The recent outbreak of the Coronavirus (Covid-19) in China, which has now spread to major tourist and business destinations around the world including, India and Italy, is being seen casting its impact on businesses in times of an already tough global economic environment.
While the crude prices dropped to their lowest on Monday since the Gulf War of 1991, the automotive industry is also at a big threat, given China’s contribution as a key supplier for vehicle manufacturers around the world, owing to its competitive price advantage and cheap labour costs. India, which imports nearly a fourth of its automotive parts supplies and 10 percent of the raw material from China, is likely to see a significant impact on the industry in the near term.
As Indian carmakers near the BS6 transition deadline of April 1, reducing inventory levels of these critical parts is posing to be a big challenge to sustain production. In a press statement, Rajan Wadhera, president, SIAM said: “With anticipation of the Chinese New Year, the Indian auto industry had maintained inventory at the beginning of the year, but with the current lockdown in China, supply for BS6 vehicles is likely to get impacted.”
“Manufacturers are exploring alternatives to fulfil their supply chain demands but that would also take a substantial amount of time to reach stable production scale as these components would need regulatory testing. The disruption in availability of these parts is likely to critically hamper production across all segments, namely passenger vehicles, commercial vehicles, three-wheelers, two-wheelers and gravely affecting electric vehicles”, he added.
Of the top 8 countries that India imports automotive components, China has the largest share (26 percent), followed by South Korea (13 percent), Germany (12 percent), Japan (9 percent), USA (4 percent), Thailand (6 percent), Singapore (5 percent) and Italy (3 percent). In FY2019, the value of imports of components from China was USD 4.5 billion, of the overall USD 17 billion dollars of imports. India imports a varied range of parts from China covering drive, transmission and steering; engine parts; electricals and electronics; suspension and braking; cooling systems and vehicle interiors.
Speaking to our sister publication Autocar Professional recently, Vinnie Mehta, director general, ACMA said: “India Auto Inc imports all types of components from China. In FY2019, of the total imports of USD 17 billion, China accounted for USD 4.5 billion. The import of these components depends upon pricing, an manufacturer's global sourcing strategy and whether Indian suppliers have competence in that specific component / technology.
“De-risking and localisation are clearly the writing on the wall. We (Indian industry) did not act in time to capitalise on the opportunities that came about when the USA-China trade war began. Now, one of the de-risking strategies has to be to increase localisation in India, at a rapid pace. This essentially has to be a mid- to long-term strategy and I think the industry and the government need to have a focused campaign.”
As regards to the present situation in the industry, Mehta said: “There is concern in the industry but no panic.”
In his statement, Wadhera further emphasised that SIAM has been in touch with the Government of India with specific recommendations on behalf of the auto Industry and said: “In this regard, the industry is particularly thankful to the Government for issuing a notification of Force Majeure for Coronavirus and also 24x7 clearances of shipments at all customs formations.”
Speaking to Autocar Professional, Nikunj Sanghi, director, international affairs, FADA said: "The market is still very fluid. Our entire focus right now is to liquidate BS4 inventories and we are keeping an internal deadline of March 15 to be on the safe side. While the Coronavirus situation is a temporary breather for us because manufacturers would not push for wholesales, but if the impact lasts long, it could engulf all businesses and kill the demand per se."
The nation-wide dealers’ Federation had reached out to the Supreme Court last month with a plea to relax the deadline, but its request wasn’t considered. According to a statement issued immediately afterwards, Ashish Kale, president, FADA had said: “Hearing FADA’s plea, the honourable Supreme Court did not consider our appeal for extension of sale deadline for in-stock vehicles and reaffirmed their October 2018 order of April 1, 2020 as being the deadline for sale and registration of BS4 vehicles. Considering the long downturn which has lasted well over a year now and the current dynamic demand situation, selling 100 percent of the BS4 vehicles currently in stock with our members by March 31 is a tough task.”
In an internal message circulated to dealers, Kale also advised FADA members to plan liquidation of BS4 inventory as per the deadline. With a constant reduction in the reporting of new Covid-19 cases in China, only a speedy recovery could be hoped for the world’s largest manufacturing hub and an inevitable force behind a lot of global technology and manufacturing giants. But, as analysts and industry leaders believe, it brings a great opportunity for India to develop its own competence and emerge as an alternative in the mid-term. Can we do it, then?
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