Automobile industry most impacted by COVID-19 pandemic

Sushant Ranjan
Sunday, 3 May 2020

For the first time in modern history, no car was sold in April due to COVID-19 pandemic. The entire country has been under the coronavirus lockdown for around 50 days.

For the first time in modern history, no car was sold in April due to COVID-19 pandemic. The entire country has been under the coronavirus lockdown for around 50 days. The automobile industry has suffered a whopping 46 per cent of losses as the sales of the vehicles were declined in March too. It was expected that till the lockdown is lifted the industry would suffer losses of 1.5 lakh crore.

Auto cos worried in the long term

Major companies like Maruti Suzuki, TVS Motors, Mahindra & Mahindra and other leading auto industries said that sales are not expected to improve in the next month either. This is going to cast a long spell of prolonged crisis for the industry. Maruti Suzuki Chairman RC Bhargava said that decline in sales had been anticipated in May too. The charts would show improvement, but it all depends upon how the coronavirus progresses.

The country’s auto industry directly or indirectly employees more than 40 million people (around four crores). At the same time, it contributes eight per cent to the country’s GDP and 15 per cent to the government’s tax collection. The government had given permission to start factories outside the hotspot zone or in the green zone. Still, automakers have not started their plant yet. They are waiting for the situation to return to normal.

The effects of the pandemic were started showing in March when sales of car companies like Maruti Suzuki and Hyundai, the largest car sellers in the country, fell by up to 46 per cent. Bhargava said there was a significant drop in sales figures in April. This is the first time when not a single car has been sold in a month. Interestingly, many companies showcased their new models during the Auto Expo 2020 in February in New Delhi.

Major loss to the auto sector and Govt

According to experts, the shutdown of the factory for almost 60 days (till May 17) on account of lockdown would result in a loss of over Rs 1 lakh crore to the Indian automotive industries. It is 0.5 per cent of the country’s GDP. Most of the auto plants were closed on March 20. The shutdown of production also means that the government’s Goods and Service Tax (GST) collection will also be severely affected. This may exceed Rs 28,000 crores excluding Rs 14,000 crores coming from other states.

The auto sector contributes about 15 per cent of the total GST to the central government. The government has permitted to restart some plants, but auto companies feel that the supply of materials is not fixed. Auto Companies want all segments of the ecosystem to be opened for business after the lockdown ends. Recovery of loss is challenging. Especially when the auto industry was already going through its worst phase before the epidemic. About two-thirds of the revenue loss in GST will be from new vehicles. After this, there will be GST on registration tax and insurance. Excise duty on fuel has also come down due to restrictions on travel. Due to which the States have been deprived of revenue.

Production recovery will be slow with additional shutdowns every week. Also, officials fear that June quarter sales may fall 50 per cent more than last year. According to the Society of Indian Automobile Manufacturers Association, each day of the lockdown and closure of the factory is causing a loss of Rs 2,300 crores.

Two major carmakers in the country, Maruti Suzuki and Hyundai have started dealer outlets and service centres located in the Green Zone as per the orders of the government. At the same time, permission is being awaited in many parts of the country. Brands like Tata Motors, Honda Cars, Volkswagen and Toyota have released some standard operating procedures and guidelines for dealers before starting their operations.

Online booking and digital solutions 

In its endeavour to offer a convenient purchase experience to its customers, Honda Cars India Ltd (HCIL) announced its ‘Honda From Home’ online booking platform through its corporate website

“The impact of the lockdown has been adverse as can be seen from our Q1 numbers. However, our digital enquiries and traction has been encouraging and we have further strengthened our online offerings and have witnessed positive momentum. Our online channels have provided our customers with a choice to stay connected with the brand from the comfort of the home. Even during the lockdown, we have received many online enquiries and there is certainly a surge in the online inquiries as people are able to visit the site and check availability of cars even remotely. We will not cancel any of our major planned initiatives as we want to continue to create customer interest and demand,” said  Managing Director and CEO, Mercedes-Benz India Martin Schwenk.

With this digital solution, backed by the robust sales process of the dealership, customers can manage their car purchase from the comfort of their homes without visiting the dealership. Rajesh Goel, Senior Vice President and Director Sales and Marketing Honda Cars India Ltd, said, “At Honda, providing ‘Joy of Buying’ to our customers is at the core of our corporate philosophy. Our newly introduced ‘Honda from Home’ facility offers a simplified and secure booking experience for the ever-evolving digital consumer who makes his purchase decisions online. Customers can now conveniently book their Honda car from the comfort of their homes. This platform is part of Honda’s digitisation efforts in-car retail experience that drives not only convenience but also efficiency.”

