Continuing headwinds for India Auto Inc could mean huge job losses: ACMA

The automotive component sector may see huge job losses if the automobile sector continues to face headwinds due to lack of demand amid the coronavirus pandemic, apex component supplier body Automotive Component Manufacturers Association of India (ACMA) has said.

The auto component industry, which employs around five million, saw its sales decline by 18 percent last year. This year, given the existing market situation, demand is expected to contract between 20 percent to 40 percent.

With muted demand and excess capacities already in place, the auto component makers would have to cut down on its workforce in order to keep their businesses afloat, the industry body said.

"Till demand is back, there will be concerns about financial stress, job losses and liquidity management. These concerns will remain and only go away when we are back to normal," ACMA president Deepak Jain told PTI.

Even if the companies resume work fully they will not require that much of workforce due to muted demand in the market, he said.

"So, in such a scenario, even if we don''t like, there would be job losses. It is temporary workforce right now but if demand doesn’t pick up it could be others as well," noted Jain.

He added that the auto industry body SIAM has already predicted an annual downturn of 35-40 per cent due to the COVID-19 pandemic. "So in that case, in two years, you are reducing 50 percent and if that is the case, if demand generation does not come through, or there is support on demand generation, then definitely there will be contraction in jobs as well," pointed out Jain.

"There is excess capacity and hence there is no point in expanding capacities right now," Jain said, when asked if the auto component companies plan to curtail investments due to the current situation.

The auto component industry is one of the top five stressed sectors right now, along with hospitality, aviation and construction.

"We were already going through 15 month of downturn, so when we got into this coronavirus pandemic we were not in the best of financial health," said Jain.

ACMA has around 850 companies as members who contribute more than 90 percent of the industry’s turnover in the organised sector. The turnover of the auto component industry is currently pegged at around US$ 57 billion, contributing 2.3 percent to India''s GDP.

Commenting on likely steps the government can take to revive demand in the domestic automotive market, Jain said: "As an auto industry we have been having a long-pending demand on rationalisation of GST. We are also hoping that the scrappage policy comes through".

Besides, in order to boost demand, there should be priority lending on auto loans, and auto dealers and service stations should be included under the MSME Act, he added.

Similarly, ACMA director-general Vinnie Mehta said while some of the issues of the MSMEs have been addressed though the recent announcements, the larger enterprises, which create bulk of the employment, continue to face significant working capital crunch. It would indeed be a great gesture on part of the government if it could support the industry by paying a certain proportion of wages and salaries of our employees," he added.

Governments across the world, be it Germany, or Japan or the US have supported their industry on this account, said Mehta. "I fear that with little or no production, the industry would be forced to lay off employees, and with a bleak economic situation, this could lead to social unrest," he added.