The automotive industry may take up to a year to get back on the growth path, opines Giulio Segneri, Director, ADR Axles India
Impact on Business and Recovery Strategy
We have had to bear losses due to complete stop of operation. Cash availability has been critical since we have not been able to register any sales. Meanwhile, there still is an increasing demand from some of our customers but we need to restart the business with our existing customers first. We have planned to work more hours when the operation will restart and will have to invest additional efforts to restore our supply chains.
BS VI Transition
The positive impact of the virus pandemic is that the air and water quality has improved. On similar lines, BS VI will help to improve air quality in metro cities. We think people will accept BS VI after some time even though in its initial stage it is contributing to a slowdown in sales in the automotive sector.
Expectations from Government
The government should reduce or postpone taxation including GST and TDS for a certain period to allow companies to restore the normal cash flow. Also, it should provide wages to contract workers who have lost their jobs in the automotive industry. Companies engaged in the automobile and automobile component manufacturing business will rely on loans to recover from this setback and therefore interest rates should be cut by the Reserve Bank of India.
Outlook: Present and Future
In my opinion, the second half of the current financial year will see slow growth that will continue into the next year too. The sourcing of automotive components might get dearer due to the disrupted supply chain across the globe. However, Indian automotive components’ industry can emerge in the medium to long term as an alternative source of supply if duly supported by a sound policy framework.
Medium to Long Term Impact
The immediate impact will be that demand for commercial vehicles will probably reduce by 30-50% due to job losses and the cash crunch. It could take a year for the industry to register growth given the fact that we have entered into a phase of global economic recession. On the other hand, because of the pandemic, people will be worried about using public transport and will prefer to use private vehicles, which could boost the automotive industry.
Also, since farmers in India have had better yields on account of a good monsoon, there could be some positive fallout on the automotive sector. As regards transport and logistics, there will be reduction in the demand for logistics because of reduced production across all sectors. This will exert downward pressure on prices across various transportation and logistics sub-sectors like warehousing, freight and transportation, among others.