Covid-19 Impact: India Auto Inc to lose over Rs 2,300 crore for each day of closure

It’s a scenario that hardly any OEM would have been prepared for. An increasing number of states in India are going into ‘lock-down’ mode to combat the COVID-19 outbreak challenge.

The latest to join the list is Tamil Nadu, where the lock-down started this evening. With this development, Chennai, the ‘Detroit of the East’, completes the list of automotive hubs in India to come to a standstill. For such a huge disruption, the price to be paid cannot be low. 

In an official statement issued by apex auto body SIAM, its president Rajan Wadhera said: “As per quick estimates by the Society of Indian Automobile Manufacturers, it is expected that plant closure of auto OEMs and components will lead to loss of more than Rs 2,300 crore in turnover for each day of closure.”

The disruption due to the virus outbreak could remain for more than the rest of this month. “The experience from China tells us that in the peak circumstances it may start with two weeks of full shutdown and may prolong to 4-6 weeks of after effects in the industry,” Rama Shankar Pandey, MD, Hella India Lighting, tells Autocar Professional. Over the last couple of days, almost all major OEMs, and smaller ones too, have announced production shutdown as a strong measure to voild gathering of people.

The industry shutdown is also influenced by various governments’ call to ‘lock-down’ states, some also enforcing curfew, to reduce movement of people and encourage social distancing. That possibly could have planned better as the pandemic had already affected a few countries significantly before it reached India, feels another senior industry professional.

A “synchronised” planning of lock-downs could have avoided a ‘so near yet so far’ experience for him. Perhaps for some others too.  “The truck carrying components could be seen from our plant, but it couldn’t reach the destination because the border was sealed,” says the senior executive who doesn’t wish to be quoted. The first signs of the virus outbreak impact were seen in his company’s production during the first week of this month due to the shutdown of suppliers’ plants in China.

Automobile production in India stood at close to 31 million vehicles during the last financial year. After being buffeted by a severe market slowdown for over a year, at least some parts of the automobile market were witnessing improved performance starting from around December 2019. Now the industry is bracing for some unusual and tough times. Many, if not most in the industry may see a fall in revenue this year. Including Hella India Lighting. Therefore, the company looks for support from its OEM customers. And so may many others in the component industry. “First and foremost we would expect OEMs to make payments on time or before time. This will be the biggest support I’m expecting at this point of time,” says Pandey.

It’s also a time to show the humane quotient of the industry, according to Pandey. Even as it faces some under severe and unprecedented challenges, the industry may not retrench any of its workforce, also as a response to an appeal by the government. Pandey says that Hella India Lighting has decided to pay the full month’s salary to all employees, including contractual workers, before 31^st March, maybe by the 28th. Usually the company pays salary to its employees during the first week of every month, and as in regular conditions there’s no payment for zero production days.

Pandey also adds that in such times, leadership should talk about more than business. “It’s the time when CEOs should reach out to our locality, neighbourhood, wherever we can through a telephone call, digitally, electronically. We must take the community leadership now to request people to stay home and do whatever is necessary to help fight the virus outbreak challenge.”

As for the business, it may take “2 to 3 months to crank up” fully once the virus challenge gets over. The auto industry’s dependence on the finance industry, which has also taken a hit, is also to be taken into account while talking about the industry’s full recovery. At the consumer level, around 90 percent of M&HCVs are financed. The figure stands at 80 percent for LCVs and for PVs it ranges from 80-90 percent.

Challenging as it is, industry players are facing it chin up. “It’s bad times for all of us in the system. This will also go away and things will stabilise. It’s a matter of time,” says the senior management team member quoted earlier.

As per the latest speech by Prime Minister Narendra Modi at 8pm, all of India goes into a lock-down mode for three weeks starting midnight March 24-25. At Autocar Professional, we will continue to keep you updated about every development in the automotive industry in the backdrop of the current situation. Let's fight Coronavirus together.

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