Second wave of Covid and lockdowns across India to impact small ancillary suppliers, which face challenges of liquidity as well as checking a potential exodus of contract workers.
20 Apr 2021 | 10533 Views | By S Barooah, M Dhingra, N Wadhwa & S Abidi
The good news in an otherwise grim scenario is that automobile sales numbers this month in India will definitely be better than April 2020, which reported zero sales. However, that is hardly any source of comfort to the auto industry where all the stakeholders — manufacturers, suppliers and dealers — ...
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The good news in an otherwise grim scenario is that automobile sales numbers this month in India will definitely be better than April 2020, which reported zero sales. However, that is hardly any source of comfort to the auto industry where all the stakeholders — manufacturers, suppliers and dealers — are facing the Covid heat.
First it was Maharashtra which announced a lockdown till the end of this month. Delhi seemed pragmatic initially about the inevitability of living with the pandemic till infections mounted by the hour and it is now under a curfew till April 26. Other states like Rajasthan, Madhya Pradesh, and Chattisgarh have also implemented lockdowns with no relief in sight. Hero MotoCorp, the world’s largest two-wheeler manufacturer, has announced temporary suspension of all manufacturing operations at its five plants in the country.
The visuals of bodies piling up in morgues and crematoriums have been alarming enough to spawn an exodus of migrant workers from Delhi and Mumbai. Whether this will gain momentum in the coming days is a moot point — eventually people will have to feed themselves and this is where they could just choose to stay back in the safer confines of factories.
Yet, there is tremendous concern as regards other fragile participants in the automotive ecosystem like small ancillary suppliers which face their own challenges of liquidity as well as checking a potential exodus of contract workers.
Small vendors could be impacted badly
If Covid infections rise even further in the coming days and weeks to levels of over 400,000 per day, fear and paranoia could cause a virtual implosion in the supply chain as small vendors will not be able to cater to the needs of their larger Tier 1 counterparts and eventually to the OEMs.
Small wonder then that Shashank Srivastava, Executive Director of Maruti Suzuki, is a worried man. ”Retails are affected in the states under lockdown currently,” he says even while adding that the silver lining in the cloud is that bookings are holding good “as of now” since they can be done through the digital route.
“However, if the current restrictions/lockdowns go beyond the end of this month then customer sentiments could be affected which in turn will have an adverse impact on the market,” cautions Srivastava. The five states which have gone into lockdown currently contribute to about 30 percent of the passenger vehicle industry sales.
In Maharashtra which is a key hub for the auto industry, Diego Graffi, Chairman and MD of Piaggio Vehicles, which has its operations in Baramati, Maharashtra, is equally worried. The CMD says these new lockdowns will disrupt business in an industry where demand is coming back to a “decent level” after 6-7 months.
“We expect the second quarter to be very bad . . . not as bad as last year though because April 2020 saw zero sales. The outlook for this quarter is negative in terms of business,” admits Graffi. Nearly 30 percent of Piaggio Vehicles’ 700-odd dealerships are currently shut “due to one reason or the other” with the number expected to go up in the coming weeks.
Graffi is not entirely certain if a few days of stricter restrictions are enough to reverse the Covid trend and expects more clarity from the authorities concerned on the strategies being adopted to fight the second wave. “The uncertainty is creating further problems,” he says while remaining hopeful about a clear timeline emerging for restrictions after which things will hopefully come back to normalcy.
Another resident of Maharashtra is ancillary supplier, Nelson Global Products, which has other plants across the country. Country Manager, Santosh Joshi says the second wave of Covid 19 is seeing “huge absenteeism” in some facilities which has affected production adversely. “If this continues, there will be a sizeable impact on domestic and export sales for the next two-three weeks,” he adds.
Vivek Vikram Singh, CEO, Sona Comstar with plants in Haryana, Tamil Nadu and Maharashtra, is confident that the company is much better prepared this time for lockdowns with adequate inventories to manage production schedules.
Yet, supply chain and logistics can become a sore point if lockdowns extend for too long. "The major challenge for us is the issue of migrant labour in Maharashtra and their well-being. We are constantly communicating with our workforce and assuring them of our continued support,” says Singh.
A senior executive of a Chennai-based supplier of clutch and related assemblies to major OEMs says none of the customers from Maharashtra or Delhi-NCR has so far asked for slowing down on component deliveries. "However, if retail stores continue to remain shut, OEMs will find it difficult in the near future as parking of inventories at the production site may become a problem,” he adds.
Whilst on the subject of Chennai, Rakesh Srivastava, MD of Nissan Motor India which has its operations near the city, says the past year has given new insights on managing stakeholder relations and getting the best out of a challenging situation. “We are confident that our experience will allow us to manage the upcoming Covid wave with more resilience, positivity and innovation to drive our business,” he says.
On the dealer side, Garima Misra, MD, Landmark Group, concedes that activity levels in terms of new vehicle bookings have “clearly dropped by about 40 to 50 percent” even while there are no Covid-related cancellations thus far.
She remains hopeful that the impact will not be long-term “if we are able to curtail the rising number of cases in the next 15 days” since this period should be able to break the transmission chain. “At this point in time, lockdowns seem to be the only solution to contain the spurt,” says Misra.
In Mumbai, only showrooms are shut and workshops operational while in Delhi, both are closed. “There are a lot of people in the dealership business who are migrant workers but as of now, nobody has gone back as we have asked them not to worry. But if we ourselves become uncertain, then they will also get into a dilemma and start moving out,” she says.
Bal Malkit Singh, Chairman - Core Committee, All India Motor Transport Congress (AIMTC), is concerned that the present spate of lockdowns could hit demand. “As a result, there will be reduction in sales that will then impact manufacturing which means companies will look at stopping production. This will affect the transport business badly,” he warns.
According to him, almost 40 percent of the fleets are running on less than normal utilisation…in this situation, migration of drivers, cleaners and helpers will “be inevitable”. According to the AIMTC Research Unit, the daily loss to the transport industry has now grown to about Rs 1,000 crore and will only increase with further lockdowns.
JP Singla, CEO, All India Transporters Welfare Association, says getting e-passes is turning out to be an irksome issue. "If lockdowns spread to more regions and intrastate movement of goods becomes a problem, we will have to approach the Centre for help,” he says.
Lead picture: LMC Automotive