Handling Difficult Times of Auto Sector

Article By Manav Kapur, Executive Director, Steelbird International

India’s auto sector has been going through tough times for the last one year. The sales are dipping, inventory piling up, and then there are job losses. The industry bounced back from the shocks of demonetization and GST in 2017-18 with 14.2 percent (year-on-year) growth, but in 2018-19 the growth slowed down to a single digit. As the year is closing, the volumes have dropped, and many companies were forced to cut production.

In the first five months of the current financial year, the manufacturers in the auto sector have seen a de-growth of 16 percent. The downtrend is being witnessed in almost all segments, mainly due to subdued consumption, the rising cost of ownership, and weak credit availability, etc. The auto sector has linkages with other industries, and any slump here will pull down many industries including components, tyre, and steel, among others. Though the finance minister has announced a stimulus package a few months back, the move is highly unlikely to solve the things at ground level. India’s automobile industry accounts for 49% of the country’s manufacturing GDP, and it, directly and indirectly, employs 37 million workers. Talking of the auto component sector, a major shift in overall working and the way industry has been doing business is needed.

First and foremost, the pricing factor has to be looked into by the auto component makers. It is the time when any decrease in pricing will be lapped up immediately and will infuse the much-needed demand required to pump up the production once again. This step is needed as the package announced by the government does not address the problem of demand deficiency, which calls for huge cuts in GST that can make bikes and cars cheaper. In the absence of any likelihood of such a step, shortly from the government, the industry has to put pressure on the gas paddle and take things in its own hands.

Another step that is required for the uplift of the sector in these tough times is that the sector should take advantage of the US and China trade war. By now, this should have resulted in increased businesses for Indian players, but it has not happened until now. The encouraging factor is that the enquiries from North America have gone up, but resistance is being faced by the Chinese as they are routing their products to the US through their plants in other countries. In the Europe also, the Chinese have become aggressive. The same aggressiveness is needed from Indian players. Last fiscal, the Indian auto components industry grew by 14.5 per cent, and the exports grew by 17.1 per cent. A lot has to be done to tap the US market, and the Indian auto component industry has not utilized its full potential as in 2018-19, the US accounted only for 29 per cent of exports.

The downturn this time is unprecedented and hence requires out-of-the-box solutions. It is the time when there is limited help from the government; the industry must change the routes to make sure that the contribution to country's GDP should not come down.