Home >Industry >Manufacturing >Lockdown: Auto firms resume biz but just-in-time production model under strain
In the next six months, automakers are likely to keep utilization levels low due to lack of demand in the market and high stocks with dealers
In the next six months, automakers are likely to keep utilization levels low due to lack of demand in the market and high stocks with dealers

Lockdown: Auto firms resume biz but just-in-time production model under strain

  • Most vehicle makers plan to gradually increase utilisation in the next few months but poor demand might become an impediment
  • With dwindling capacity utilisation, continuing with production might even become unsustainable for some companies and their vendors

NEW DELHI: As automobile manufacturing companies and their component makers start production after a long hiatus, the just-in-time model of production has come under immense pressure due to lockdown in several parts of the countries, non-availability of labourers and curbs on inter-state movement of vehicles.

As part of the just-in-time production model, car makers, to reduce costs, do not keep spare parts with them. The vendors supply on an hourly basis depending on the number of vehicles to be assembled by a particular manufacturer on a given day.

Most vehicle manufacturers, which have started production, have been utilizing just 20-30% of the capacity or even less in May, according to industry experts. Most of them plan to gradually increase utilisation in the next few months but poor demand might become an impediment.

With dwindling capacity utilisation, continuing with production might even become unsustainable for some companies and their vendors.

According to a senior executive of a leading auto maker, most companies will take 14 days to figure out how to start manufacturing with the increasing safety measures in place.

“This was a unique experience for production staff since they haven’t been in a similar situation before and in the first day of production hardly three or four cars could be manufactured. The entire production ecosystem needs to work seamlessly for making vehicles," added the person mentioned above requesting not to be named.

Car makers had to close their factories from 22 March, following the lockdown announced by the union and state governments to contain the spread of the covid-19 pandemic. The companies, in the meantime, were working with their suppliers to create standard operating procedures (SOPs) that need to be followed once manufacturing starts.

“After almost zero sales in April 20 due to the complete lockdown, the Indian auto industry has restarted operations (both plants and dealerships) partially, even as it adheres to new operating norms. For April, most OEMs’ plants were operating at less than average utilization while less than 50% of the dealer outlets were operational (except tractors which had 60-70% operational dealerships)," said analysts of Motilal Oswal in a report.

With state borders closed due to lockdown measures, OEMs also faced pressure while procuring parts from its suppliers. For instance, a lot of Pune-based auto component manufacturers send parts to OEMs based in the National Capital Region. With the lockdown measures in place, these suppliers could not send their parts beyond their states. In some cases, some of the Chakan-based component manufacturers could not even start their respective manufacturing companies.

In the next six months, automakers are likely to keep utilization levels lower due to lack of demand in the market and high stocks with dealers.

“The near-term demand outlook is weak as we see gradual restoration of normalcy post lifting of the lockdown. We hope for gradual recovery from 2HFY21, which should be led by the festive season," added analysts of Motilal in the report mentioned above.

“This new way of manufacturing vehicles and the sanitization efforts that have taken place is quite cumbersome. It is difficult to keep maintaining distance in the shop floors but every car maker is trying their best. Same is the situation with the suppliers as well," said another senior executive of a different vehicle maker.

The sanitization efforts and safety precautions in place have also led to increase in cost of production, he added.

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