Indian auto sector face challenges of labour shortage, productivity losses

The Indian automotive industry will be up against the challenges of delayed launches, labour shortage and productivity losses, besides having the need to come up with vehicles with new features for disinfection due to the coronavirus pandemic, according to Nomura Research Institute Consulting & Solutions India.

There is a lot of uncertainty towards the scenarios that could unfold post the pandemic in the near future. Irrespective of the scenario that will prevail eventually, the automotive industry should be prepared for the new normal that will emerge after the crisis, said the consultancy firm in its report 'Driving through the Covid-19 Crisis'.

"The new normal operating environment will bring unique set of challenges to the ecosystem participants," Nomura Research Institute Consulting & Solutions India (NRI Consulting) said.

The rapid outbreak of Covid-19 has hit the global demand-supply clusters and has adversely impacted the Indian automotive industry as well, with the automotive demand and supply clusters of Maharashtra, Delhi-NCR, Tamil Nadu, Andhra Pradesh and Kerala becoming the hotspots of the pandemic, the report noted.

NRI Consulting said the challenges include delayed launches following delay in product development activities adding time to market, thereby leading to uncertain future R&D programmes due to lack of clarity on future projects amid hold up in launches, apart from restricted cash positions and ambiguity on continuation of government policies in the face of the economic crisis.

The problem will be more acute for those companies that have global R&D centres in Covid-19 hit regions leading product development with minimal involvement at local level; and for those with highly integrated product development chain with both domestic and overseas centres closely co-working.

Companies having Indian R&D centres but relying majorly on external centres for testing will also face the problem of delayed launches, the report said, however, adding the impact will be the least on automobile manufacturers with Indian R&D centre with its own design and development and testing capabilities.

In the post-coronavirus world, there will also be "need for new features for disinfection" which will require funds, resources, future planning as well as innovative thought process to identify future looking features, it added.

The other big challenge that automotive firms will face is labour shortage following migration of workers due to financial and psychological issues such as apprehensions of working in a group on the shop floor.

They will also have to deal with loss of production due to the nationwide lockdown, adoption of safe distancing on shop floors, delayed capex decisions due to subdued demand and fiscal conservatism, it added.

Automotive OEMs will also face material shortages due to financial and labour distress at domestic suppliers, especially tier-2 and below, and limited operations and disrupted supply chains especially of global suppliers in Covid-19 regions, the NRI Consulting report added.

The companies will also face supplier management challenges as there would be limited options for second source development for domestic supplies, high working capital pressure leading to supplier insolvency and delay in ports and custom clearance due to mandatory shipment quarantine, the report said.