Current Indian Auto Industry situation:
Indian Auto industry had been facing a lot of more troubled times since the beginning of last year. With the slump in sales and products on offer, the portfolio of companies has started to diminish in the middle of 2019. The companies have started to postpone the number of product line ups due to the fall in demand. The reasons for the slump are caused by two major reasons. For one the low economic growth rate being recorded in the country for the current fiscal as compared to the previous years as per the official estimates. The dip in demand was caused by the fall in the money demand. The reasons to believe that the recession has hit the major parts of the European and US economies. Invariably the companies across the world had gone to the cost-cutting spree in the countries they have taken in terms of worldwide operations. This has led to different measures like salary cuts and bonuses. Even in the presentation of the budget of 2019-20, the finance ministry has come forward with the budget, with many measures to ensure job growth (specifically in the hospitality and travel sector) but other sectors are not given the adequate push to a stable condition.
1. Sales:
In the Indian automotive sector, the slump in the sector has seen a lot of downward trend in terms of sales and also the portfolio in terms of the products line up. In the wake of 2017, the slump in terms of the sales numbers. Many of the companies operating in passenger vehicles and also in the two-wheeler segments the sales and purchase numbers have fallen drastically. Adding to the woes of the manufacturers, the implementation of the new emission norms has forced many of the companies to pull out the models in the portfolios.
The BS stage 6 norms, set by the government posed a lot of restrictions in terms of the emission that can be emitted from the future vehicles that are being produced. Many of the manufacturers’ have bid adieu to the Indian market. Companies like Chevrolet and Fiat shut their operations as they felt the fact that the up-gradation to the new norms would ramp up the cost of production and it did not seem viable to them. Cost-cutting and other important steps in order to bring in better products into the economy of our country. This is said to be one of the most obvious reasons for these companies to back out of the Indian market. Plus, to add to the fact that people were looking to more feature-loaded and also compliant vehicles so as to stay safe on the road which adds to the reasons why we have few prominent players in the auto industry.
If one wants to see how much the industry has grown between the period of 2018-19 and 2019-20, it has shown a very meager-increase in terms of sales. The numbers do not seem to be that promising though we can see a close to 4% in terms of overall sales in terms of overall figures. The factors contributing to the same are also quite a few. For one the country was going through a lot in terms of the severe floods in the states of the northeast of India and also parts of Kerala. Also contributing to the fact, the rising fuel costs and insurance costs. In 2019 the sales fell drastically in terms of rising in terms of material costs. The sales saw an increase in terms of the festive season in terms of quarter four of 2019, with Diwali and Christmas sales. The numbers did not show promising growth for the sector since the inventory continues to pile up in all the automakers.
The above statistics show the percentage change in terms of the sales growth figures among all the segments in India for the period 2017-18 and 2018-19.
2. Inventories
The inventories of the previous compliant emission norms still are in the inventory, for major companies in the country. The industries have been taken by surprise at the moment. All of them have been in a state of confusion and chaos. All the manufacturing sectors have literally shut shop to stop the spread of the pandemic. The plants in terms of production have closed down completely.
To put into respective major carmakers especially in the luxury car segment have postponed the launch of the vehicles to the mid of next year. This has put many of the manufacturers to make minimum launches into the market. The companies have now gone in terms of providing relief works for the pandemic. Many of the manufacturers have taken a step ahead in terms of providing ventilators in order to meet the demands of the rising patients in the country. Companies like:
1. Mahindra & Mahindra
Has offered to use its manufacturing units to make ventilators. The Group's resorts will be used as temporary care facilities.
2. The Bajaj Group
Pledged Rs 100 crore to be used to support the up-gradation of healthcare infrastructure, initiatives for providing food and shelter, and economic aid programs in rural areas.
3. TVS Motor Company
The Company along-with group firm Sundaram-Clayton plans to spend Rs 30 crore towards making a million masks, employing factory kitchens, supplying food to daily wage laborers, and exploring the possibility of making ventilators.
4. Hyundai India
Has ordered 25,000 diagnostics kits from South Korea.
5. Maruti Suzuki
Has tied up with AgVa Healthcare to scale up the production of ventilators. The automaker intends to manufacture 10,000 ventilators per month. MSIL subsidiaries, Krishna Maruti and Bharat Seats will provide two million masks and protective clothing.
All these companies including Tata Sons Group also have pledged close to Rs.1500 crore to the cause.
Though the companies have decided to start off with the operations, they have come up with certain demands, so as to safeguard their interests As of now, the companies demand an environment to function. The need for a flexible working environment for all the manufacturers is one of the main demands. It is basically to create an optimized or rather an efficient means of production. All of the companies have decided to go in for a restructuring scheme to deal with the unpredictable change in the environment. Many of the companies have gone in for help from software giant players like Capgemini to optimize their production. There are also reports that IT firms have received requests from companies looking to quickly move to agile manufacturing processes and supply chains along with undertaking cost reduction initiatives.
The main focus of the hour is for sustainable production and also to meet the targets of the firms. Also, it necessarily means to meet the demands of the government in terms of the norms as well. This should also necessarily mean to develop a system to meet contingent situations such as this pandemic which has changed the entire market functioning at present. It is one of the major challenges that all the major manufacturers have taken up for now. Another aspect to look into is in terms of the OEM manufacturers who would be working at par with the major players. They would also have to work in terms of automation as well as new work formulas to keep pace with the change in the market functioning.
From the looks of things, from an economic window, it is said to be a challenge, with the change in the scenario created by the pandemic. Probably a progressive and a cautious move by all the players in the market would be a safe move. The need of the hour is to focus on how to get the people back to work in a safe environment. It will be a challenge for all players. It is only a matter of time of how things would progress in the coming months, and see their numbers in terms of future projections. Markets in India and around the world would be on close watch to see how things would plan out this year.
Stay home, stay safe.