Source: The Economic Times, Mar 24, 2020
Mumbai | New Delhi: The automotive industry is expecting a loss of 7.5 lakh units in production and $2 billion in revenue in March alone because of the lockdowns to combat the Covid-19 outbreak. Despite the tough business environment, several automakers ET spoke to said they would not lay off any permanent or temporary workers. The government has also told India Inc to not cut jobs or salaries.
Production has come to almost a standstill, as state governments have imposed lockdowns and companies themselves shut their factories to help break the chain of the coronavirus outbreak. Since these measures will remain in place at least until the end of March, companies are sure to lose a third of the output for the month. And, more than half a dozen industry executives and experts ET spoke to said even an improvement in the Covid-19 situation wouldn’t bring much respite to the industry in April as it would take a while for consumer confidence to become normal.
Mahindra & Mahindra managing director Pawan Goenka said pretty much everything would be shut down in the coming few days. “These are unusual times and we need to conserve cash, and Mahindra is looking at multiple ways to deal with the situation,” he said.
“One really does not know when things will return to normal. But going by the experience of China, Korea and other markets, at least a month of business is likely to be disrupted,” he said. “There will be a period of time when companies won’t be generating revenue and there will be some level of fixed expense that is incurred and that will drain the P&L for everyone. Nobody is spared.”
Tata Motors was the first to announce, on Friday, that it was shutting several plants. It was followed by Mahindra, Maruti Suzuki, Hyundai Motor India and Toyota Kirloskar on Sunday. Kia Motors, Renault Nissan Alliance, Yamaha Motor and TVS Motor from the southern automotive belt on Monday said they too would suspend production. Suzuki Motor Gujarat also announced shutdown from Monday.
Toyota Kirloskar Motor senior vice-president Naveen Soni said the local administration in Bidadi, Karnataka, had permitted operations at its plant with 50% staff on alternate days. But given the gravity of the situation, the company voluntarily decided to halt manufacturing operations completely till further notice, he said.
Dealerships are also shut in districts that are under lockdown. Those elsewhere are getting few visitors, said industry executives.
Crisil Research director Hetal Gandhi said production shut down might continue well into the first quarter of fiscal 2021 staring April, as sentiment remained weak. “We expect the Q1 to be a washout for the industry and we don’t expect the market to recover in the next financial year. Given the environment, at best, passenger vehicles and two-wheelers may register flattish growth. However, commercial vehicles will continue to decline next financial year,” added Gandhi.
The estimated production shortfall in March includes more than 1 lakh cars, 12,000-15,000 trucks and over a half-million two-wheelers, said several people tracking the sector.
While sales are usually high in March for the automotive industry, it was different this time even before the current situation arose. Production was estimated to be 1.8-1.9 million units across segments this month as against 2.1 million units produced a year earlier, as companies were preparing for the transition to Bharat Stage-VI emission standards that come into effect on April 1. Automakers were also facing shortage of components from China, where factories were shut for much of January and February due to the corona virus outbreak.