Auto companies head for zero sales in April, a first for industry

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Mumbai: The Indian automobile industry is set to post almost zero sales in April — the first time in its history — as factories and dealerships are shut due to the nationwide lockdown.

RC Bhargava of Maruti Suzuki, Venu Srinivasan of TVS Motor, Mahindra & Mahindra’s Pawan Goenka and other industry leaders ET spoke to aren’t expecting much improvement in sales next month as well, and have warned of a prolonged crisis in the sector because of the impact of Covid-19 on the economy and consumer sentiment. They, however, expect a shift in the way the industry functions, with companies likely working with lean inventory as was the practice in the olden days.

“While the month of May looks bleak and still uncertain, (beyond that) it will depend on how the Covid virus progresses,” Maruti Suzuki chairman Bhargava said.

Ecosystem not Ready

Automakers’ troubles will weigh on the overall economy as well.

The sector employs more than 40 million people directly or indirectly, as well as contributes over 8% to the country’s GDP and 15% to the government’s tax collection.

The government has allowed factories outside Covid-19 hotspots to start operations last week, but automakers have yet to restart their plants as they are waiting for the ecosystem of suppliers, dealers and financiers also to open for business. Even if the shutdown ends in early May, in the best-case scenario they would be able to start even partial production only by mid-May, said an industry executive.

TVS Motors chairman Venu Srinivasan said the auto industry needed to go the Japanese way of just-in-time manufacturing and use more local components, as it would reduce the risk for the future. Just-in-time manufacturing would mean keeping a minimum inventory.

“What we need to do is to give tremendous thrust to local content and ensure that our suppliers are present within a radius of 20 kilometres,” he said. “This will mitigate any potential supply chain disruption.”

Automakers can hold inventory only for 6-7 days and cannot function if the entire country is not opened up, said industry executives. But their top sourcing bases such as Pune, Gurgaon-Manesar and Chennaiare facing a grim Covid-19 situation and, as per reports, are unlikely to end the lockdown in early May.

Also, parts suppliers in states like Tamil Nadu, Telangana, Karnataka, Maharashtra and Uttar Pradesh too must return to normal operations for the automakers to resume continuous production, said the CEO of a leading automotive parts supplier.

It would be an achievement if the industry is back to running in about three months, including putting the supply chain in order and resuming dealer dispatches, said Pawan Goenka, the managing director of Mahindra.

Society of Indian Automobile Manufacturers president Rajan Wadhera has suggested opening of the market in phases. “We must begin by opening dealers in semi urban/rural areas, to start selling motorcycles, three-wheelers and small commercial vehicles to start the cash cycle,” he said.

Meanwhile, almost all automakers have worked out a detailed standard operating process for a safe start of operations.

“Safety is the new dimension to business post Covid-19,” said Bhargava. “Safety of employees was always an important parameter, now it’s become top most priority and is part of the protocols and systems.”

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