Actions for automakers in India to navigate the disruption and build future resilience
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.
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