Road ahead for auto industry: Economic recovery holds key to revival

Cautious optimism rules four-wheeler mindset, pain seen lingering in two-wheeler segment

If there is one year that India’s manufacturing sector, particularly the automobile industry, could wipe off the calendar, it would well be the year 2020.

Earlier this month, S&P Global Ratings raised India's growth projection for the current financial year to (-) 7.7 per cent from (-) 9 per cent estimated earlier on rising demand and falling Cobid-19 rates. For the next financial year 2021-22, S&P projected growth to rebound to 10 per cent.

A broad-based rebound in 2021 hinges on the overall economic growth which, in turn, will fuel consumption said officials at auto firms.  

R C Bhargava, chairman, Maruti Suzuki India, is optimistic of the road ahead for India’s automobile market and expects it to be much better than 2020, but he stops short of making any predictions.

“I expect that next year will be better than this year but how much better, what is the likely target for sale, all of that we have not fixed yet," he  said.

Hyundai Motor India Ltd (HMIL) is also hopeful of some economic recovery taking place next year which in turn would aid the auto industry.

"Looking ahead, the company is cautiously optimistic about the future and could clearly spot some green shoots of recovery in 2021," HMIL MD and CEO S S Kim said, adding that the pandemic has set newer challenges for the industry. The biggest challenge, according to Kim, is to sustain business operations and ensuring financial health of the organisation.

As for the domestic two-wheeler market, the pain for the segment is expected to linger on even in the New Year says Rakesh Sharma, executive director at Bajaj Auto.

“Even if we match last year’s levels as an industry, we will still be at 2013-14 levels. That’s how serious the decline has been. It will take us at least three years to get back to 2018-19 levels,” Sharma said in a recent interaction to Business Standard. This is attributable partly to Covid and partly to regulatory and policy changes.

While all segments of the industry are expected to perform better in fiscal 2021-22, it will take another year to match the FY19 levels, Nomura Research said in a recent report.

In 2018-19, passenger vehicle sales rose 2.7 per cent to 33, 77,436 units from 32,88,581 units in 2017-18, according to the Society of Indian Automobile Manufacturers (SIAM).

"After the devastating effects of the COVID-19 pandemic, it is expected that the auto industry will see stronger growth in 2021-22," Ashim Sharma, partner and group head (business performance improvement consulting-auto, engineering and logistics) at NRI Consulting & Solutions India, said.

As far as personal vehicles are concerned, the 2018-19 levels would be reached only in 2023-24 whereas for two-wheelers, it will be achieved maybe a year after that, he added.

"In addition price hikes expected with introduction of new regulations could delay the recovery even further," Sharma said.

In 2018-19, total two-wheeler sales rose 4.86 per cent to 2,11,81,390 units as compared with 2,02,00,117 units in 2017-18.

Passenger vehicle sales in India fell 78.43 percent in the April-June period this year hit by the pandemic, declining for the ninth straight quarter and making it the longest slowdown in 20 years.

The auto industry is estimated to have suffered losses of more than Rs 2,300 crore in turnover for every single day of closure during the prolonged lockdown.

But as much as it was a year one will like to forget, the Covid-19 blow presented to the industry an opportunity to press the reset button and re-imagine the business in ways more than one. 

The lockdown and restricted movement made them embrace digitization and adapt to the new normal to serve customers.  

It taught them to keep factories running under COVID-19 SOPs (Standard Operating Procedures) while keeping a tight leash on on costs and generating free cash flows. 

 A strong preference for personal mobility was yet another highlight of the year and helped two wheeler and carmakers to ride the pent up demand and is likely to continue in the months ahead.  

(With inputs from PTI)