September 18, 2021

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Recovery of automobile sector

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This article is written by Shristi Roongta from Amity Law School, Kolkata. The article details the recovery in the automobile sector in India and globally and also the post-COVID situation.

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Due to the COVID-19 pandemic, every sector of the economy has been affected adversely. One of them is the automobile sector. Due to lockdown, the sale of automobiles in April was nil, but it took a relief after June when the lockdown was withdrawn. There was a spike in the sales of the automobile, after months of severe lockdown. In this article, the reasons and how the automobile sector is recovering are being discussed. 

The automobile sector is one of the fastest-growing sectors in India. Automobile Sector‘s role in India has been phenomenal. This industry is growing fast because there is a huge demand for cars and other vehicles which increases the income and the primary growth of the automobile sector in India. The main focus of the automobile industry in India is on servicing financing dealerships and maintenance of automobiles. Almost after a decade, the manufacturing sector got independent. The automobile industry in India includes two-wheelers, cars, trucks, three-wheelers, etc. and which plays an important role in the growth of the Indian economy. India is Asia’s fourth-largest exporter of automobiles. According to the GDP facts of India, India has become one of the international players in the automobile market. From 2006-2016, the automobile industry of India has produced almost 142 million vehicles.

The automobile sector in India plays a vital role in the economy of India. This sector has made rapid and steady growth in India particularly after the 90s due to licensing favourable government policies and wholehearted support of the government and also opening up of the automobile industries for hundred percent FDI. Customer satisfaction is the most important part of any industry and so the main responsibility of the service industry is to improve customer satisfaction and quality of services which is beneficial to enhance the number of new customers in this automobile sector has earned respect.

A spike in the COVID-19 cases can be considered the main reason as the cases are increasing and spreading all over the country. This puts pressure on the government both at the central and state level to slow down the reopening of the industries or showrooms and also to slow the economy. The movement of the workers is also a reason as the movement was not free.

Due to the COVID-19 pandemic lockdown, the sales of the automobile were nil and gradually it started rising. In today’s time, the automobile industry has shown a good amount of growth due to an increase in demand for automobiles. The following are the reasons for the recovery of the automobile sector in India:

The sector seeing demand in India

  • There is a huge demand for cars due to the COVID-19 pandemic. Earlier, people were fond of using public transport for several reasons. The reasons were saving money, unaffordability, poverty, and several others. But due to the spread of coronavirus now people are scared of the virus spreading.

Hence, they have started purchasing cars for their safety. The ones who never thought of buying any automobile have also decided to take up with a two-wheeler or a car. The pandemic has scared the people to such an extent that they are taking care of themselves by keeping safe and socially distancing themselves from other people. Also, in order for the government to maintain social distance in public to prevent the spread of coronavirus, the people started buying cars, especially the small compact ones. 

  • There is a great demand for small compact cars in the industry. People are preferring these types of automobiles as they are budget-friendly and also keeps them safe from social gatherings or using any public transport. 
  • In rural areas where the demand for automobiles was very less compared to urban areas, because of the pandemic, now there is a huge demand for this sector in the rural areas. 
  • People are generally opting for small cars or for two-wheelers which led to a rise in the sales of automobiles post lockdown.
  • According to Kia Motors India, they have received 50,000 bookings after the bookings opened in August, 2020 and are slowly launching new sub-compact SUVs Sonet. According to the Kia sources, the Kia is getting booked every three minutes.
  • According to Mahindra and Mahindra which is one of the leading automobile industries in India, the moderate 4% overall sales growth in September.

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Sequential growth

According to India’s two biggest automobile companies, Maruti Suzuki and Hyundai Motors, the booking for automobiles are on the rise and the companies have also increased their productions. They are operating in two shifts to increase the production and they are going to operate in three shifts in the future. The demand for these is on the rise which will eventually increase the sale of the industry.

The automobile industry as we understood is at a slow speed of recovery, as only partially recovered post lockdown. But due to the pandemic which is still spreading with a new variant, it has reduced the sales of automobiles and it will take years to recover those losses. The industry is struggling to cover the losses and increase the production levels. What are their struggles are being discussed in the following point.

