Introduction:
India became the fourth largest auto market in 2018 with sales increasing 8.3 percent year-on-year to 3.99 million units. It was the seventh-biggest producer of commercial vehicles in 2018. The Two Wheelers section rules the market as far as volume inferable from a developing middle class and a youthful populace. Additionally, the developing enthusiasm of the organizations in investigating the rural market further helped the development of the segment. India is likewise a noticeable auto exporter and has solid export growth expectations for the not so distant future. Automobile exports grew 14.50 percent during FY19. It is expected to grow at a CAGR of 3.05 percent during 2016-2026.
Market Size:
Overall domestic automobiles sales increased at 6.71 percent CAGR between FY13-19 with 26.27 million vehicles getting sold in FY19. Domestic automobile production increased at 6.96 percent CAGR between FY13-19 with 30.92 million vehicles manufactured within the country in FY19.In FY19, year-on-year growth in domestic sales among all the categories was recorded in commercial vehicles at 17.55 percent followed by 10.27 percent year-on-year growth in the sales of three-wheelers. Automobile exports grew 14.50 percent year-on-year during FY19, while during April-December 2019, overall export increased by 3.9 percent. Premium motorbike sales in India recorded a seven-fold jump in domestic sales reaching 13,982 units during April-September 2019.
The sale of luxury cars stood between 15,000 to 17,000 in the first six months of 2019. Sales of electric two-wheeler’s are estimated to have surpassed 55,000 vehicles in 2017-18 The automobile industry is supported by various factors such as availability of skilled labor at low cost, robust R&D centers, and low-cost steel production. The industry also provides great opportunities for investment and direct and indirect employment to skilled and unskilled labor. Indian automotive industry (including component manufacturing) is anticipated to achieve Rs 16.16-18.18 trillion (US$ 251.4-282.8 billion) by 2026.
Impact of COVID-19 on the sector
The COVID-19 pandemic has pushed humanity and the global economy into a crisis not seen since The Great Depression. In their effort to curb this pandemic, the Indian government, like many others, has enforced a national lockdown. While the lockdown may have helped limit the spread of the virus, it has severely affected the economy, disrupting entire value-chains of most major industries in India. The automotive industry is no different.
The auto sector had just experienced a considerable slowdown in the course of the last 12-18 months. Confronted with declining sales, worldwide political vulnerability, CO2 penalties, and quickly changing customer demand, most vehicle producers have been confronting an ideal tempest of difficulties since 2019—which are mainly driven by Connected, Electric mobility, Shared, and Autonomous. These circumstances have only been exacerbated by the onset of COVID-19, a global pandemic that is affecting every aspect of the automotive sector —from parts suppliers to dealers. A prolonged truncation of consumer demand due to the lockdown is seen significantly affecting revenues and cash flows in the auto sector.
Challenges brought on by COVID-19
COVID-19 is disrupting the global automotive value chain. Here are a few of the key challenges facing the industry, as well as suggestions that can help quickly address them:
Supply chain disruption: Since OEMs depend intensely on just in time production, their supply chains were quickly upset. In China, right around 66% of auto-production was legitimately influenced by the nation’s industrial shutdown, which largely affected their providers also. Moreover, the lack of Chinese-made parts has heavily affected global production.
How to manage now:
Evaluate the risks and create full transparency by using big data, intelligent systems, and connected ecosystems. This communicates shortages or other challenges to all points along the supply chain so they can prepare, adapt, or adjust accordingly.
Mobilize a command center to orchestrate the response and configure the risk response. And all the while, operate with agility.
After the crisis, operate risk mitigation as usual: integrate risk mitigation workflows, scenarios, and (response) protocols into daily operations to quickly switch from normal to disruption response if needed.
Liquidity and working capital crunch: Money is the best—and it turns out to be much increasingly basic during occasions such as these. Some OEMs have low liquidity, and with insignificant working incomes, the rest of the money saves are on normal drained in under two months. This has driven different OEMs to arrange higher credit lines. Besides, the huge drop in showcase capitalization will probably quicken industry combination. What’s more, without making sure about extra financing, a few players chances to leave the business. This budgetary test will affect transformational ventures into associated, self-sufficient, shared, and electric versatility, which is probably going to be conceded.
How to manage now:
Stay in close contact with major banks (e.g. verify credit lines) and establish a working-capital crisis mode that prioritizes payment obligations.
Enter a stage of fixed-costs emergency mode. And consider the usage of AI in treasury management to set up real-time cash flow overview and forecasts.
