This has truly been the most volatile decade for the global automotive industry. And things are not going to get any better for a while now as new challenges emerge across the landscape.

As an industry expert wryly remarks, “Till not-so-long ago, traditional wars were the biggest threat to humankind and economic prosperity. Today, trade wars can inflict far greater damage.” He is absolutely spot on when one just has to evaluate the impact of the US-China spat on tariffs even while efforts are on to rebuild relations.

Who would have thought that the world’s largest automobile market would face its biggest slowdown in recent times? For years now, China seemed almost invincible but is today grappling with the reality of customers not buying cars (among other things).

The dream run of posting astonishing GDP figures for years has now given way to a sobering reality that the good times are history. Sure, China is still comfortably ahead of the world’s second largest market, the US, but that is of little solace to automakers investing in the country.

El Dorado no more

Till some time ago, the country represented a virtual El Dorado and the destination for industry to make big bucks. That euphoria has been replaced by cautious optimism with the slowdown not likely to disappear in a hurry. China, to its credit, has moved quickly ahead with its efforts in electrification, which may well place it as the pivot of the automotive world for many years to come.

When the decade began, the world had been badly bruised by the Lehman crisis of 2008 and big automotive brands faced the heat like never before. Chrysler, for instance, went bust and Fiat wasted little time in snapping it up to emerge as a stronger entity in the form of Fiat Chrysler Automobiles (FCA).

General Motors’ valuable Chinese ally, SAIC Motor Corp, played an important role in its recovery, especially for markets like India. The irony is that GM brought down the shutters on its operations here subsequently while SAIC took over its Gujarat plant but that is another story altogether.

The Lehman aftermath also saw Peugeot Citroen scrap its India plans while giving top priority to its very survival globally. A hurried alliance with GM did little to bolster its fortunes and it required another Chinese entity, Dongfeng Motor, to throw a lifeline to Peugeot.

It was clear that the global automotive industry would now look at consolidation as the way forward even while heaving a sigh of relief that the worst was behind them now. Well, manufacturers were in for a nasty surprise when the UK voted for exiting the European Union in what is now more commonly referred to as Brexit.

Perils of Brexit

The roller-coaster ride has been on since the referendum as political tumult broke out in Britain along with stress for the business community. Carmakers such as Jaguar Land Rover, BMW, Toyota, Nissan and a host of others were quick to warn of the perils of Brexit since this would mean that their businesses would become unprofitable overnight.

After all, an exit leads to import tariffs on both ends, which means that components shipped into Britain would face a tax levy as would fully built up cars (and components) exported from there to other parts of the world. The grim reality of Brexit was now crystal clear in the form of factory closures and potentially huge layoffs.

Some big brands have already announced their intent to shut shop in the UK while others will stay on, at least for now. The comforting news is that there is likely to be a more favourable deal with the EU even as Britain gets set to move on with its divorce.

Brazil is the other big market that promised plenty till recently, but its growth script went completely awry thanks to economic headwinds. This was the same country which became a case study of sorts in the 1990s for Fiat, which blazed a trail with Project 178.

Stakeholders in the auto industry believe that Brazil is gradually on its recovery path even while countries like Argentina pose concern. Clearly, Latin America has been hit badly for a good part of this decade and the revival process is going to be slow and painful.

The lone bright star

Europe has been a bright star in this otherwise gloomy scenario (the US is still going strong) thanks largely to robust markets like Germany and France. Yet, there is a fair degree of apprehension among industry circles that a slowdown is imminent even there. Should that emerge a reality, it will end up being an added burden to manufacturers already bogged down with the challenges of making huge investments in technology to meet tighter emission norms.

The India story

Closer home, India has been facing the heat, too, with no signs of the slowdown likely to abate. Sales of cars, trucks and two-wheelers have been falling for months now accompanied by substantial layoffs, especially with contract labour in plants.

Beyond manufacturers, the supporting supply chain ecosystem has also been affected as tier-2 and -3 component makers and dealers struggle to stay afloat. A whole lot of dealerships have closed, which means that jobs have also been lost in the process. Access to finance has become yet another challenge thanks to the fact that NBFCs have virtually stopped lending. The IL&FS crisis did little to improve the situation and recent cases of bank frauds have also resulted in lenders becoming extra cautious. With liquidity drying up, there is really little that entrepreneurs can do in terms of fresh investments.

The industry already has its work cut out in terms of adhering to the Bharat Stage-VI emissions deadline which come into effect from April 1, 2020. Companies have spent huge sums of money for this transition, which will see India move directly from BS-IV to BS-VI. New technology will, of course, not come in cheap and customers will have to pay more for their cleaner vehicles.

The fact that this is happening in the midst of a slowdown is not going to make it any easier for manufacturers who have already factored in for tepid sales for the first half of 2020-21. Many of them are optimistic that a recovery will happen thereafter though there is no real basis to support this optimism. The grim reality is that difficult times are going to persist in India for at least the next six-eight months which could only result in greater manpower reduction across the automotive ecosystem. As more and more people are rendered jobless, social tensions are bound to arise leading to crime and lockouts. How the country manages to cope with this inevitable upheaval is the million dollar question.

Need for policy push

The key is to ensure all support to the industry and this is where the Centre will need to play an important role. Moves are already afoot for fiscal sops to electric vehicles but the greater task on hand is to bring the economy back on track. The way forward is to boost consumer sentiment which can come about with slashes in income-tax levels and the like.

Further, say industry sources, India should refrain from ad hoc decisions when it comes to policy announcements. The recent move by the Centre’s think-tank, the NITI Aayog, to proclaim that all sub-150cc motorcycles should go electric by 2025 was one such instance.

For an industry that is already grappling with the BS-VI challenge, this was an over-the-top proposal which was fortunately nipped in the bud. Electric is welcome as a clean fuel option but there is really no point putting the cart before the horse, especially when issues on charging infrastructure need to be addressed first.

The reality of foul air cannot be wished away but the best way to do this is for the Centre and the auto industry to work together. This is particularly important since legislation will play a role in the entire clean-up exercise. There is no telling when the legal system will intervene on issues as in the case of the Delhi diesel ban on SUVs.

As an auto CEO says, “We need to constantly be on guard for abrupt announcements and intervention by the law, especially for environment-related issues.”

The Volkswagen diesel scam of 2015 caused an avalanche-like effect for the auto industry and its credibility in Europe took a beating as a result. The following decade will see the green lobby and legislation play a far more aggressive role in terms of vigilance on the auto sector.

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