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AUTOMOTIVE Re-strategising businesses for survival & revival post COVID-19

May 26, 2020

The year 2019 was quite hard-hitting for the automotive & manufacturing industry. Plus, with the present COVID-19 crisis, many businesses are experiencing a diminished consumer demand and are opting for new methods and strategies to tackle the sales slowdown that one is expecting to happen once the businesses resume. In the present Viewpoint, with contributions from Jamna Auto Industries, SML Isuzu, Roland Berger, Hyundai Design India, Supreme Treon, and Honda Cars India, EM seeks to explain how auto industry & manufacturers can re-strategise for growth, the government support that could help post-COVID-19, and the certain key interventions for required for revival, once businesses resume in 2020.

We will see a lot of consolidations taking place once the crisis is over - Sunil Laroiya, President, Jamna Auto Industries

I think the current financial year is going to be extremely unstable; we have almost lost Q1 of FY 2020-21 without any sales and there would be hardly anything happening in the next few days. It will probably be towards Q2 of FY 2021-22 when we will see things to start settling down for good. Companies will have to fend the ways to reduce fixed costs in order to survive this unprecedented crisis and to sail through. However, those who are able to survive will have ample opportunities in the post-COVID-19 world.

We will see a lot of consolidations taking place once the crisis is over; companies that are able to control cash in the current crisis will be leaders in their fields. The commercial vehicle industry may turn around quicker in case there is a reduction in GST rates (from 28% to 18%) along with smart scrappage policy; wherein, all vehicles older than 10 years are compulsorily scrapped and owners are given incentives/discounts to buy new BS VI vehicles. This will have two major advantages – firstly, quick revival of the auto sector and secondly, we will be able to maintain the current level of clean air (as during the lockdown period) by taking away (scrapping) the polluting vehicles.

Every industry should have sustainable industrial policies for lasting recovery - Dr Sandeep Chandna, GM - Production, SML Isuzu

The economic growth was slow in FY 2019-20 due to various reasons. Now, COVID-19 has jammed the wheels of the industry to a standstill for a longer period, which has never happened since the industrial revolution. Since the requirement itself is low and the industry would be running at 30-40% manpower initially, the capacity would not be calculated more than 40%. The expected period to run the industry seamlessly will be about a year and to breakeven would be more than a year over normalcy.

To revive sales in different sectors, strategies would obviously be different. The government should announce some special packages so that the breakeven period could be lowered down. In the present situation, for the first time, almost all organisations experienced work from home. Everyone must have experienced this culture is making teams stronger and people are coming closer to join hands as a team. New technologies, which were still far away from India, are being turned into reality by manufacturing innovations. In-house manufacturing of medical ventilators in automobile industries is a recent example in this series.

Manufacturing must act to pressure the integrity of operations & protect the workforce along with ramping up the production. It should build up trust amongst service allies and other partners of the manufacturing industry, which will make supply chain a robust system, although everyone does not have ‘one size fit’ solutions. Moreover, every industry should have sustainable industrial policies and targeted support systems for lasting recovery. Just In Time material feeding would be another catalyst in this system. Other measures can be rationalisation of investments from essential to non-essential, implementation of long-term & short-term cost saving initiatives, re-assuring business models whether they are operating as per the business plan, considering all the scenarios formed for fixed & variable cost control for the next 6-12 months and maintaining transparency with customers pertaining to the business conditions.

Flexibility is one of the key assets that a company can leverage - Dr Wilfried Aulbur, Senior Partner, Member Supervisory Board, Roland Berger

Limited liquidity and an overall slow economic growth have been detractors for the growth of the Indian automotive industry in 2019. Reduction in sales for passenger vehicles and two-wheelers clearly reflect low consumer sentiment. Reduced sales in the commercial vehicle sector reflect a significant downturn in the overall business environment. These challenges are structural and need focused measures by the government, which so far have not been forthcoming. With the challenge of the COVID-19 hitting India, the outlook for 2020 looks difficult.

In a highly volatile environment, flexibility is one of the key assets that a company can leverage. Companies must keep overheads low, make production-related costs as much as possible variable, manage innovation pipelines carefully, etc. Unfortunately, the market downturn and the coronavirus hit companies at a time when investment requirements for emission and other technologies (BS VI, electrification, etc) are high. This complicates the challenges for Indian businesses. The need of the hour for OEMs and suppliers is to leverage all cost-reduction tools at their disposal along their value chain.

The German government has put a reasonable plan in place that ensures that the vulnerable elements of society get support during this crisis. In addition, access to liquidity, especially for small and medium-sized businesses, is ensured, while support for large companies may lead to temporary government ownership of these players. These types of interventions are necessary to help Indian consumers, too, especially those at the bottom of the pyramid, and hopefully, Indian businesses will tide over the challenges that the corona crisis is throwing at them.

Disruptive partnerships are the future of businesses - Snehal Pawar, Head – CMF, Design & Strategy, Hyundai Design India

2019 was quite a ride for the industry. The current market situations with an unstable GDP has had an adverse impact on per capita. This in turn has raised concerns over the maturing customer base that could have moved from an older product to a newer one. Talking about boost from the government – it has been very shallow. The tax relaxations could have been more offered at the bottom of the pyramid, which comprises larger volume of automotive sales. On the other side, NFBCs couldn’t offer a significant hand in influencing industry sales, despite the active efforts from established players. It is important to understand, that the industry is at a juncture of seeing unprecedented changes in the way it makes products, offers its services and at large, what it operates. If we specifically talk about automakers, it is inevitable to see connected/shared mobility steering the growth-wheel in the near future. Looking at commercial vehicles, connected mobility could also find its first adapters in local delivery vehicles, school buses and from large cargo hubs to last mile trucking.

