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Auto industry crippled as Covid-19 terrorises the world

Murali Gopalan | Updated on March 19, 2020 Published on March 19, 2020

The auto industry has already factored in the grim reality that growth will be little to write home about in the April-September period   -  REUTERS

India has added problems on its plate, such as unsold BS-IV stocks

The Ides of March is one of the most famous lines from William Shakespeare’s masterpiece, Julius Caesar.

It is a warning from an astrologer to the Roman emperor (‘Caesar, Beware the Ides of March!) that he had better be careful on that day. And even while Caesar dismisses this as a mere rant, he ends up being assassinated on precisely the same date, March 15, way back in 44 BC.

Cut to the present and the automotive industry finds itself in the same Ides of March situation. The month has been traumatic with every passing day bringing in grimmer news to the world. Quite unlike the horde of conspirators who killed Julius Caesar over 2,000 years ago, this is a sole assassin going by the name of Covid-19 that has single-handedly brought the world down to its knees.

Big brands like Volkswagen, Fiat Chrysler, BMW, Daimler, Groupe PSA, Renault and Toyota have cut back operations in Europe, which is now facing the brunt of this new coronavirus pandemic. Italy and Spain have been the worst affected while France is preparing for a tough haul ahead.

As humanity finds itself at its most vulnerable levels in recent times with the death toll from Covid-19 rising across the world, economies have virtually collapsed. Never before has anything like this ever been experienced when all the advancements in science cannot cope with this invisible terror that has people locked indoors in complete paranoia.

While industries like aviation and hotels have been the worst hit with planes and rooms going empty, the auto industry is also facing the heat. In Europe and the US, where Covid-19 is wreaking havoc, the last place people want to go to is a crowded car dealership.

China, where the story began some months ago, has apparently managed to keep things in check, at least for now. February car sales were down by over 80 per cent and March is going to be no different, with people just beginning to head back to work.

The Chinese slowdown

China, in any case, was going through an economic slowdown and when Covid-19 reared its lethal head in Wuhan, alarm bells began ringing. Across the world, automakers had invested big bucks in the country and, almost overnight, they found themselves skating on thin ice. Supply of components dried up and the likes of Hyundai had to shut down operations for a while with its Chinese umbilical chord cut off abruptly.

Worse, as Covid-19 now spreads to Europe and the US, economic growth has come to a virtual standstill. For the auto industry, it also means that the supply chain ecosystem is now in pause mode. Borders are sealed and the top priority for all companies is quite naturally to take care of their employees and ensure that they are safe.

India has not been spared either and even while the Bharat Stage-VI emissions era is due to kick off in barely 10 days from now, stakeholders are a worried lot. From their point of view, everything is coming together at one go and threatening to throw things out of gear.

Decline in footfalls

With Covid-19 constantly in the news and various State governments announcing lockdown measures, footfalls at dealerships have naturally reduced drastically. This means poor offtake and comes at a time when there are substantial BS-IV two-wheeler stocks lying unsold.

It is only too well known that these will be as good as junk from April 1 when the new emission norms come into play. However, what has compounded the industry’s woes is that many State RTOs have drawn up earlier registration cutoff dates ranging from late-February to mid-March. Hardly a handful of them have complied by the Supreme Court’s directive of March 31 as the last date.

It is only natural therefore that the court’s intervention has been sought again to resolve this crisis since unsold stocks will end up being a huge burden on dealers. Manufacturers could consider exporting these to countries which are still in the BS-IV zone but it is not as if this can be done overnight.

In fact, this seems almost an impossible task at this point in time with the world now hostage to Covid-19. Every country has locked itself out and till the crisis blows over, there is no way that overseas shipments can even be contemplated.

Whether the court will agree to extend the registration deadline for BS-IV stocks remain to be seen even while industry experts insist that this is “highly unlikely and next to impossible”.

Job losses

Even while India has also been doing its bit to curb the spread of Covid-19, it is all too clear that growth has been severely impacted. Should the situation persist longer, it will end up being catastrophic especially in terms of job losses.

The auto industry has seen this happening over the last year due to the economic slowdown which has only worsened thanks to Covid-19. Layoffs were already the norm for a large part of 2019 across the chain of vehicle manufacturers, suppliers and dealers. The numbers will only grow if the virus menace continues to spread in the coming months.

However, if things do not really get out of hand and everything is back to normal by mid-April, it is not as if growth will magically take off in a big way overnight with everything in ruins. There is no question that the Centre will need to play its part and offer a huge fiscal stimulus to get key sectors back on track.

The top priority would need to be driving up consumption levels again and this cannot happen when people have lost their jobs. The hospitality industry, in particular, could see the biggest bloodbath and it is imperative that stakeholders here are not left in the lurch.

The auto industry had already factored in the grim reality that growth would be little to write home about in the April-September period. Manufacturers were pragmatic enough to know that customers would take time getting used to a pricier regime in BS-VI, more so when buying sentiment has already been lacklustre for many months now.

In B2B segments like heavy commercial vehicles, there were fears that some fleet operators would shut down operations since businesses would no longer be viable. In a worst case scenario, manufacturers reckoned that plant capacities for truck makers would be down by 60 per cent from 2018 levels.

Clearly, things are going to be a lot more complicated now with Covid-19, especially with no indication when the menace will completely disappear from the landscape. The collapse of China and Europe also means that sourcing of key components for BS-VI vehicles will also be impacted.

Going forward

When this sordid saga ends, the most important task on hand is to create some buoyancy in the market and bring customers back to showrooms.

This is where the Centre needs to play a big role; it did this remarkably well during the Lehman crisis a decade earlier. There are lessons to be learnt and emulated from that experience.

Published on March 19, 2020
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