The Automobile Industry is one of the core industries responsible for the growth of our country’s economy. The COVID-19 pandemic like The Great Depression affected the economy that resulted in the ominous downfall of the sector besides other sectors like Aviation and Retail. The lockdown, which was the utmost need of the hour, may have helped prevent the virus from spreading but disrupted many sales, jobs, expansion, and growth of this industry. The Indian automobile industry has been surely affected by the Covid pandemic.
This Industry has already been going through a slow phase over the last 12-15 months, even before the pandemic due to the shift in structural changes due to the Goods and Services Tax, conversion to shared mobility, axle road reforms, the transition of BS-4 to BS-6, liquidity crunch, etc. The covid’s aftermath has resulted in a prolonged absence of consumer demand which has significantly affected the automobile industry’s revenues and cash flow statements.
In addition to this, many companies have taken longer days to deliver the products due to lockdown protocols, as long as 30-45 days, and in some cases even up to 3 months to deliver a booked vehicle. This was also due to depreciating R&D funding in order to preserve core operations and marketing plans made for certain shifts such as fuel to the electric mode of mobility that has been set back from two to four quarters at present.
Covid and Indian Automobile Industry Concerns
As mentioned above, dealers have been facing a tough time delivering vehicles during lockdown which has forced them to discount prices due to the same. This resulted in only 10% sale of BS 4 inventory and the remaining unsold inventory worth Rs.6300 were to be liquidated. Dealers hence required support from Original Equipment Manufacturers(OEMs) which cost them and stressed down to their own balance sheets. Suppliers were faced with challenges from the already deteriorating market conditions that further resulted in a break in the manufacturing environment.
Finance companies were, in turn, caught up due to the delay in payments as the industry did not fetch enough returns by the end of the first two quarters of 2020. The loans especially were not a great benefit to the customers as it determined their creditworthiness and the economy was in desperate need of revival which caused a dent in the profitability of several automobile companies. Lastly, the lockdown had significantly strained new mobility solutions such as rental car services and pooled ride services due to the social distancing norms that are the new normal and need of the hour.
Imperatives for the Indian Automotive industry:
Growth and expansion is the most essential tool for any industry regardless of the downfalls. The industry must look at some of these promising opportunities to keep growing and expanding.
Reviving Domestic Market:
The Industry must look at potential buyers especially first-time buyers who do not hesitate to purchase vehicles, this time’s focus would be to repeat the customers. The industry must look at the new and improved resale policy and also with the aid of smaller companies that help in improving the quality of used cars, this can revive the urban appeal at present. Automakers can also provide alternate ownership options such as leasing in segments such as passenger vehicles but they already come with narrowed options due to their vehicle type and other features. Millennials will become a huge part of this approach as they would adapt to the leasing opportunities more compared to direct ownership, as their need for mobility increases.
A market similar to India is Africa, where expansion and growth internationally have had a significant impact on rising GDP. In this process, India does not have to start from scratch, as certain brands from our country hold a global presence in segments like 2 wheeler and 3 wheelers. These products hold a high customer value and a strong base for emerging markets globally. Previously, Indian markets only expanded Internationally in irregular intervals. Now, the industry must make sure this happens regularly and has a significant stake in the international markets as well. The government is also offering incentives for global production which is an estimated Rs. 7.5 Billion for exports. This can support automotive producers and suppliers to increase leverage, increase quality and improve production costs and processes in the given opportunity. Many Indian Automotive companies have already achieved these.
The current Covid situation has made digitize most platforms and has also enabled the Automobile industry by increasing its focus on customers. The platform has created CXO-level roles to drive this transformation and ensured all leading automotive companies have adapted to this. The leading brands are able to get 20-30% more customer queries regarding sales via engaging in digital marketing platforms. The use of advanced analytics also helps them create real-time personalized pitches for customers increasing their digital presence by 10%. A prime example of this is Tesla, who have increased their global presence via digitization and innovative ideas have also increased their sales significantly through digital platforms approaching over millions of customers worldwide.
Though automotive companies have utilized technological advancements in their plants for increasing energy efficiency, enhancing yield and quality in the production of vehicles, they have also used technology to manage supply-chain systems and smarter decisions relating to production planning. Now, automotive companies should focus more on bringing advanced analytics and digitalization to increase their business impact virtually compared to production aspects. The interface should be user-friendly and agile in order to increase usage of digital platforms and increase prospective customers over time.
The automobile industry of India is aiming to become a $5 trillion economy in the future. The Covid situation has provided this industry with recovery policies and reinvention technology with which the industry can emerge stronger by having a significant presence within the country and globally.
Covid Second wave’s challenges to the Indian Automobile industry:
As far as the second wave is concerned, the automobile industry is at again at brakes as it had just begun to accelerate post the first wave. The lockdown in almost all parts of the country has forced many branches of the automobile sector to shut down and slow productions once again. All sales have taken a huge dip compared from March 2021 to April 2021.
For several people who had purchased Passenger vehicles, The Federation of Automobile Dealers Association(FADA) stated that the waiting period has extended from 3 months to 7 months and is still continuing due to the several restrictions and lack of timely production due to scarcity of semiconductors. While the passenger vehicles managed to increase sales by 28% till April, the Commercial vehicle segment was the worst hit as it had minimum registrations, especially the tractor segment which had significantly declined due to the pandemic’s impact.
Almost all major automobile brands are entering the slow lane in the first quarter of this FY2021 but sales may be robust towards the end of the year. Analysts are however unsure as to whether the sales might actually be impacted much worse or less as there seems to be a third wave approaching.
Also, read Car Sales Report April 2021: Covid Strikes Yet Again!