailing) may have to rethink their offerings in the short term, as customers grow averse to transport means that violate social distancing norms.


The Indian ecosystem may take inspiration from Chinese OEMs to fight the slowdown. A few players such as Volkswagen, SAIC, Nissan and BMW in China have turned to online sale of cars, using virtual reality and live broadcasts to stimulate sales [2]. Another Chinese player, Geely introduced contactless delivery, where social distancing is maintained throughout the journey, including the keys being delivered using a drone! [3]. These initiatives have found traction, with Geely reporting 10,000 bookings for contactless delivery within a month of launch. SAIC, BYD, GAC along with parts suppliers have begun production of facemasks and disinfectants to support the healthcare system.

The path to revival for ecosystem players is multi-phased. While they may respond with some actions immediately, they would also need to prepare to recover lost value through initiatives after the lockdown ends. Additionally, they need to consider appropriately reacting to permanent disruptions caused by the pandemic, and reinvent their businesses with long-term interventions. Some of the key interventions which may be considered are listed below.

Respond (During The Lockdown Period):

:: Engage with customers and the dealer network (virtual gamified trainings for sales staff; relevant DIY videos on social media for customers);

:: Manage the liquidity crunch in the system (financial support to the network with quicker incentives disbursal and temporary relief from interest burden);

:: Actively contribute to fighting the pandemic (support contract workers in the automotive ecosystem; production of sanitisers, masks, PPEs in manufacturing plants);

:: Plan well for the post-COVID-19 period (efficient warranty and dealer claims disbursal; planning for short-term demand for spare parts);

Recover (1-2 Quarters After Lockdown Ends):

:: Plan initiatives to capitalise the potential aversion to shared mobility and public transport (‘push’ marketing for 2W, entry-level 4Ws and pre-owned cars, ‘in-market’ demo cars to boost test-drives);

:: Prepare for spike in aftersales (service-on-wheels and service camps for scheduled maintenance);

:: Reassess upcoming launches and financing offerings (financing schemes to tackle liquidity crunch);

:: Assess and de-risk supply chain dependencies (indigenisation of major components; trigger-based contingency plans for the entire network);

:: Prepare for an omni-channel sales experience (virtual sales consultants; online sales and digital documentation);

:: Adopt hygiene-centric process and design changes (sanitisation/fumigation of vehicle as part of workshop services and test-drive; design no-contact customer journeys);

:: Explore alternate revenue options (prioritise allied products and services – accessories, concierge services);

:: Capture opportunity to consolidate operations (partnership/acquisitions to realise synergies; new sources of funding);

Reinvent (2+ Quarters After Lockdown Ends):

:: Plan for shifting mobility preferences of consumers (review alliances to focus on trends like alternate asset ownership models);

:: Adopt digitalisation of consumer touchpoints (end-to-end digitalisation of customer journey for both sales and service);

:: Explore offerings around hyper-local delivery model (product and customer strategy aligned to growing demand for home-delivery);

:: Redesign processes to become lean and responsive (low fixed cost business models; analytics usage to better design short-term response strategies).


[1] ‘Lockdown leaves India’s car dealers with the battle of their lives’, Economic Times, 26th March, 2020 -

[2] ‘This industry was crippled by the coronavirus - here’s how it’s fighting back’, World Economic Forum, 25th Feb, 2020 -

[3] ‘Geely auto goes full contactless with new car keys being delivered by drone’, Geely Global, March 23rd, 2020 -