Fresh investments in auto sector unlikely; long, dark period ahead: Siam

It will be a long, dark period for Indian auto manufacturers. Slowdown, complicated by the pandemic, will hit fresh investment and lead to job losses, industry lobby group Society of Indian Automobile Manufacturers (Siam) warned on Tuesday.

Auto and auto component makers together contribute more than 7 per cent to India’s gross domestic product.

“At the end of 2020-21, sales will be 50 per cent of what they were in 2018,” said Rajan Wadhera, president, Siam.

Wadhera said job losses in the auto sector cannot be ruled out. “When the industry continues to suffer slump, manufacturers will take cost rationalisation programmes — employee cost being the most significant,” he said.

Siam’s projection said that by the end of this financial year, there will be 26-45 per cent decline in domestic sales across vehicle categories, with commercial vehicle (CV) sales being the worst hit.

Industry executives said the dual impact of demand shortage and supply-chain issues due to flight of labour and social distancing norms are impacting production. 
 

 

“There is lack of manpower since people have moved back to their villages. There is huge challenge on the supply side, restricting wholesaling. Rising cases of Covid-19 around factories of member companies have also impacted production. The demand is just 40-50 per cent of the corresponding quarter last year,” said an industry executive.

The risk of restarting production in factories was visible after Maruti and Hyundai — two of India’s top automakers — reported cases of Covid among their workers in less than two weeks of opening up after the government relaxed the nationwide lockdown rules. “Production is on a start-stop-start mode now,” said Wadhera.

However, executives of manufacturers said the outlook may improve if there is demand recovery led by two-wheelers and tractors, primarily from rural India. 

“Our thesis of rural sales doing better than urban and tractors and two-wheelers outperforming the broad auto sector are likely to play out in June as well. Dealer interactions indicate retail sales have largely come back to pre-Covid-19 levels in June for tractors, around 80-90 per cent for two-wheelers, and 60 per cent for passenger vehicles,” wrote Kapil Singh and Siddhartha Bera, research analysts at the brokerage in their sales expectations report.

Tarun Garg, director, sales, marketing and service at Hyundai India, said he expects 90 per cent recovery in July sales, compared to 2019. 

“In terms of sales in June, we reached 75 per cent of retail, compared with last year’s level, and in July, we are hoping to reach 90-100 per cent of last year’s level. I think it shows a very positive sign. It shows resilience of the Indian auto industry,” said Garg.

However, when asked about the optimistic message from Siam’s members, Wadhera said there were pockets of recovery, and to recover from the shock, the government needed to offer stimulus like it did during the financial crisis of 2008. 

“The world over, the auto industry has been supported in the form of stimulus to boost demand. We are in discussions with the government to provide fiscal stimulus. A 10 per cent cut in goods and services tax across all vehicle categories will go a long way,” said Wadhera. 

The introduction of an incentive-based scrappage policy will also generate demand, he added.