Covid-19-battered auto sector drives into 2021 with cautious optimism

Passenger vehicle sales in India, the barometer of the automobile industry's performance, plunged 78.43% in the April-June period this year hit by the pandemic

Having endured and managed to recover from the disruptions induced by a once-in-a-century event, the Indian auto sector is cautiously looking forward to 2021 with hopes of putting up a better show in the post-Covid-19 world, although a lot will hinge on how the economy grows.

Already battered by an unprecedented slowdown before the coronavirus pandemic, the resilience of the Indian auto industry was tested severely when the nationwide lockdown was announced towards March-end.

Passenger vehicle sales in India, the barometer of the automobile industry's performance, plunged 78.43 per cent in the April-June period this year hit by the pandemic, declining for the ninth straight quarter and making it the longest slowdown in 20 years.

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It is estimated that during the prolonged lockdown, the auto industry suffered losses of more than Rs 2,300 crore in turnover for every single day of closure.

In order to overcome the unprecedented challenge, the auto industry players embraced digitisation to adapt to the new normal to serve customers while learning to be nimble-footed to keep factories running under Covid-19 SOPs (Standard Operating Procedures) and concentrating on financial health by reducing costs and generating free cash flows.

The pandemic-induced lockdown also had an impact on the country's transition to BS-VI emission norm from April 1.

Reflecting on the impact of the global health crisis on the sector, the Society of Indian Automobile Manufacturers (SIAM) Director General Rajesh Menon told PTI that the growing preference for personal mobility and the gradual opening of economic activities have lent some momentum and the industry is now seeing signs of recovery in some of the industry segments.

"While the festive season brought back some fervour in specific segments, the overall economic scenario would determine the industry's performance going forward," he noted.

With so many uncertainties in the market, Maruti Suzuki India Chairman R C Bhargava said it was difficult to predict the future.

"But certainly next year would not be as bad as this year because in 2020 the first quarter was a complete write-off, so that made a big difference. So I expect that next year will be better than this year but how much better, what is the likely target for sale, all of that we have not fixed yet," he said.

Sounding optimistic, Tata Motors MD and CEO Guenter Butschek said that going forward the company expected both sales and production to improve in 2021 on the back of overall economic recovery.

Echoing similar sentiments, Mahindra & Mahindra (M&M) Automotive Division CEO Veejay Nakra said a positive monsoon, strong rural demand and the availability of finance were all indicators of a good economic recovery and buoyant demand, going forward.

"Having said that, overall there would be challenges given the uncertainty of the pandemic and the implication of that on the supply chain. These supply issues will continue for some time to come and will continue to create short term challenges," Nakra said.

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Some of the newer challenges being a shortage of steel and micro-processors (semiconductors) impacting electronic components and systems, he noted.

The country's second-largest carmaker Hyundai Motor India Ltd (HMIL) is also hopeful of some economic recovery taking place next year which in turn would aid the auto industry.

"Looking ahead, the company is cautiously optimistic about the future and could clearly spot some green shoots of recovery in 2021," HMIL MD and CEO S S Kim said, adding that the pandemic has set newer challenges for the industry.

"The biggest challenge is to sustain business operations and ensuring the financial health of the organisation. Performance of the automotive industry is linked to each stakeholder in the value chain starting from vendors to our dealerships," Kim said.

Honda Cars India Senior Vice President and Director Marketing & Sales Rajesh Goel said with the health crisis expected to continue for some time, rise in personal mobility is likely to help the auto industry sustain sales momentum in the coming months.

"With the government announcing that the first batch of novel coronavirus vaccines will arrive soon in India, we expect improvement in consumer sentiment leading to positive sales trend and business normalcy," he added.

Over a year into the pandemic, Toyota Kirloskar Motor Senior Vice President, Sales and Service Naveen Soni said there have been significant learnings and the entire auto sector has emerged stronger with a greater focus on localisation and digitalisation.

"We strongly believe that the current economic revival is likely to help sustain the sales momentum in 2021 and we are hopeful that 2021 will see a V-shaped recovery of the economy thereby helping the industry to bounce back," he added.

While the mass segment passenger cars are witnessing a recovery, Lamborghini India Head Sharad Agarwal said the super-luxury segment in India continued to face challenging times and is expected to decline by approximately 30 per cent during the calendar year 2020.

"However, as this segment is driven by emotions and with vaccine round the corner, we anticipate the segment to rebound in 2021 to the 2019 levels," he added.

Terming 2020 as "a year of re-invention", Audi India Head Balbir Singh Dhillon said, "our resilience was under test. In terms of business, the automotive industry and in particular the luxury car market witnessed a challenging period, we were no different".

As for the two-wheeler segment, Honda Motorcycle and Scooter India (HMSI) Director (Sales and Marketing), Yadvinder Singh Guleria said the first three months of the pandemic were "like moving from pause to play mode, absorbing transition to the new BS-VI norm".

"From gaining back stability in the system to infusing strength in two-wheeler demand, the second half of 2020 saw heightened activity like new product launches and changing sentiments in the industry," Guleria said.

The next fiscal is expected to show positivity on-board due to a low base of 2020, however, real positive growth and market expansion may take some time, he added.

Representing the auto component industry, ACMA President Deepak Jain said that after two harsh years -- 2019-20 and 2020-21 -- recovery is expected in the next financial year.

"There is hope that going into 2021-22, there will be vaccination available which would also boost both the consumer side sentiments as well as supply side sentiments," he noted.

Certain headwinds like raw material availability as well as the rise in commodity prices, however, continue to impact the sector, Jain said.