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How this pandemic will change the Auto Industry?

How this pandemic will change the Auto Industry?

 

Most car manufacturers are appearing brave even when some manufacturing facilities are shut down due to pandemic. The pressure to move to Bharat Norm 6 is escalating. People have reduced the travel when they’ve realized how much they can do it from home.

The automobile sector was bracing for a harsh year even before Corona virus wreaked havoc with their best laid plans.

The sector is set to reshape in ways that will have a significant effect on the eight million workers around the world who work for auto companies.

 

The effect due to COVID-19:

For the first time in history, the Indian automobile sector reported almost Nil monthly sales. Car producers disclose nil performance numbers on account of the closing of manufacturing plants in April 2020. This is because of a national lock down in the battle against the corona virus pandemic. Changes in consumer behavior and the effects of COVID-19 is expected to affect car sales. COVID-19 has resulted in disruptions in the supply chain and its effect on employment, wages, and so far most showrooms have seen few visitors. When sales tend to drop, closing down underutilized plants can be a concern of survival. According to Peter Wells, founder of the Center for Automotive Industry Research, several of the major plants in Europe are still going to struggle.

This will be challenging for companies that manufacture smaller cars that appear to be less competitive, such as Volkswagen, Renault, and Fiat. Nissan intends to slash about 300 billion Yen in annual operating expenses and book investment charges while the COVID-19 pandemic further disturbs the automotive industry’s revenues. According to Toyota Motor Corp, the terrible economic effect of the COVID-19 pandemic was almost over, vehicle sales can be recovered in its largest markets by the end of the year. Toyota has cash stockpiles of $74.4 billion, the result of a decade-long effort to cut costs. According to Frank Witter, Chief Financial Officer of Volkswagen AG, nobody has a clear understanding of the period and intensity of the crisis. Some auto manufacturers are collecting cash and slashing expenses to ensure that they will withstand a protracted downturn.

 

BS-VI:

The move to BS-VI standards is to put pressure on the auto sector. Besides, the effects of BS-VI emission regulations and job losses will affect sales. The problems of the automobile industry are growing. For the Indian car industry, FY20 has been a difficult year. After facing market crunch due to GST and the upcoming BS-VI standards, the corona virus desperately hampers vehicle production in all categories. Combined with the market restriction arising from BS-VI standards, this has generated a cascade impact for the sector that is unlikely to bounce back soon.

 

Electric vehicles:

Electric vehicle sales have been remarkably robust though, lock-down sales of petrol and diesel-driven automobiles have slowed. As much of Europe closed in March, auto sales in the continent dropped by more than half. However, the registration of Electric vehicles grew by 23 percent. Sales of electric vehicles fell 31 percent in April. This is nothing compared to the overall European automotive industry, which dropped by 80 percent. Auto producers may not be as inspired to market hybrid vehicles over the coming months. Alternatively, they will be forced to drive SUVs that yield much greater revenues and are cheaper to market now that fuel costs have collapsed. Everything is going to rely on policy opportunities and regulations.

China and Europe are more encouraging than the United States to embrace electric vehicles. Electric Vehicles are also much more costly than petrol and diesel-driven. In this crisis, few customers will be able to buy it without subsidies. The government will create a scrapping program to promote battery-driven cars with tax cuts to subsidies. The emphasis needs to be on investing in regional manufacturing around the supply chain, upgrading skills, and building up EV Infrastructure throughout the nation.

 

About the stock:

The Nifty auto index has under-performed the market since January as it is not hopeful of any near term improvement in the sector prospects. Mahindra & Mahindra has a Market cap of Rs.47,402.93 crore. Its 52 weeks low is Rs.245.40 and its 52 weeks high is Rs.683. M&M’s closing price was Rs.381.30 and was 4.78 percent low. Maruti Suzuki’s 52 weeks low is Rs.4,001.10 and its 52 weeks high is Rs.7,758.70 having a market cap of Rs.1,54,032.08. Maruti Suzuki’s closing price was Rs.5100.40 and was 0.27 percent low.

