The earliest inflection point for a turnaround for the automotive industry would be sometime during the middle of 2021, states Pradeep G S, Managing Director and VP (Sales and Marketing), JOST India
Impact on Business and Recovery Strategy
We have done very well in our planning. In fact, what went very well for us is that even before the virus pandemic set in we were facing a down-market situation and instead of panicking we built our finished goods’ stock as a first step. When we found that the finished goods’ inventory had hit our target mark we shifted focus to engage our entire workforce. To our surprise, the entire workforce offered to complete many of our expansion projects themselves instead of engaging external partners. They built our scrap yard, extended vehicle stands, engaged in plant upkeep, etc. for which we would have otherwise had to spend a lot of money. All this was done with due attention to safety regulations and utmost care.
This way they could earn their full salaries while the company benefited in the long term. In short, it was a win-win situation. The corona pandemic forced us all to work from home and our entire management staff is doing so now. Some of the activities we are doing include project reviews, knowledge-sharing presentations, trainings, etc. Again, the sessions are done by our own people at all the levels in the pyramid and bi-directional communication is keeping everybody engaged, informed and excited. We are morally obligated and committed to take care of our shop floor colleagues who unfortunately cannot do the actual production. We have paid everyone their full salaries up to March and we will work out an acceptable solution for April.
This will be done following the guidelines of the government and our own approach to treat people as our biggest assets. A task force has been set up to monitor all areas of business such as human resources, finance, operations, SCM, quality and sales. A constant review of all the potential pitfalls and actions required to plug them are discussed and lined up to have a smooth restart once the lockdown gets lifted. Our in-house stocks are comfortable to address OEM needs and our supply chain is well-equipped to start supplies on the second day of our restart. The bottom line is that JOST India is extremely well-prepared – a fighting fit organisation with a good combination of local and global strengths both in terms of capability and markets to address.
BS VI Transition
It was a no-brainer that the market would slump after the introduction of BS VI due to increased costs and low or no demand as compared to the kind we saw in 2018 and some part of 2019. This has got amplified due to the pandemic situation. My prognosis is that due to a vacuum created – first with the liquidating of BS IV models by March 31 and second, no or low availability of BS VI models in the market – there could be a small spike when the lockdown is lifted. But let us all remind ourselves that the pandemic has put many of the SMEs out of business and we may see many insolvencies. A large workforce at all levels of management would be staring at job losses and hence society at large would keep whatever earnings or savings they have close to their chest for rainy days, both literally and figuratively.
It is but natural that even the home capex decisions in terms of purchasing refrigerators, televisions, washing machines, etc. decisions would be postponed, thus impacting the huge consumer industry. The real estate market would stagnate for a longer time continuing from where it was before the pandemic set in. Barring the essential FMCG market, the ripple effects would be seen across industries and the automotive segment irrespective of BS IV or BS VI would be impacted for sure. The earliest inflection point for a turnaround for the automotive industry, in my opinion, would be sometime during the middle of 2021 assuming there would at least be a medicinal cure for the virus if not a vaccine, which may take at least 18 months, according to experts.
Expectations from Government
There are certain expectations such as:
- Bring down the GST specifically for the automotive sector.
- Firm up and implement scrappage policy of old vehicles, especially trucks which are heavily polluting, incentivising the same to encourage purchase of new vehicles.
- Do not let the infrastructure projects slow down, especially construction of roads and highways.
- Re-consider tax holidays in specific regions for setting up industries to stimulate production at lower costs so that a push effect can be seen to create demand across all industries.
Outlook: Present and Future
FY 2020-21: As I mentioned in the previous points, FY 2020-21 would surely be a game of survival for many companies. Those companies having good reserves, less flab and clear plans to engage in activities for the long term and preparing themselves to ride the wave when the market comes back post the pandemic will get stronger. Companies surviving on cash flows and unhealthy balance-sheets would probably get more debt-laden or in the worst case, even bite the dust. I think there would be a lot of consolidation of companies in segments.
FY 2021-22: This is where I foresee or rather hope there would a good uptick in the market. But as a caveat, I would say this is majorly contingent on government policies. How our government handles the pandemic situation now and what stimulus measures balancing the fiscal discipline and the push for creating a market demand they can come up with will decide the growth or stagnation trajectory. I would remain cautiously optimistic as this is a situation many of us have seen the first time in our life.
Medium to Long Term Impact
The medium-term impact is clearly going to be unfavourable in the automotive industry as not all the segments, i.e. 2W, 3W, PC and CV, are essential transportation means. People will optimise their needs for buying vehicles and sharing or leasing may see a significant rise. The long-term impact would be good for the automotive industry and India especially because the favour of the global industry towards only China may reduce and there could be a rush towards India through shifting of manufacturing setups and sourcing needs.