Omicron Overhang

by Mayank Dhingra and Nilesh Wadhwa 18 Jan 2022


If there is one thing that automakers are worried about, it is the reality of mass absenteeism happening in plants and offices. The Omicron variant is so infectious that it is pretty much putting entire families on the mat for a week. 

As a top industry CEO says, “It spread like wildfire within our family in no time. The problem is that you are so tired after that and this lasts some days even after you have recovered and tested negative for the virus.” This reality is the biggest challenge that companies face right now even while the big relief is that Omicron  is not as dangerous as the Delta variant. 

As Deepak Jain, Chairman and Managing Director of Lumax Industries says, “The high rate of disease transmission in the third wave could lead to higher absenteeism on the assembly line which could lead to supply chain disruptions. Memories of the devastation in the second wave are still afresh, and there is anxiety and apprehension in the workforce. Even our suppliers are facing similar problems already.”

It is the fear factor that is keeping people in a perennial state of anxiety and this is not completely unjustified either given that daily cases are shooting through the roof. It may well be over half a million infections happening already given that not everybody has had themselves tested and simply ignored the relatively mild symptoms. The medical fraternity has, however, cautioned that it would be foolish to take Omicron lightly more so when a whole lot of doctors and nurses have also been infected.

“When caregivers are unwell, who is then going to take care of those hospitalised? With reports doing the rounds of people also succumbing to the virus, it is spreading a lot of anxiety among families,” adds the CEO. 

Note of caution
Shashank Srivastava, Senior Executive Director, Marketing and Sales, Maruti Suzuki, sounds a note of caution. “If cases were to rise further, this could lead to another disruption in the automotive industry.” Yet it is not all doom and gloom as he quickly clarifies. 
“At Maruti Suzuki, we are hopeful that in case the third wave brings a third disruption in as many years, the bounce back could also be faster than earlier given that there have been good learnings in terms of strategies to maintain business continuity.”

As Srivastava says, after the first wave-led disruption, it took the company around 90 days to return to its daily production cycle of around 6,000 cars a day. This reduced dramatically to 18 days after the second disruption. 
“We are taking all necessary precautions to minimise the impact on our workforce and avoid production disruption. There is no supply chain disruption yet but consumer sentiment may be dampened in some parts leading to delays in purchase decisions,“ he adds.

Vinnie Mehta, Director General of ACMA, believes panic has not set in yet largely owing to the fact that having gone through two waves of the pandemic, “the good thing is that protocols are ready with the industry”.

There is also little possibility of diktats coming in from state governments to mandatorily shut down plants unless the worst case scenario happens and infections reach dizzy and dangerous levels where the entire medical infrastructure comes under immense pressure.

Yet, continues Mehta, the industry is keeping its fingers crossed as FY2022 “has not really been a great year with all the supply chain challenges".

The good news is that component makers are not cutting back production as OEMs, especially car and truck players, are back on track with the global chip shortage improving slightly. 

"Unlike a few months ago, when the chip problem was at its peak, the situation has improved with the complete resumption of production at Malaysian chip fabrication units. However, we are nowhere out of the woods and the problem will likely continue through the most part of 2022 as well. OEMs with larger volumes will continue to be in a better position to negotiate with chip manufacturers," says Mehta.

Jain of Lumax also has his take on the issue. “Although our customers have not cut back their production schedules yet, we are being cautious. As on date, we do not see any new upheavals in the global supply chain and have placed large orders for procuring raw material. But if the Omicron wave does get prolonged globally, the supply chain could get further impacted.” 

As he explains, past experience has shown that the infection wave follows a uniform curve in terms of the number of cases going up and then coming down. “I believe with the Omicron strain, the third wave should be short-lived and we are factoring that in our business continuity plan,” says Jain.

He agrees with Mehta’s view that there has been a gradual improvement on the semiconductor front leading to better and firmer orders from customers. Will the virus wreak havoc in this area too given that Malaysia had earlier imposed lockdowns during the second wave and chip supplies were hit in the process? “While the chip shortage is here to stay for a while, I am not really sure how Omicron would impact it further,” responds Jain. 
The silver lining in the cloud is that while demand could be impacted with stiff curbs now in place across public places like malls and showrooms, past experience has also shown that whenever the market opens up, there is the inevitable burst of pent-up demand. 

“At the state level, governments have been very clear that industrial activity is not going to stop. We are pretty confident that industrial activities will continue and they will not be hindered,” says the Lumax chief. 

