Impact of COVID-19 on Automotive Industries 2020
In the start of this current year 2020, the car division area was at that point battling amidst a troublesome money related machine and along with the products and enterprises charge, move to shared portability, hub load changes, Bharat degree IV to Bharat degree VI, liquidity crunch, etc
Growing popularity of shared mobility solutions platforms and cautious lending by banks and non-banking financial companies (NBFCs) negatively impacted on vehicle sales. And COVID-19 outbreak is now making the situation far worse.
Based on the data collected and reported by the Society of Indian Automobile Manufacturers (SIAM), In March 2020, the market research shows passenger vehicle sales declined 51% YoY to 143,014 units. In the sales of two-wheelers fell 40% to 866,849 units, and commercial vehicles declined 88% to 13,027 units.
With a nationwide lockdown in effect from the last week of March, the industry saw zero production and sales of new vehicles in April 2020.
Factories and dealerships struggle to resume operations
While auto manufacturers began partial operations in May 2020, it has been an uphill struggle. Opening of industries were allowed only after receiving due approvals from respective state authorities, and conditional to following safety protocols for prevention by COVID-19 pandemic such as body temperature scanning, social distancing and ensuring high standards of disinfection.
Automobile dealers had been not able to deliver the motors throughout the lockdown period, and feature stated 30-45 days of the completed goods stock, in all likelihood to be heavily discounted submit lockdown.
Further, with the BS-VI income mandated from 10 days after lockdown length ends (and sale of 10% of current BS-IV stock until then), automotive dealers face massive burden to liquidate the unsold BS-IV inventory, really worth of about ~INR 6,300 Crore.
OEMs will need to financially support to the dealer groups, further stressing their own balance sheets.
Auto parts-suppliers have a high dependency on migrant labor, whose absence is expected to further delay in revival post lockdown, resulting in a domino effect on the entire value chain. Suppliers facing liquidity issues may succumb to weaken the market conditions, causing widespread disruption across the entire manufacturing ecosystem.
It is likely plants across the country will function in a progressive way with a skeleton staff with the full prevention of spread of the virus at least until July 2020. Shutting down operations was far easier than the re-opening the factories as companies need to manage the complex development issues.
The resumed production of operations requires OEMs to coordinate with the hundreds of local and global suppliers, logistics partners and thousands of employees. The biggest challenges are come from not having enough workers willing to come back and sufficient and continuous parts supply.
As of the last week of May 2020, only 3,500 dealerships platforms were in operation around the country, which represents 20% of the total network. And among these, half were operating only their service departments and not the showrooms. For slow dealership re-openings post covid-19 lockdown are another problem, with almost all vehicle sales delivered through them – online sales are a rarity and still under development condition.
The sharp contraction in sales will also lead to a decline in average manufacturing capacity usage of the industry. For the PV segment, an effective annual capacity usage is projected to drop down to as low as 45%, from 60% a year ago. Two-wheelers and commercial vehicles will drop to below 50% and 35%, respectively, from 65% and 51% a year ago.
Recovery timing for industries
In demanded recovery for automotive sales and cash flow can only be expected around the festive season in the last quarter of the year contingency plans. With the growing consumer preference for cheaper, personal transport, two-wheelers – motorcycles in particular, with their higher rural share – will likely be the first category to see a rebound instead of that electric vehicle also comes in market.
Local governments develop scrappage schemes and lower interest rates for the vehicle loans, along with reduction in sales and road taxes, as seen across SE Asia, these interventions could accelerate the recovery.
Despite the above challenges, we continue to be high-quality for longer term in view of India’s approximately low car penetration – 110 -wheelers and 32 vehicles per 1,000 – Australia has 740, Japan has 591 and China has 164 motors per 1,000 people.
We expect recovery post-2022, helped by improvement in non-banking financial institutions and the overall economy. Combined with a young population, rapid improvements in road infrastructure, growth in rural demand and possible introduction of entry-level passenger cars, this could significantly boost consumer demand.
0 comments:
Post a Comment