In order to help the tier two and three component manufacturers survive this Covid-19 induced economic slowdown, the union government should help create demand in the domestic market which will translate into more business for these entities, said Deepak Jain, president Automotive Component Manufacturers Association of India (ACMA) at Mint’s Pivot or Perish webinar on Thursday.
The automotive sector has been adversely hit by the spread of the Covid-19 pandemic as sales crashed since March.
Vehicle manufacturers and their component suppliers had to close their factories and showrooms from March 22, following the lock down announced by the union and state governments to contain the spread of the Covid-19 pandemic. Auto makers though in the meantime worked with suppliers and dealers to create standard operating procedures (SOPs) that need to be followed once manufacturing and retail operations start.
According to Society of Indian Automobiles Manufacturers (SIAM), sales of vehicles across categories could decline in the range of 25% to 35% due to the current economic slowdown. Vehicle sales dropped by 18% in FY 20 as result of the economic slowdown and increase in vehicle prices because of new safety and emission standards.
“We are seeing green shoots wherever the government has done a direct benefit transfer. If we talk about the agriculture space, the farmers have got better income and Covid-19 is not there in rural areas. So they are buying tractors. In the manufacturing sector availability of cash, labour and raw material will be a problem," said Deepak Jain.
“What we actually need is demand creation and if we compare globally then governments have actually stepped in to create demand. MSMEs will always be running against time but if demand does not kick in then we might actually have to grapple with a much more severe problem."
The automotive industry has been urging the union government stimulate demand through reduction in Goods and Services Tax and introduction of incentive based vehicle scrappage program for vehicle across categories.
After reopening their factories in early May, automakers like Maruti Suzuki India Ltd, Hero MotoCorp Ltd and Bajaj Auto Ltd are eyeing an increase in production to almost 70-80% of the pre-covid-19 level in the coming months due to robust recovery in demand in the rural and semi urban areas.
“For the auto component sector, every crisis has made us more resilient be it 2008 or 2014 but this pandemic is of a different nature. Our current target is to make our shop floors more efficient despite the appreciation in cost. That is the current challenge but we are confident that there will be revival of demand and in rural and farm sectors we have already seen this. Hopefully, in the next 60-90 days we should reach certain sustainable levels," added Jain.
Further implementations of lockdown measures though, is a challenge for auto makers as disruption free functioning of production and retail ecosystems are imperative for their businesses.