How will Indian Automobile Industry change after COVID-19 Lockdown | Adamas University

How will Indian Automobile Industry change after COVID-19 Lockdown

Covid-19, Economy

How will Indian Automobile Industry change after COVID-19 Lockdown

The Automobile Industry in India is one of the largest industries of the country that contributes about 49% of the manufacturing GDP and 7.5% of the overall GDP. The USD 100 billion industry provides employment to about 32 million people. In the last decade, the production of two-wheelers has increased by about 100% and the production of four wheelers, both passenger vehicles and commercial vehicles, has almost trebled. In 2018, the Indian Automobile Industry became the 4th largest Automobile Industry in the world. The growth of the Indian Automobile Industry is driven by two-wheelers and passenger vehicles as their total market shares were 80.8% and 12.9% respectively. Small and mid-sized cars dominate the passenger car sales. The following chart shows the market share of each segment.

Automobile Industry: Present Scenario

The Indian Automobile Industry has witnesses a boom in the last decade as-

  • There was a rise in the income of the middle class and also the number of youth in the population has increased.
  • 5% of India’s total FDI inflow was directed towards the automobile sector.
  • The Indian Government also took various initiatives like reducing GST, setting up National Automotive Testing and R & D Infrastructure Project (NATRiP) Centers and National Automotive Boards etc.
  • The companies started exploring rural markets.

Market Size:

  • The domestic automobile production increased at 2.36% CAGR between FY’16 – FY’20.
  • The domestic automobile sales increased at 1.29% CAGR between FY’16 – FY’20.
  • Automobile export grew at 6.94% CAGR between FY’16 – FY’20.
  • In FY’20, 26.36 million vehicles were manufactured and over 20.1 million vehicles were sold in India.
  • 77 million vehicles were exported in FY’20.
  • There was a growth of 20% in the sales of Electric Vehicles (EVs) as 1.56 lakh units were sold in FY’20.

The Great Indian Automobile Industry Crisis:

The spectacular growth of the past decade came to a screeching halt in the year 2019 as the country started to witness the worst kind of slowdown in its automobile sector. There was a huge decline in the demand and sales of passenger vehicles. In July 2019, passenger car sales declined to 31%, the lowest in 18 years, and in August 2019 it declined to 29% as compared to the sales of the previous year. There was a huge downfall in the sales of two-wheelers and commercial vehicles also.

A number of manufacturers started to cut their production and many production units were shut down.

Major reasons behind this slowdown can be summarized as under:

  • Over production and stocking by the companies
  • Reduction in consumer spending power due to decreased income level of the customers
  • New BS-VI emission norms
  • Increased costs mainly purchase cost and maintenance cost
  • Lack of promotion of the Electric Vehicles and
  • Distress in the rural segment of the car market 

Automobile landscape: How will it change?

The main factors that have driven the decline in sales of personal vehicles are rapidly growing urbanization, heavy traffic and also the increased cost of owning and maintaining a vehicle. But the ongoing pandemic COVID-19 will change the way people in India move around. Those who used to rely on public transport and other app cabs will now turn into motorists. They will start to commute by personal vehicles due to hygiene issues.

The following trends will be seen in the post Covid-19 era-

  1. Two-wheelers and used cars will be in demand: As it is unlikely that majority of the people who used to travel by public transport will be able to afford a personal four-wheeler, the demand for two-wheelers and used cars will increase. After the pandemic started to spread, there is already a rise in the sale of used cars as that is a more affordable way of transport in this situation. As the people of the country are facing pay cuts and their jobs are also at risk, customers are looking for the most economic way of transportation that will make them spend the lowest. Over 40 lakh units of used cars have been sold in FY’20 which is 40% higher than the sale of new cars.
  2. The potential customers will be affected: The Indian Automobile market consists of a diversified segment of customers. The sale in Indian market is driven by the businessmen, traders and also the rural customers. And these are the peoples whose income has been affected by the COVID-19 lockdown. These potential customers will take time to turn around and they will have a tough time making a purchase decision due to the uncertainty over the future.
  3. ‘Work from Home’ culture will be the new normal: The ongoing corona virus pandemic has made ‘Work from Home’ culture the new normal. All the organizations are running with limited work force and most of the employees are working from home. As a result the transportation needs of the companies as well as the individual employees will go down sharply, which will lead to lower demand and sales.
  4. Online Sales will increase: The operating costs of the dealers are already rising day by day while the sales are going down significantly. And with this COVID-19, there will be some additional costs like costs related to maintaining social distance, sanitization of the workplace, screening and monitoring of the employees, providing masks and PPE kits to the employees. As a result of this increased operating cost, the companies will be forced to shift from the Brick and Mortar structure to the digital platform.

The above factors will lead to a drastic change in the actual sales figure for the current fiscal year. The Q1 FY’21 is expected to be a complete sales washout.

According to the reports of CRISIL Research, a double digit decline can be expected this year due to this lockdown.

  • The sale of passenger vehicles is expected to decline by 24% – 26%.
  • A decline of 21% – 23% is expected for the two-wheelers.
  • The sale of commercial vehicle is expected to fall by 26% – 28%. 

Conclusion:

Considering the present scenario, it is unlikely that the automobile sector of India will go back to its pre- COVID-19 situation anytime soon. There will be significant changes in the consumer preference and buying behavior of the consumers. The post COVID-19 era will bring in many challenges as well as many opportunities. The companies will now rely intensively on digital showrooms for increasing their customer base and the Electric Vehicles will surely make a place in the Indian market.

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