Impact of COVID-19 on the Automobile Industry

India’s automobile industry, the 4th largest in the world by volume, witnessed another year of
significant declines. Sales of passenger vehicles have been particularly hard hit, amid COVID-19
and recorded zero growth in April this year while a month earlier in March it was down 52%.
Commercial vehicles dropped to 88%, Two Wheelers to 40%, and three Wheelers registered 60%
in March 2020.
The automotive sector accounts for about 15% of the country’s total tax collections and
employs 32 million people, directly and indirectly, underlining why a strong automotive sector is
vital for the health of the economy.

With COVID-19 triggering an 80-100% drop in physical visits to showrooms and contactless
transactions expected by customers, digitization has emerged as key to survival. It is
empowering automotive retail and after-sales and enabling more meaningful customer
engagement and communication branding.

Competitive Markets
In spite of the economic slowdown, BYD, MG Motors and other leading Chinese OEMs have
serious investment plans for India. With the increased competition in passenger cars in 2020,
the new automakers nibble away at Maruti Suzuki and Tata Motors’ (and supplementary small
businesses’) market shares.
The focus is on the revival strategy by providing online facilities, strategic partnerships, and
hassle-free services to customers.

Q1 2020: Maruti Suzuki gained 3.5% market share in the car segment. In the MHCV Bus
segment, Ashok Leyland increased its market share by around 4% but lost a 4% market share in
the MHCV truck segments.

Regulatory Requirements
Over 2019, automotive OEMs scrambled to comply with additional mandated safety equipment
requirements including anti-lock/combined braking systems, driver side airbag, speed warning
alarm, rear parking sensors, front seat belt reminders, and crash test standards. This results in
increased R&D costs and increased pricing to customers across all models.

By April 2020, all vehicle types, two and three-wheelers, commercial vehicles & cars were
mandated to conform to BS-VI emission standards, with cost increases estimated to be
between 5-10%. With increased prices by 2-3%, at the beginning of JAN 2020, to offset
economic cost increases, OEMs now face the dilemma of potentially absorbing extra costs or
losing volumes.

Customer Insights
The COVID-19 pandemic has brought about a significant change in the perspective regarding
transportation usage in the minds of consumers. The demand for personal mobility increased
due to the customer’s need to ensure personal safety. This had led to a surge in demand for car
servicing and detailing/ sanitization amid a relaxation of lockdown restrictions

Moreover, the ensuing financial strain on the economy and disposable income of consumers
could extend the purchase timelines and shrink the allocated budget for some car buyers. This
could possibly even mean buyers settling for a lower-segment model than originally planned,
potentially shifting more demand to the mid/entry-level segment.

However, on the contrary, remote work from will hit the white-collar professionals leading to a
reduction in the demand for cars. Additionally, it is a little absurd to think that commuters of
public transport would now suddenly be able to afford a personal car, especially with a
possibility of reduced incomes and slow lending rates by banks and Non-Banking Financial
Companies (NBFCs).

Growing unemployment rates and volatile financial markets are leading people to postpone
vehicle buying decisions and result in a decrease in private investment deals in the country. A
depressed rural economy with the lower annual rainfall continues to have a significant impact
on two-wheeler demand and in turn lean manufacturing.

Business owners/ leaders must use multiple platforms to gain their customers’ attention as well
as boost trust & confidence, as the pandemic has brought grave uncertainties, and it is in the
time of crisis that businesses can create awareness around brand reliability, post-sales
services, and their risk-averseness (Investments in Big Data for targeted customer insights,
Autonomous operations & limiting product lines).

Domestic Sourcing Infrastructure

The industry got short-circuited with the over-dependence on sourcing from China. Global trade
and movement restrictions disrupted supply networks for Q1 and Q2 of 2020. The industry
adjusted with the sourcing of local manufacturing of components, modules, and technologies
and foreign VC funding. Though the major issue is cost, scalability is based on creating a viable
alternative to Chinese automotive suppliers.
Furthermore, if firms in the industry solve cash crunch issues by assessing long term runway
and making necessary plans for raising needed capital will improve longevity and planing
sourcing and distribution strategies by integrating AI technology in production and supply chain
to improve profitability.

The slow pace growth means the Indian automobile industry, which was already dented by a
prolonged slowdown even before the Covid-19 pandemic struck, is now certainly staring at an
unprecedented crisis.