Furthermore, pay attention to the financial health of suppliers and dealers, as well as partners in general. They are also under financial distress.
Manufacturing comes to a standstill: While the situation in China is starting to stabilize, most of the US and European car manufacturing is under huge uncertainty on when plants will resume normal production. At an equivalent time, OEMs are beginning to shift engineering, assembly, and even procurement capacities to supply and source medical equipment. Regardless of whether the halts are required by health and safety enforcement, legislative inaction, declining demand or a lack of parts in the supply chain, the consequences remain the same: job losses, an anticipated drop of 16 percent for the car creation and henceforth, an extreme effect on GDP.
How to manage now:
Keep in close contact with your suppliers to ensure a quick ramp-up can occur when the market begins to recover and adjust your production levels and schedule accordingly.
Consider increasing precautions to ensure workers’ safety, allowing for physical distancing, and hiring specialized cleaning companies.
Embrace Industrial-IoT-concepts to increase efficiency and prepare (future) shock protocols.
Establish manufacturing resilience to accelerate the shift when ‘emergency mode’ needs to be activated.
A decrease in sales volume: China is as yet the world’s biggest market for light vehicles. The business drop in February 2020 of more than 80 percent in contrast with January is a solid marker of the bearing the worldwide market is going, and the effect is as of now obvious. Figures for worldwide light-vehicle sales in every single significant area anticipate that the market will drop by around 12 percent in 2020, and it is impossible that these conditions will change soon. Sales figures for the US gauge a decrease of 9 percent every year that customers are not buying new vehicles because of the pandemic. Changes in customer behaviour in light of being on “lockdown, for example, not so much mobility but rather more online shopping, may stay after the emergency passes.
How to manage now:
Stay connected with customers via online and mobile channels.
Focus efforts on generating leads through online car customization tools employed by prospective buyers and consider utilizing virtual event platforms to catch up on canceled trade shows.
Consider implementing a contact less sales process to meet health and hygiene safety requirements.
Rethink your sales model for the longer term, embracing digital channels, also as considering direct sales models.
In the post-crisis phase, prices are likely to return under significant pressure as long as dealers will got to reduce their inventories. But evaluate discount policies to balance volume and market share, profitability, and brand image.
Path to recovery
Plan activities to underwrite 
the potential repugnance for shared mobility and public transport (‘push’ marketing for 2W, entry-level 4Ws and used vehicles, ‘in-market’ demo vehicles to support test-drives). Prepare for the spike in after-sales (service on wheels camps for scheduled services). Re-asses up and coming launches and financing offerings (financing plans to handle liquidity crunch). Assess and de-risk supply chain dependencies (indigenization of significant segments; trigger-based emergency courses of action for the whole system). Prepare for an omnichannel sales experience (virtual deals advisors; online deals and advanced documentation). Adopt cleanliness driven procedure and configuration changes (cleansing/fumigation of the vehicle as a feature of workshop administrations and test-drive; plan no-contact client ventures). Explore interchange income choices (prioritize allied products and services – accessories, concierge services). Capture chance to combine activities (partnership/acquisitions to acknowledge collaborations; new wellsprings of funding)
Disturbances
Plan for shifting mobility inclinations of the purchaser (review alliances to concentrate on patterns like alternate assets ownership models). Adopt digitalization of buyer touchpoints (start to finish digitalization of client venture for both sales and services). Explore contributions around the hyper-local delivery model (item and client technique adjusted to the developing interest for home delivery). Redesign procedures to get lean and responsive (low fixed cost plans of action; analytics use to all the more likely structure momentary reaction systems)
Author:
Shubham Mahla: A B.Tech graduate who is currently pursuing his MBA from Institute of Management, Nirma University is associated with J.Hirani as an intern. His keen inclination towards Finance and passion for learning has persuaded him to explore the field with excellent work in research and application tools. His contribution in this article has helped him to develop holistic deep insights.
Guide:
Parth Hirani is leading a strategic advisory practice at J.Hirani & has helped various organizations align strategies across continents. A social & collaborative sapien by nature. He enjoys being a full time “dreamer” & loves challenging “possibilities”.
Success mantra- “We believe it’s possible; while maintaining flexibility on “How” we are “Rigid” on our “Goals”
About J.hirani: J.hirani is a Strategic Transformation team which works as a growth partner for different organisations in various industries by providing services like Agile transformation, Scenario mapping, Strategic alignment, Balance scorecard, Digital transformation, Incubating new ventures, Operation excellence and Aligning human capital.
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