The ongoing pandemic and the gradual restart of manufacturing operations in the automotive and other sectors will definitely witness policy shifts in the way companies conduct their business, says Thimmaiah Napanda, Vice President (India and Australia), Meritor Inc. and Managing Director and CEO, Meritor India
Impact on Business and Recovery Strategy
This is a challenging time for the overall economy and the automotive industry as well. Like everyone, we have also started adapting to the new normal in everything – manufacturing, sourcing, operations, human resource practices, finance, customer engagement, communication and emergency response mechanisms. We have taken various initiatives keeping in mind the safety of our employees and all other stakeholders while ensuring that the business doesn’t get affected. For the post-lockdown phase when we resume manufacturing operations, we have drafted detailed manuals and checklists for ‘safe restart’. Our operations and supply chain is well-prepared in terms of agility in order to respond quickly to customer needs and market changes.
BS VI Transition
The automotive industry was gearing up for the BS VI transition despite facing a subdued demand owing to multiple factors like slow economy, weak consumer sentiments, liquidity crunch, axle load rating increase for commercial vehicles, etc. The silver lining would be the almost nil stock of BS IV vehicles, which means the pipeline is almost empty. This would drive the production volume to some extent. Also, the ramp-up of BS VI vehicle production appears challenging owing to parts’ availability for the next couple of months and restrictions and lack of clarity on restarting of operations by OEMs. Meanwhile, the overall economic activity impacted in the current situation will definitely affect the demand. However, once the situation becomes normal, it is only a matter of a few weeks to a couple of months to start witnessing BS VI vehicle production in full swing.
Expectations from Government
The three main things that could be a great boost to the commercial vehicle industry are:
- There should be an increase in infrastructure spend. The government has announced significant infrastructure investments in the recent past. Efforts to accelerate these spends on infrastructure development would have a ripple effect and would benefit the commercial vehicle segment which is directly connected with economic and commercial activities.
- Faster implementation of the vehicle scrappage policy would encourage consumers to replace older vehicles and inject spending into the automotive sector.
- There has to be some easing of liquidity. The government has already taken steps by lowering the interest rates but for the fleets and individual owners to avail its full benefits, more push to the non-banking financial companies is required to improve lending and thereby boost demand.
Outlook: Present and Future
The way we live and operate has dramatically changed due to the current crisis. We need to see what impact this will have on people’s buying patterns. We have all lived with only essential commodities for the past two months and therefore it will be interesting to see how the purchasing inclination or behaviour changes for non-essential commodities. It will have a significant bearing on the economic value chain. The commercial vehicle industry is very likely to face significant uncertainty in the comings months and quarters. I don’t think anyone can predict the future outlook – anyway we always get the prediction wrong. We must learn to adapt to the situation, be agile with lean cost structure and do our best to survive.
Medium to Long-Term Impact
In the immediate and medium-term, the pandemic has created significant supply chain disruptions, suspension of manufacturing operations owing to lockdowns and phased or partial restart of operations, weakened demand, and decline in working capital and liquidity for most organisations and the entire industry in general. In the long term, this is expected to create a shift in the sourcing strategy of companies. The trend to decrease overdependence on one country will become more prominent. There would be more emphasis on ‘Make in India’ as global and Indian supply chains tend to mitigate risk. In terms of demand, potential increase in waiting time for new models and BS VI versions and increase in pent-up demand can be expected. A slight delay could be witnessed in the e-mobility plans of OEMs.