  • According to the just-auto, as the world is heading towards the recovery phase, the sector of automobiles has shown growth after the lockdown period. In the Philippines, the sales of new vehicles have begun to stabilise since January 2021 with a total value down by just 1.4% from 23,723 units since January 2020. It is one of the countries severely affected by the Covid-19 pandemic and affected its economy.
  • In Taiwan, the market of automobiles in the month of January 2021 has shown a surge by almost 30% as per the data registered by the Directorate of Highway.
  • In South Korea, the sales of imported light passenger vehicles have jumped almost 27% in the month of January 2021, since January 2020. Even the domestic sales by the locals have increased.
  • In China, the sale of automobiles has increased to a huge level. In January 2021, the sale of automobiles was 29.5% strong whereas in January 2020 the market of automobiles was affected and there was a decline in the sales by 18%. 
  • The same is with Vietnam, this country also showed strong growth in the automobile sector with a 60% surge. 
  • In Japan, there was also an increase in sales by 6.8%. 
  • But in the UK, the sales went down by almost 40% in January due to showroom closures and lockdown. 
  • In New Zealand, the sales increased up to 6.2% with new vehicle registrations.
  • In the United States, the sales of automobiles reduced in the month of August 2020. The sale declined almost by 20%. Companies such as Toyota and Honda showed a sharp decline.

No recovery across automobile sector in fiscal year 2021

According to CRISIL, the automobile sector in India will not be able to recover in the fiscal year 2021. Due to the pandemic, there two main challenges faced by the automobile industry, firstly, anticipated closure of Regional Transport Offices (RTO). This would lead to not selling BS-IV inventory. The second is anticipated retail sales would result in higher than normal BS-VI inventory which is for a larger number of passenger vehicles at the start of the fiscal year.

CRISIL’s report a part of interacted with dealers across whole of India, things are worrying for two-wheeler dealers than the passengers vehicle, a light vehicle for commercial purpose, and heavy and medium vehicle commercial purposes. The rating firms said that states which are severely hit such as Maharashtra, Karnataka have seen a 40 to 50% drop in footfalls and which enquires and deliveries. The situation in Gujarat, West Bengal, and NCR are moderate and it is nominal in Rajasthan, Chhattisgarh.

According to CRISIL, most OMCs within the PV segment had rationalised their BS-IV inventory by February end and synchronised the launch of BS-VI variants. These are the larger ones and also offloaded which sounds like wholesale of BS-VI inventory which is likely to be at the starting of March and to satisfy the year and targets.

                   

The automobile sector in India will be transformed once the pandemic is under control and is over and the economy will gradually be back. There will be several changes in the working conditions, the strategies and the rituals which are being followed by the companies:

  1. Personal mobility- once the vaccine is being given and the pandemic will be in full control, the mobility will become much easier and that will give flexibility.
  2. Redesigned Floors- low contact technologies and robotics will take place which will spare people in hand and across the value chain. The redesigning of the floors will be done and will become more compact.
  3. Rise in people investment- the industries will invest more in the health, hygiene, and basic operating conditions of the workforce which will be beyond the large automobile makers and also the smallest component makers.
  4. Artificial intelligence- the industry is although late in adopting the digital world but cannot hold back more. Artificial intelligence will become the primary medium of reaching people.
  5. The auto mission plan 2030- a look at the blueprints and timelines for the sector will not meet its goals under Auto Mission Plan 2026. The sales, vehicle penetration, contribution to GDP gives the opportunities to prioritise parameters.
  6. Electric cars- with the entry of electric cars in India, the automobile sector will be leading the market in the future and the demand will be much more.

Hence, the automobile sector plays a vital role in contributing to the GDP of India. This a sector with a huge demand and increase with every passing day. Slowly, the industry is getting back and there is a great demand for automobiles. The pandemic has increased the demand for cars, and other vehicles as the people are more careful about their health and hygiene and they are scared about the virus because of social gatherings. Hence, people have started using their personal cars, two-wheelers to avoid gatherings and maintain social distance. With the entry of AI or electric cars, the sector will see more demand in the future. 


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