Auto Components India|July 2020
Grant Thornton recently organised a webinar on ‘Jumpstarting the Indian Automotive Sector’. With industry experts in attendance, the moderator set the tone by giving a backdrop of the slump in the sector recorded in 2019. According to the moderator Saket Mehra, Partner & Automotive sector leader, Grant Thornton India, the pandemic, set aside any growth prospects that the industry was looking forward to in 2020, in turn, said to have dashed all hopes of a recovery. “Nothing is more expensive than a missed opportunity hence the auto industry needs to remain optimistic and look forward to opportunities across all the domains within the industry,” he averred. To help the industry emerge stronger out of the crisis and get back on its feet, the distinguished panel on the webinar spoke of priority focus areas if the industry were to overcome converging pressures. From demand slowdown, unutilised capacity and regulatory challenges. Key highlights of the session centred on establishing a good base, setting digitisation in motion, looking at automation and upskilling. Used car market segment, aftermarket and scrappage policy also found a mention. The session also deliberated upon means to deliver money, manage risks and ways to strengthen communication across all verticals.
Looking at the trend over the last 1012 years, the session drew attention to the Indian automotive industry moving in tandem with the GDP growth, barring an exception of a few years in between. Contributing an estimated seven per cent to the Indian GDP, if the industry, for example, recorded production of 26.3 million vehicles in FY20. The volumes projected it was feared, could roll back the industry prospects back to the 2013-14 levels. A factor of how soon India riggles out of the degrowth phase. As per a statistical study cited in the session, passenger vehicles sales nosedived by 51.72 per cent in March 2020. Commercial vehicle sales dipped by 88.05 per cent in the same period. In comparison, exports recorded a degrowth of 24.51 per cent. Drawing attention to the Indian economy’s expected growth rate at 1.9 per cent in 2020 as per the recent IMF ‘World Economic Outlook’, the session compared it to the global contraction of three per cent. It was unanimously agreed upon that India’s automotive sector could take until Q3FY2021 to recover. Citing an over 12 per cent growth in value of India’s GDP in line with the automotive mission plan 2016-26 the panellists cautioned the estimates of being far-fetched.
If GDP growth falls marginally to four per cent, the automotive sector could witness degrowth of (-) 13 per cent. “To overcome these challenges, the companies need to focus on managing shop floors, managing excellence practices, ensure effective risk management for business continuity, redesign the supply chain and vendor risk assessment,” stated Siddhartha Nigam, National Managing Partner - Growth Advisory, Grant Thornton India. “They need to balance liquidity and cost of capital and of course tap into new markets,” he added. Projecting a second scenario, for instance, if the GDP settles at one per cent, the sector could witness degrowth of (-) 20 per cent in sales, he opined. Drawing attention to the sector, by the end of the year, facing two consecutive years of double-digit decline in sales, Nigam was quick to point it as a phenomenon not witnessed in the last two decades. Talking of the silver lining, the panel of experts were of the firm belief that with China’s monopoly being challenged globally, India stood a strong chance to get back in the reckoning. “OEMs and auto component manufacturers should embrace the opportunity to double its exports in the next five years,” quipped Nigam.
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