According to the Autocar report, the sale of two-wheelers may increase after the lockdown. From April 1, it has become mandatory to drive vehicles with Bharat Stage VI (BS-VI) norms. Earlier it was believed that switching from BS-IV engine to BS-VI engine would affect the sale of two-wheelers, as it increased the price of the vehicle. But now, due to COVID-19, its sales can be increased.

According to the report, the sales of two-wheelers were not as good as expected. Earlier, two-wheeler prices rose due to the BS-VI engine. Now due to COVID-19 pandemic, the sale of vehicles stopped completely. After the lockdown, two-wheelers sales will only increase due to coronavirus. According to the advisory issued by the World Health Organisation and the government to avoid COVID-19, it is necessary to follow social distancing to avoid the pandemic. In such a situation, people will keep a distance from other people to protect themselves and them from keeping a distance from public transport. At the same time, a two-wheeler can make a good choice for handling everyday tasks.

Thousands of people travel daily on public transport in Pune with Mahanagar Parivahan Mahamandal Limited (PMPML). The condition of the buses is also not good. In such a situation, it is difficult to understand how safe they will be for the successful. A large section of the country uses public transport. Two-wheelers have more mileage and less maintenance than the car. In this scenario, the electric two-wheeler is also the right choice for the riders. The e-scooter does not need maintenance and servicing from time to time. It also helps to protect the environment. The two-wheeler sales figures in the last two months are also disappointing. At the same time, these figures may disappoint manufacturers for the next few months or until lockdown.

Amid strict nationwide lockdown due to COVID-19 pandemic, Honda Motorcycle and Scooter India Private Ltd (HMSI) closed April ’20 with limited exports of 2630 two-wheelers. Honda’s domestic sales in April this year stood at Nil as all four of its production facilities suspended operations from March 2 till now under lockdown guidelines issued by the government.

Yadvinder Singh Guleria, Director of Sales and Marketing Honda Motorcycle and Scooter India Pvt Ltd, said, “Since suspending operations in this unprecedented crisis, Honda is taking strong measures for business continuity, safeguarding health and wellbeing of staff, families and communities at large. We have eased the anxiety of our business partners and improved their cash-flows through quick liquidity infusion. Promoting #StayHomeStaySafe for our customers, we have already extended the Free service and Warranty period by another two months. Parallelly as a responsible manufacturer, Honda is extensively recalibrating all its SOP’s – not only within the company but the entire ecosystem; from the viewpoint of both personal and workplace safety in COVID-19 era.

“At the same time, during the lockdown, we continue skilling-up HMSI and dealer staff with various e-learning modules. Preparations are on to resume operations after receiving respective approvals from the government while re-aligning with supply-chain constraints and evolving market sentiments.” 

Senior Vice President Yamaha Motor India Sales Ravinder Singh said, “Our domestic sales are temporarily stopped due to the lockdown of COVID 19 since March 25, 2020 on the pan India scale but we are hopeful that from May 18th onwards we will resume operations to stabilize the entire value chain. We are of the view that the social distancing guidelines are here to stay for some time even after the lockdown is lifted. In such a scenario customer footfall at the retail outlets will be less and two wheeler companies need to resort to innovative methods to register sales.  But, I am also of the view that the current situation might turn out to be one of the good opportunities for the two wheeler industry as due to social distancing guidelines, people who used to travel through public transport/shared rides will now look forward to using personal mobility for convenience and safety.”

However, motor vehicle insurance companies in India are also facing the same issue. According to the Head Motor Insurance of Policybazaar. Sajja Praveen Chowdhary, “While the overall Motor Industry is witnessing a loss these days, motor insurance to an extent is still holding up in the online space for rollover and renewals section. Considering the fact that all the auto showrooms are closed since March and the dealers are affected badly, this has also impacted the large amount of insurance which comes from the new purchase of cars.”

“However, the rollover and renewals sections are not impacted much in online space, these are the customers who buy motor insurance from the second year of their vehicle age. We expect that post lockdown there will be a large number of customers coming in and buying motor insurance online and the digital insurance penetration will go up too. Also, the IRDA has come up with the renewal extension for third party insurance. While this is a welcome move on Third party policies during COVID-19 crises, customers should understand that this is not applicable for all Motor insurance policies. The issued notification allows Third-party insurance renewal dues falling during the period of national lockdown – between March 25 and April 1 – to be paid on or before April 21st. Majority of the policies in Private Car are Comprehensive policies which if not renewed before expiry, will need inspection of the vehicle, may lead to higher premium and also loss of No Claim Bonus (NCB) in certain scenarios. It is suggested that customers who have Third party insurance policies and aren't able to afford the premium in such hard times can postpone but, others should renew on time to ensure they don't undergo further troubles later."

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