IMPACT OF COVID-19 ON

AUTOMOBILE INDUSTRY
BISWADIP BARUA
CAT Reg No-9048354
 INITIAL EFFECT

 The global pandemic caused by the novel corona virus

comes at time when both the Indian economy and the
automotive industry were hoping for recovery.
 While the GDP growth forecasts were north of 5.5%,
COVID-19 may result in a negative impact of 1-2% on the
expected growth rates.
 The absolute magnitude of impact depends on the
duration of ongoing lockdown and the impact caused of
this pandemic.
 The onset of Covid-19 in India will have a negative impact on the
automotive industry.
 It is estimated that there will be an overall revenue impact of at least
$1.5 -2.0 bn per month across the industry.
 Even after we open up, further decline in passenger vehicles demand is
expected with discretionary spend taking a backseat.
 This will be coupled with transition to BS-VI norms that will increase
cost of ownership.
 Farm sector and two wheelers demand could see a dip but
expected to bounce back in the U fashion.
 Commercial vehicles are expected to show some resilience,
although this is contingent on government continuing to
invest in large infrastructure projects and the liquidity
available with the transportation sector.
 The supply chain is expected to adapt quickly as China is
coming back faster than normal, however extended supply
chain visibility at Tier 2/3 level is the biggest risk mitigation
factor that vehicle companies will need to work on.
 WHAT IS THE IMPACT?

 The impact of COVID on the economy & automotive industry could vary depending on
intensity, duration and spread of the outbreak.
 As a result, the economy may witness a recovery that is V shape – Quick recovery, U
shape – Impacting whole of 2020 or L shape – 18 months of downturn.
HOW SHOULD THE INDUSTRY RESPOND?

Immediate action must be taken to mitigate the most harmful COVID-19

risks. Any immediate action should be across five key dimensions.

 First, prioritize employee protection and safety. For this organizations

will need to monitor and track employee health status, follow most
conservative disease control protocols, define travel guidelines &
quarantine requirements and plan for flexible work plans and home
office.
 Second, ensure business continuity planning, wherein businesses set-
up instant response team, define & align leaders, review business
continuity, review co-working guidelines in critical positions and
measures and ensure and support supplier stability.
 Third, will be inevitable operational firefighting where business leader
will need to define and execute contingency measures, ensure
availability of essential components, prioritize supply chain capacity,
ensure real-time monitoring and response mgmt. e.g. manage in
transit inventory, manage liability coverage, insurance, etc.
 Fourth, would be the necessary action towards cash and liquidity
management. This would mean that organizations assess risk exposure
regarding financial implications and additional financing, stabilize
cash flows to ensure enough liquidity and define cost reduction
measures.
 Finally, external relations management will be equally critical to
ensure continuous and transparent communication to suppliers,
customers, logistic service providers, auditors, marketing agencies
etc.
Different parts of the organization will have different roles to play. For example, the strategy team
should setup a command center and undertake scenario planning in the short term and think of
finetuning their processes and revising their strategic plan and business model in the medium to long
term.
 Corporate functions like finance, human resources, IT will need to
work for business continuity and risk planning in the short term.
Receivables, collections, compliance and securitization of digital
assets and network will be among other short term priorities.
 Medium to long term focus should address overhead reduction,
efficiency improvement, maintain stakeholder communication and
explore opportunities for automation and efficiency upliftment.
 Similarly, market facing teams like marketing, sales, services will
need to actively engage with their customer to assure supply, closing
out any on-going deals, reduce marketing and re-allocate marketing
budget to digital media, especially as traditional media like print, TV
(except news) may be less effective.
 In the medium to long term, they will need to work on their service
offerings, channel expansion, fixed cost reduction and improving
return on investment on marketing spend.
 SO WHAT NEXT?
 As the current lockdown nears its end and businesses plan to revive
operations, it will effectively be a fortnight of preparation to jump start
business operations. This would be across aspects of employee
engagement, cash and liquidity management, sales and marketing revival
and operational continuity.
 Additional support will be needed to defer timelines for filing returns like GST
return, TDS payments, EPF deposits. Further extend credit on Social Welfare
Surcharge and treat it as CSR expenses on treatment of employees for Covid-19.
 Allow short term overdraft and interest subvention to manage working capital
requirements; Enable banking sector to provide channel financing to dealership/
network. Offer limited period waiver on demurrage on ports, railway stations etc.
for stuck / in-transit materials and ensure priority allocation of railway, logistics
infrastructure to unclog supply chain.
 The India automotive industry has already seen difficult past few quarters and this
pandemic led lockdown couldn’t have been more ill-timed. However, a planned
and concerted response, both immediate and medium to long term will ensure a V
shape recovery. As critical as industry action will be the support needed from
government and regulators to catalyze this revival. After all, the current situation
is a call for action by one and all in these troubled times.
THANK YOU