Manpower issues

Vasanth Kamath, President, Brose India, is of the view that there are several challenges ahead in this time period. “When we talk specifically about the rise of Omicron, the biggest (challenge) I see is the ability to run factories and freight services, due to labour shortages.” 
The manpower issue, in turn, could happen due to people not being able to work for a host of different factors such as “effectiveness of vaccine against the variant, spending time in quarantine or local government restrictions that are implemented”. This, in short, is the fear of absenteeism that was highlighted earlier in this story.

Kamath also believes that the passenger vehicle industry will weather the storm while two-wheelers will see “a muted recovery”. According to him, chip supplies will improve after the first half of the year though when it comes to complete stability, “we will not see this in the short term”.

The electric space is also gearing up for the huge uncertainties following the Omicron wave though the challenges are quite different. Uday Narang, Founder and Chairman, Omega Seiki Mobility, admits that the virus spread will be “massive” and could have its fallout in the process in terms of a slowdown in business activity. 
Despite this grim backdrop, he is of the view that it is important to remain “flexible and positive…one has to change with time”. The positive side is that there is going to be “a lot more happening around the electric revolution” which means his company will also benefit in the process. 

“FY2023 will be a very strong year and I think this pandemic situation is here for a very short-term. It will last for a little more than a month and as the number of fatalities is low, the rebound will be very high,” says Narang. 

According to Samkit Shah, co-founder, Jitendra EV Tech, this is a crucial phase where it becomes very difficult to predict any outcome with certainty. What will positively happen though is that “mobility is unavoidable” which means customers are going to seek a lot of options. He is also worried that the Omicron spread could hit growth and fears of lockdowns may cause buying decisions to be deferred.

What comes through from these different voices in industry is that there is really no reason to panic — more so when almost all their  employees have been vaccinated twice and are safer in contrast. Sure, this is not going to keep them completely isolated from Omicron which has proved that nobody is invincible but at least they do not have to be hospitalised. 

Safety protocols

Companies have also gone the extra mile in ensuring safety protocols at plants and the lessons learnt from the first two waves have been invaluable. “The first time Covid-19 hit us, nobody knew what this animal was about. There was a lot of panic when the Centre went in for its first lowdown in early 2020,” recalls an auto industry executive.

This was the time the labour exodus happened and millions of people trudged back on foot from cities back home to their towns and villages. It was a gut wrenching sight to see these helpless faces walk hundreds of miles while a lucky few got rides in trucks but only after coughing up big bucks. The tragedy was that even during an adversity, truck drivers were in a mood to be charitable. Perhaps they also realised that this was a way of making money in a bleak scenario where they had lost plenty too.

Since those horrific days, there has been a sense of calmer acceptance among industry stakeholders that Covid is here to stay. The second wave was deadly and families lost their key breadwinners in the process. There was a tremendous sense of loss and desolation all around but quite unsurprisingly people were back on their feet.
“The biggest strength about India lies in the resilience of its people,” says an industry official. More specifically, this has to do with the fact that there is a sense of stoicism when it comes to tragedies like deaths where people realise that it is time to move on especially when they have to fend for themselves.

Right now, there have been huge job losses across industries and even in the automotive space smaller ancillary suppliers have been facing hard times. They are financially fragile compared to their bigger counterparts in the Tier 1 space and need to be extra cautious at a time when material costs are going through the roof.

All this puts in context why the show must go on even while Omicron is on the rampage — it effectively answers the lives vs livelihoods debate. People have their backs to the wall and need money to survive which means they just need to get back to work and keep their fingers crossed about the virus not turning ugly.

Budget expectations
The auto industry will also be hoping for some good news from the Budget on February 1 even though almost everyone has reconciled to the fact that there will be nothing dramatic on the GST front. This is understandable since it is the GST Council that meets and decides on tinkering around with tariff levels. Yet, the fact that there are important assembly elections means that freebies will be par for the course especially across rural India.

If this prompts more spending, this is the best thing that could happen to the auto industry because the lack of it is what is dampening demand today especially in the two-wheeler space. When there is more disposable income, consumers will be more generous in loosening their purse strings. When this happens, sales of two-wheelers and compact cars will soar. 

It is this kind of impetus that will also encourage manufacturers to invest in capacity in order to meet growing demand. This will then be accompanied by creation of more jobs and a fillip to manufacturing GDP. Hopefully, this will play out on the desired lines for customers to get out of the despair of Omicron and start buying bikes and cars all over again with a vengeance. 
With inputs from Murali Gopalan

This feature was first published in Autocar Professional's January 15, 2022 issue.

 


magazine image

Latest Auto industry updates and news articles