ACMA, today at its 59th Annual Session, announced Deepak Jain, Chairman and Managing Director of Lumax Industries, as its new President. Autocar Professional’s Sumantra B Barooah caught up with him for a quick tete-a-tete.
Firstly, congratulations on becoming ACMA president. What is the scenario in the component industry at present?
The component industry is very much aligned with the OEMs and, obviously, any de-growth in the OEMs directly impacts the component industry. So there is direct co-relation. In the past two days, we have had deliberations where SIAM and ACMA over the reasons for the downturn.
What, according to you, are top three reasons for the downturn?
We have to see it a little bit differently. Also, it is not the first downturn and it’s not going to be the last either. What is different is that this one has been a prolonged downturn because there has been a lot of structural changes that happened. Because structural changes that have happened in economy as well as in industry, the pain has become more (severe).
First, it was demonetisation, then GST, liquidity crunch and CV axle norms. Concurrently, there has been the upgrade from BS IV to BS VI. And vehicle insurance cost has gone up. I think fundamentally, we are aligned by the government's agenda for cleaner, safer vehicles on Indian roads. But so much change has happened that actually a downturn happened. In this scenario, I would say that we need to get back demand on track.
What are the top couple of things that you think can the government intervene with to facilitate a revival of demand?
I think first and foremost once we start saying what the government has done, let’s first look at what industry has done. Industry has gone all out with discounts and giving assurance to the customers. I am very thankful to the government where they have clarified that even the new technology and current technology can compete and co-exist in the same ecosystem. There has been a lot of clarity with BS IV vehicles. I think industry needs to now very quickly educate end customers so that the confusion goes away.
There had been downturns in 2008-09 and 2013-14 of cyclical nature and the government at that time had to intervene. Hence we have been requesting. We have had deliberations with Finance Minister Nirmala Sitharaman, who was very patient and responsive. In two weeks she came out with a plan because she recognises the automobile industry is going through lot of pain which is critical for the growth of economy. We have requested her and I am sure that with the next council meet something positive will come out.
As the component industry’s growth is in line with OEMs, its plant utilisation must have also come down significantly. What level has it come down to? Also, do you see a lot of deferment in fresh investments including at Lumax Industries?
Let me give you a bit of different analogy first. About 18 months ago, industry was performing at high double-digits. And in that a manufacturing setup once we reach 90-95% of capacity utilisation, then you expand and reach the threshold of 100-120 percent. Now, what happens is unfortunately no one saw the downturn. Everyone expanded fast and this 90-95% level has actually dropped to about 70-75% because of 10-15% de-growth. You are now sitting on the capacity of 100-120 percent. So, basically the industry is getting hurt. The fixed cost has also gone up.
And how is it in terms of investment deferment?
Obviously with every company sitting on 60% utilisation and 40% free capacity, we will differ any investment for capacity expansion. First thing is to fill the capacity and as I said government and everyone is aligned on how to get back the demand.
What is your growth outlook for the component industry in FY2020. Last year, it was 14.5% overall?
I think it is too early to say. Obviously, growth for the domestic component industry will not be in double-digits for sure. The only thing is from the volume perspective, it is not positive. But we have to see that BS VI is coming and also there is a technology shift which is happening. Because of the technology, value will get added. I am hoping that it does not slip into negative.
In your new role as ACMA president, what would be the top three priorities for you?
Given the current environment, I want ACMA to be more inclusive and also want it to be more responsive and more engaged with all stakeholders, government of India, OEMs and of course our members. These are the three top priorities. Unitedly, we can come out more resiliently from the downturn.
The ‘united together’ approach – do you think will be necessary to prepare the industry for EVs because unlike the OEMs there are lot of fence-sitters in the component industry barring the few Tier 1s?
Let’s look at mobility solutions and future mobility. Let the market forces decide. Of course, we are committed to the national agenda of the government for energy security, lesser pollution and safer vehicle ride. On the EV front, I think very clearly we need a united front. What can we do best? Every company will have its own strategy. A technologically agnostic approach is required so that it eventually leads to the same goal of safer and cleaner vehicles.
There are many players in the ecosystem and are existing in a country as diverse as India. They are also in the same auto industry which has so many forms of mobility. So I think let everyone coexist. There is room for everyone.