One could say that we need to look at the industry from a bird’s eye view. The world post-COVID-19 is going to be very different. Product developers, like myself, need to rethink the automotive user scenarios. Manufacturing needs to adapt to quicker ways to seek proof of concepts and bring virtual technology & Artificial Intelligence to give that extra hand. Marketers can no longer rely on celebrity faces, unless one has the real juice in the bucket. Disruptive partnerships are the future of businesses and the auto industry is no exception. As Socrates said, “The secret of change is to focus all your energy not on fighting the old but on building the new.”

Everyone needs to be a turnaround & value creation specialist - Niraj Mittal, Chief Operating Officer - Auto Component Business, Supreme Treon

I am expecting another six months to recover partially since demand is going to be driven by market constraints. Operational costs will be high, which will make breaking even difficult for the next one year. The manufacturing industry’s concepts need to be changed now with more automation & flexible manufacturing systems rather than specific products & machines. Companies need to build up their product, marketing & operational strategies on their own. We cannot work in the same era of before the COVID-19 situation anymore. Labour law reforms certainly will help or attract the industries to be set-up in India. We cannot sit idle on age-old processes or be governed by the bureaucracy systems anymore. We need to have an industry-friendly culture in the country for localisation of the products as well as to win export opportunities.

The present situation can bring in a lot of opportunities for India. The government needs to reform many labour laws & make the business environment friendly so that it becomes a headache-free scenario to run an organisation. China has 17% GDP of the world, and if we are able to acquire 4% of the market share, then it will be great for the next two years. We need to skill our workforce and make their mindset growth-oriented. Quality excellence can make us the leaders. We need to spend money on Capex, infrastructure & ease of business (end-to-end solutions). The efficiency of the industry will go down and operating expenses will go up marginally for the next one year, but we need to live with it. Everyone needs to be a ‘turnaround & value creation specialist’ since every INR saving will bring the culture of wastage elimination in organisations.

Flexible manufacturing is the need of the hour - Pankaj Dubey, Auto Industry Expert & Former MD, Polaris India

The auto industry has faced a major impact in 2019. The main reason behind it is tighter control on financing after so many scams in the banking sector and government endeavours to clean the sector. This also includes the high GST blocked funds of dealers, which took away the spending power from most of the large scale as well as small scale business owners, resulting in lowering consumer demand.

As far as the re-strategising is concerned, manufacturers are adopting digital platforms for their important announcements and shifting their focus on retail sales, as opposed to the traditional method of pushing wholesale. Given the current situation of the industry, manufacturers have to divert its focus more towards new product development, prepare for future technology and work on cost-efficiency. Lean manufacturing set-up and flexible manufacturing is the need of the hour to be prepared to meet future changing demand positions. The whole world has shifted to the digital era, and thus, the marketing strategies are all mostly at the edge of going totally digital, which in turn needs rationalisation of physical/offline marketing. In the current situation, most players are opting for digital launches to maintain the safety of the individuals. Introducing new strategies for efficient manufacturing will play a major role in the revival of the industry. I recommend all to stay calm and get over the coronavirus scare by following government guidelines strictly. Once the situation improves, the economy revival will take time. But be patient and we can find out a win-win for all.

India will emerge as the preferred centre for manufactured products - Navid Talib, Manufacturing Operations Head, Honda Cars India

First it was coming to terms with the GST regime and then came the conflicts and confusion over the policies in pushing the electrification agenda; it started with 100% EVs by 2025, then by 2030, 100% commercial EVs and now by 2047, the uncertainty still prevails. Then came the transition from BS IV to BS VI vehicles, which forced manufacturers to adjust the stocks and production. This multiplied the woes of the manufacturers, as the market experienced a huge dip in customer buying sentiments due to uncertainty over the future, resulting in the biggest economic slump of recent times. With COVID-19, the entire country has come to a standstill. From the end-customer demand to supply chain disruptions and closure of plant operations, the revival to normalcy is going to be a monumental task and will have some casualties as well. To adjust to this normal, recovery time would definitely be beyond 2020 end.

Right now, the priority of companies must be to ensure the most resilient supply chain possible whilst protecting their workforce. India’s role post-COVID-19, particularly in the industrial sector, is a subject of great interest, hope and speculation to the rest of the world. I do believe that India will emerge as one of the preferred centres for manufactured products, provided we re-strategise the way we have done localisation in the past. The most appropriate strategy for India would be to take self-control over the national value chain, utilise the local skills and do domestic value addition to move towards self-reliance. The key interventions required for growth and revival now would be: securing safety of all employees by making social distancing the new normal, from getting workers back to securing factories – there is a need to draw up business continuity blueprints & digitalisation/automation should take the front seat and due to slump in demand, capacity would be in abundance. So, look at partnerships to have a win-win arrangement in the areas of resource sharing, marketing, manufacturing, etc.

Image Gallery

  • Sunil Laroiya

    President

    Jamna Auto Industries

  • Dr Sandeep Chandna

    GM - Production

    SML Isuzu

  • Dr Wilfried Aulbur

    Senior Partner

    Member Supervisory Board

    Roland Berger

  • Snehal Pawar

    Head – CMF, Design & Strategy

    Hyundai Design India

  • Niraj Mittal

    Chief Operating Officer - Auto Component Business

    Supreme Treon

  • Pankaj Dubey

    Auto Industry Expert

    & Former MD

    Polaris India

  • Navid Talib

    Manufacturing Operations Head

    Honda Cars India

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