global auto industry is in a recession, while the Indian auto industry has been
bombarded with woes of its own. And to make matters worse for everybody, the
coronavirus fears have now forced several companies to temporarily halt or
drastically curtail production at their plants.
include the likes of Maruti Suzuki, Mahindra & Mahindra, Honda Cars India,
Honda Motorcycle & Scooter India, Fiat Chrysler Automobiles (FCA), Hero
MotorCorp, Tata Motors and Toyota Kirloskar in India, besides several companies
like Porsche, Lamborghini, Skoda, Aston Martin, Bentley, Volvo Cars, Yamaha, among others globally.
Indian auto industry is already reeling under a huge set of woes that include
sliding sales, transition related problems from BS IV to BS VI, a muddled auto
policy that wants to promoted electric vehicles at the cost of growth of IC
engine vehicles, etc. The OEM plant shut downs including partial shutdowns are
going to adversely impact the several ancillary companies supplying components
to these OEMs. In short, it’s going to be mayhem in the Indian auto industry.
to Dolat Capital Market Private Limited, in its research paper, noted that the
automobile industry in India is facing one of the most severe challenges at the
moment. On one hand, it is faced with the daunting task of meeting the
stringent deadline of transitioning from BS-IV to BS-VI, and on the other hand
the spread of the COVID-19 virus is fading the volume outlook.
fact the Federation of Automobile Dealers Associations (FADA) on behalf of its
members recently approached the Supreme Court and has filed an Interlocutory
Application along with an Application seeking modification in Writ Petition No.
13029 of 1985 in the matter of M. C. Mehta Vs Union Of India & others, dated
October 24, 2018 whereby it has been directed that “…no motor vehicle
conforming to emission standard Bharat Stage-IV shall be sold or registered in
the entire country with effect from 01.04.2020.”
President Ashish Harsharaj Kale said, “Post our initial application,
necessitated due to huge unsold BS-IV inventory and slowing sales, getting
rejected by the Hon’ble apex court on 14th February’20, there has been a
drastic change in circumstances in conducting business as usual. SARS-CoV-2
a.k.a Coronavirus (Covid-19) which emerged in Wuhan in the Hubei province of
China has spread rapidly across the globe and also in India.
this in the past week there has been drastic drop in sales and customer
walk-ins have reduced to a trickle as caution sets in due to fear of spreading
of the Virus. Counter sales has fallen by 60-70% across auto dealerships in
these past few days.
situation has worsened in the past 3-4 days with partial lockdown situation in
many towns and cities and few district magistrates have started issuing notices
of closure of shops and establishments including auto dealerships to stop the
spread of virus.”
went on to say, “Owning to situations which are beyond our control and the Fact
that Many of our members may Face dealership closures if leftover with unsold
BS-IV stocks, FADA has once again approached the apex body with a request for
permission of sale and registration of BS-IV vehicles till 31st May’20 and
hopes to get an urgent hearing in the Hon’ble Supreme Court owing to the
criticality of the issue and the deadline of 31st March approaching fast.”
Capital Market said in its report that COVID-19 will have an immediate
short-term adverse impact on the automobile industry, due to a decline in
incomes and a slowdown in commercial activity.
on our interactions over the past week, we derive the following feedback the
virus outbreak and the concomitant advisory by state governments has led to a
50% drop in footfalls in automobile showrooms across the country. This may
worsen further as the next couple of weeks as the government encourages
‘voluntary curfew’,” the company noted.
FADA has filed a petition in the SC where we expect the government to be called
upon by the Court to take a stand. We expect that the government will take a
pro industry stand and request for an extension of one or two quarters. In case
it chooses not to do so, the losses to the distributors /auto players could be
material to drive another downgrade of our estimates,” the company noted in its
Capital Market further noted in its report that the worst impacted MHCV segment
continue to remain challenging, due to the slowdown in the economy. Government
intervention would be only solace. In addition, the pandemic and the oil crash
have increased the risks in the automobile industry, as a weaker global economy
can adversely affect exports.
current demand slump has led to a fall in Natural Rubber prices by 8% MoM to
129/kg, which makes up half of raw material costs, would also aid margin
expansion. None of the tyre companies are offering any discounts despite fall
in volume. Instead, they're resorting to cut down inventory levels. In H2FY16,
sharp decline in crude prices had positively impacted margins in H1FY17. Such
sharp fall in Crude prices, below $40/barrel, will lead to margin expansions by
100-150bps, the company research note said.