 

 

Auto sector seeks special package to save industry from Covid-19 crisis

Equity Right

Auto sector seeks special package to save industry from Covid-19 crisis

Auto sector seeks special package to save industry from Covid-19 crisis

 

A few automobile producers have supported the decision of PM Narendra Modi to inject Rs.20 lakh crore financial package announced on 12th May, 2020. Most of them still want to see a particular stimulus program aimed at reviving the automobile sector. They is seeking to recover from the outbreak of the COVID-19 pandemic and the recession that has struck the sector from last year. The overwhelming reaction will go a long road ahead towards strengthening the Indian economy and preparing it for post-pandemic revival. It will also help business initiatives to get millions of Indian people back to work safely and mitigate the spread of the COVID-19.

 

Problems faced by the auto sector:

It is recognized that the automobile industry is a big pillar of the Make in India and contributes a significant part of the country’s GDP. The sector often provides job opportunities for thousands of individuals and utilizes an unaccented supply chain. As indicated by Society of Indian Automobile Manufacturers (SIAM), the Indian automotive sector registered a decrease of more than 18 percent in sales of 2,15,48,494 units and a decline of 15 percent in vehicle yield to 2,63,62,284 units in FY20. CV revenue over this time fell by 28.75 percent to 7,17,688 units year-on-year. A release from SIAM reported that the automobile industry was bleeding Rs. 2,300 Crore regularly. The economic plan will also provide funding for the auto sector which will be of great benefit.

While these factories now have the freedom to restart dealerships and begin manufacturing again, they remain handicapped as they can not run at 100 percent. The staff at such plants has declined dramatically as a consequence of the COVID-19 pandemic. Without a doubt, the last few months have been tough for not just the people of India, but also the international automotive sector. Though, the Minister for Road Transport and Highways, Nitin Gadkari, has assured India of a policy of scrapping cars, there is no guarantee as to the other demands raised by the sector so far. Having been economically ineffective over the last few months, particularly in April, when auto firms have for the first time reported zero sales in history. This economic stimulus package could be the only thing expected to get the business back to its original state.

 

Relief:

The package revealed by the Prime Minister will arrive as a significant boost to the auto sector, particularly during this lock down. However, with this recent plan, events may be turned around shortly. Many automotive manufactures and regulators of the auto sector have come forward in favor of the proposal. Economic assistance will be required to restore what remains of the automotive sector following the pandemic.

 

Package:

The Rs 20 Lakh Crore package involves the Reserve Bank’s liquidity initiatives and interest rate cuts, as well as the Rs 1.7 Lakh Crore Free Food Grains to Poor and cash to Poor Women declared in March. Although, the March stimulus amounted to 0.8% of GDP, RBI’s interest rate reductions and liquidity enhancing initiatives amounted to 3.2% of GDP. The package will concentrate on laws, liquidity, property, labour. It would include various sectors, including the agricultural industry, the middle class, small and medium-sized businesses, and employees. Self-reliant India will stand on five pillars viz demand, technology-driven system, vibrant demography, infrastructure, and economy. The package accounts for around 10 % of GDP, rendering it one of the highest in the country. India has been on the scientific front in the war against Covid-19.

According to SIAM President Rajan Wadhera, this will indeed provide the right stimulus for the market and rise of our economy. The automotive sector is a solid base of Make in India with major contributions to GDP and employment, and it relies on its supply chain. The package can give tax cuts to small scale and medium-sized organizations and open doors for improving local interest. Anand Mahindra, Chairman of the Mahindra Company, expressed gratitude toward Prime Minister Narendra Modi of a need to render India self-reliant and the 20 Lakh Crore financial package. The introduction of this package to the tune of 10 % of GDP can help all segments of the economy. Indian auto manufacturers have proposed multiple measures to restart the market, such as a temporary tax cut on automobiles, as well as proposals to scrap old vehicles.

 

 

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