April could be alarming for Indian auto industry as lockdown extended till May 3

Prime Minister Narendra Modi on Tuesday announced that the national lockdown in place to fight coronavirus pandemic will be extended till May 3. This takes the total lockdown period up to around six weeks as India battles hard to contain the outbreak.

While stressing on the health and well being of citizens as the priority No. 1, PM Modi mentioned that he understands the numerous hardships being faced, including economic woes. He, however, once again reiterated that fighting coronavirus pandemic is of crucial significance and hence the decision to extend the lockdown.

The extension of lockdown could well contain the outbreak but the development will cause further hardships to various industries in the country, including the automotive sector.

The first phase of the national lockdown - for three weeks - was announced on March 24. This means that the automotive industry still saw 23 days of regular operations before suspending production. Even then, sales figures from the month were quite alarming. According to data released by Society of Indian Automobile Manufacturers (SIAM), passenger vehicle sales last month dropped to 1,43,014 units as compared with 2,91,861 units in March of 2019, a decline of 51 per cent. Sales of commercial vehicle saw an even bigger dip of 88.95 per cent at 13,027 units as against 1,09,022 units in March 2019. (Read full report here)

With all of April now under lockdown, these numbers are expected to crash even more exponentially. Factories remain silent as people are confined to homes. Economic activity is only a trickle which means demand for commercial vehicles would also be negligible, if any at all. Companies which may have hoped to restart operations after putting in effective rules to check on spread of coronavirus could well ditch any such plans till May 3 when the second phase of the lockdown ends.

While several automakers have brought their respective dealer networks under a singular online sales channel, analysts hardly expect any traction. A KPMG report had previously predicted that as cash flow tightens, demand from the market would crash which, in turn, would prompt companies to re-think their strategies and push back any new launches. Others say many companies would have little choice but to lay off employees.

Federation of Automobile Dealers Association (FADA) wrote a letter to PM Modi recently in which it warned of thousands of livelihoods getting affected if urgent measures were not taken. "Covid-19 has come as a shock to all of us as the Indian auto industry was preparing for recovery in sales growth after 15 months of a downturn," it stated in the letter. "A new normal growth rate is going to be set, post the Covid-19 which is projected to be far lower than the normal, under which we have been operating in recent times." (Read full report here)

The other aspect is fuel.

According to a Reuters report, India's annual fuel demand grew 0.2% in 2019/20, its worst growth rate in over two decades, dragged down by a hefty 17.8% decline in local consumption in March. Due to restrictions on movement and travel advisories, India's consumption of diesel, petrol and aviation turbine declined massively during March. (Read full report here)

Petrol and diesel rates have remain unchanged for several weeks now and are likely to hold on to the figures till at least May 3.

As such, the immediate challenges could well turn out to be absolutely unprecedented for the Indian automotive sector that was wading through murky waters in any case.