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The next three months are going to be crucial for the automobile industry. While on the one hand the industry is upgrading itself with BS-VI engines, on the other, consumers may be forced to pay more because of the impact of the coronavirus.
According to various sources and analysts in the industry, companies are updating themselves, taking stock of the situation among their suppliers twice or even thrice a day.
“While we do not have any problem right now at our end, there are concerns around Tier-II, -III suppliers and we are monitoring the situation on a daily basis. Even a small part from a third-party company may become an issue if we do not have that in stock. However, as we have other vendors from our global supply chain, we do not see any issue in the short-term,” said an executive of a leading automobile manufacturer.
Recently, companies such as Mahindra & Mahindra and MG Motor India said that if the shutdown of the factories in China continued for another few days, the Indian supply chain could get affected, which in turn would delay rollout of products.
Commercial vehicle maker Ashok Leyland has said that there won’t be any major impact if the supply starts moving out of China.
Impact on Tier-I suppliers
“While we do not have any direct suppliers, some of our Tier-I suppliers will be kind of impacted. As of now, whatever we have understood, if everything happens as per that plan and materials start moving out from China, it should not have a major impact,” Anuj Kathuria, Chief Operating Officer, Ashok Leyland, said.
Stressing the global automotive industry’s dependence on China, he said, “Today, the entire auto industry throughout the world has something or the other coming from China. There is a dependence on China.”
The prolonged shutdown of the Chinese automobile and parts factories have led to worries among the global original equipment manufacturers (OEMs) as many crucial components come from there. In India too, for instance, maximum number of sun-roof panels come from China for a majority of OEMs, including the luxury car-makers.
ICRA report
A recent ICRA report also said that the automotive industry is likely to be impacted due to the recent outbreak of coronavirus (COVID-19) across China and neighbouring countries in South-East Asia.
These countries play a critical role in the automotive supply-chain and domestic OEMs source critical components and sub-components including fuel injection pumps, EGR modules, electronic components, turbo chargers, airbag components and many more from these markets, which in turn directly or indirectly depend on China.
“Since China accounts for 27 per cent of India’s auto component imports valued at $4.8 billion, the automotive supply-chain could get disrupted if the manufacturing activities in China continue to remain impacted owing to the coronavirus outbreak. The impact is estimated to be higher for high value-added and customised components, while commoditised products could shift to alternative suppliers,” Shamsher Dewan, Vice-President — Corporate Sector Ratings, ICRA, said. The disruption in supply of certain critical components sourced from China will have differential impact on passenger vehicle, two-wheeler and commercial vehicle segments, he said.
“Moreover, given that OEMs are currently in the period of transitioning to BS-VI production, disruption in supply of critical components required for the same has the potential to impact smooth transition to new emission norms,” Dewan added. According to Puneet Gupta, Associate Director at IHS Markit, the ultimate result of all these issues will come down to customers buying new vehicles at higher prices in the near future.
“Already we are seeing erosion of profits due to increase in freight cost. For example, there is abrupt hike in freight cost of more than three times in the last two weeks (from $500 earlier to $15,00-1,600 now). The car manufacturers or suppliers may only be able to absorb the cost for sometime. We may also see price hike in parts as there is accumulation in demand and source suppliers from China are expected to deploy extra resources, which mean additional costs,” he said.
In China, there is a 92 per cent decline in car sales in February, according to reports.
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