Rough road ahead for auto industry amid coronavirus pandemicUpdated: Mar 25, 2020 00:24 IST
New Delhi: The auto industry, which has been struggling in the face of depressed demand over the past year, will be hit hard due to the impact of the current national lockdown to combat Covid-19, and the expected economic slowdown, said industry leaders and experts.
The sector, which is one the largest employers in India, is staring at a massive daily loss due to the closure of plants, unsold inventory of BS4 vehicles, which have to be registered by March 31 according to a court order, and a demand slump across two-wheelers, passenger vehicles and commercial vehicles as growth slips.
Commenting on the impact of Covid-19 on the sector, Rajan Wadhera, president of the Society of Indian Automobile Manufacturers said: “As per quick estimates by SIAM, it is expected that plant closures of auto original equipment manufactures (OEMs) and components will lead to a loss of at least ₹2,300 crore for each day of closure.” All plants as well as ancillary industries will have to be closed till April 15 .
An auto industry executive, who did not want to be named since he was not authorised to speak to the media, said the immediate challenge was the transition from BS4 to BS6 vehicles. “This is our biggest concern right now. We have unsold inventory. The registration deadline is March 31. Regional Transport Offices are closed. We need an extension on the deadline till May 31 but it is uncertain.” The auto industry has approached the Supreme Court, asking for an extension of registration of BS IV vehicles till May 31.
Mahantesh Sabarad, head of retail research at SBICAP Securities, said that if there is no extension, auto majors will have no choice but to rework the models or export them.
But the other, more medium-term, worry is the impact on the sales. Passenger car sales have declined for the last 20 months while two-wheeler sales have declined since January last year.
The auto executive emphasised that the sector — which saw a slight spike in passenger vehicle sales last October in the festival season but has otherwise seen a slump — is linked to the larger economic trajectory. Commercial vehicles sales are dependent on infrastructure projects — if infra slows down, so will these sales. The sale of passenger vehicles is dependent on consumer sentiment and incomes — and if incomes and sentiment dip, so do sales. And the sale of two wheelers is dependent on rural economy — if rural incomes dip, so will sales of two wheelers. The fall in sales could also affect the banking sector that provides loans.
Sabarad saw a silver lining in the crisis for the sector. “The experience of the lockdown may encourage people to have some personal transport. The benefits of public transport cannot be wished away of course, but the crisis has made many people think of the need for personal transport.” This, he acknowledged, was dependent on incomes. “The apparent demand may grow, but whether the actual demand grows will depend on incomes and the finance available.” Given the fact that interest rates are expected to dip, and many people avail personal loans for auto purchases, to write off the sector may not be wise.
“But we are all in wait and watch mode right now. The disposal of existing inventory, the larger growth of the economy, the financing leg of the equation will all shape sales, and subsequently, employment,” said the industry executive quoted above.