Preparing the Indian automakers for the "never normal"
No production, no sales. Indian automakers saw their bleakest April in decades this year when production tumbled from 2.19 million units a month to zero and sales plummeted to zero. COVID-19 had brought everything to a complete halt.
Even before the pandemic, Indian automakers were grappling with falling demand as the economic slowdown took its toll. Add to it, the challenges from connected, shared and electric mobility and the transition from BS-IV to BS-VI fuel emission norms. While recovery will be even more difficult now with the pandemic, we believe the industry can still take actions to outmaneuver uncertainty. How? By rapidly responding to the current disruptions and strengthening operations to prepare for the “never normal”.
Hitting a roadblock
Let’s evaluate the unprecedented disruption caused by COVID-19:
- Supply chain disrupted: The pandemic broke the global automotive supply chain. It was crippling for India since many OEMs depend on China for 27% of their automotive parts imports and have no alternative sources for inputs. Restrictions on transport of materials during the lockdown made matters worse.
- Manufacturing shutdown: OEMs and component makers in India had to pay for losses to the tune of US$305 million for every day of plant closure. While Indian OEMs are gradually restarting operations, production is likely to contract by 8.3% in 2020 with rising cases of COVID-19 and lack of manpower.
- Liquidity crisis: Struggling to meet fixed cost and working capital requirements, Indian OEMs have resorted to salary cuts, late payments to vendors, hiring freezes, and cost cutting in travel, infrastructure and capital expenditure.
- Sales crash: After crashing almost 45% in March 2020 as compared to 2019 and plummeting to zero in April, sales have revived to some extent. However, the June numbers are still 50% lower than last year for most Indian OEMS. It’s a blow many dealers are not being able to sustain and more than 275 of them have shut shop.
Shifting gears: Now and next steps
So, how can automotive companies get on the road to recovery? It’ll take a holistic approach focused on dealing with the current crisis and building resilience for the future. We recommend that automakers step on the gas to:
- Build supply chain resilience: Evaluate the risks and create transparency to prepare, adapt or adjust to shortages or other challenges. Leverage big data, intelligent systems and connected ecosystems to do so. Mobilize a control tower to orchestrate and configure the risk response, focusing on agility. And, make risk mitigation part of business as usual.
- Accelerate manufacturing: Keep in close contact with suppliers to ensure production can be ramped up quickly when the market begins to recover. Put workers’ safety first. Some Indian carmakers are already moving in the right direction by monitoring employees’ health using mobile apps, limiting employees in office areas to just 50%, and arranging for buses and staggered arrivals for employees. What next? Embrace industrial IoT to drive efficiency and prepare future shock protocols to build resilience.
- Boost Liquidity: Verify credit lines with major banks and leverage them to meet liquidity needs. Establish a working-capital crisis mode that prioritizes payment obligations and a fixed-cost emergency mode that optimizes operations and personnel costs. Consider using AI and Blockchain in treasury management for real-time cash flow overview and forecasts. Also, consider shifting your business model from wholesale to retail and work with dealers on inventory optimization to free up working capital. Lastly, identify other avenues to support dealers.
- Drive sales: Digital channels emerged as the only way to drive customer engagement during the lockdown, but physical interaction will remain a key part of the auto industry’s sales process. Instead of trying to “force” the complete sales transaction online, focus on nurturing brand loyalty by creating updated and dynamic digital content on highly relevant platforms. Establish a clearly structured omnichannel framework to ensure visitors and leads are directed to the right product and face-to-face interaction at the right time. Use targeted and interactive engagement online to increase potential customer base, brand loyalty and, most importantly, sales conversion.
Change the way you operate
Here's what auto companies must do to turn today’s challenges into meaningful change:
Think value for the customer
- Shift the operating model from selling products to services; build one-stop servicing and maintenance through a robust service network; consider Uberization of service capability.
- Focus on the entry segment and used/lease model portfolio to cash in on consumers’ preference for personal vehicles due to safety concerns.
- Enable control tower setup for fleet; provide digital intervention as a service to monitor fleet profitability.
- Consider value-focused offerings like uptime services and overhead cost reduction for large fleets; target aggregators with a service value proposition.
Think products that show you care
- Focus on in-car offerings like anti-microbial surfaces, self-cleaning surfaces, cabin sterilization tech and driver partition.
- Increase R&D on health and hygiene solutions for vehicles.
Highway to growth
The road to recovery may be a long one. However, mastering key industry trends such as digitalization can help Indian automakers get back on track, at speed. Transformational projects—in particular, building omnichannel capabilities—are critical. The key to winning the race is not losing sight of the long-term goals and new opportunities, and focusing on renewal by embracing new, intelligent solutions.