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Image used for representational purpose. (REUTERS)
Image used for representational purpose. (REUTERS)

Muted demand, delayed launches likely to plague Indian auto industry

  • Every major OEM (Original Equipment Manufacturer) in the country has temporarily suspended production at factories to adhere with the national lockdown in place till April 14.
  • A KPMG report states that sale of passenger and commercial vehicles is likely to remain subdued in the months to come.

The Indian auto industry had a very challenging 2019 and the transition to BS 6 emission norms made life even tough for many car and two-wheeler makers in the country. Just as it seemed that the worst may have been over, the coronavirus pandemic delivered what could well be a body blow of painful proportions.

Every major OEM (Original Equipment Manufacturer) in the country has temporarily suspended production at factories to adhere with the national lockdown in place till April 14. March figures were always expected to be disastrous. And they were. Sales nosedived with several companies reporting dives to the tune of 80% to 85% when compared to figures from March of 2019.

And with no clarity on the economic front in the times to come, the future remains more grim than perhaps ever before.

(Also read: Two-wheeler volumes likely to contract by 11-13% in FY21 due to Covid-19: Icra)

According to a report prepared by audit firm KPMG, the automobile industry is likely to continue wading through murky waters in the months to come. It predicts that cash flow will tighten and that demand for passenger vehicles will remain muted. This, in turn, will compel automakers to delay new launches by at least a few quarters or till market sentiments improve. Component cost too is likely to go up with disruptions in supply chain the world over. Here, however, there is some scope for cheer. "Indian auto component industry can emerge in medium to long term as an alternative source of supply if duly supported by policy framework," the report states.

In the commercial vehicles' front, however, things aren't better either. The KPMG report notes that reduced demand for logistics due to reduced production will put downward pressure on prices across various transportation and logistics sub-sectors. The report also predicts a reduction in passenger movement hurting revenues of state-owned transport services and cab aggregators which could then hurt demand. "KPMG believes that the Government should immediately focus on three areas: (1) job maintenance and creation, (2) provision of a safety net for all Indians and (3) resource mobilization to support these goals," the report propounds.

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