Will need for personal mobility drive auto demand after lockdown? Millennials may avoid public transport

Sumit Maitra

As India slowly emerges from extended period of lockdown eager to restart their life, join offices and businesses and start travelling, the millennials and those who can afford would prefer to have their own vehicles in which they can travel in safe distance from others.

It’s one of the positive outcomes of the current pandemic that many automobile sector senior management officials are believing in that might drive significant demand post the lockdown, according to several analysts who cover the industry.

“There is a good reason to believe that people who were availing shared mobility because of affordability will now avoid public transport and therefore look to buy a car. But it is important to keep in mind that affordability will play a big factor,” said an auto analysts.

“We expect three opportunities to emerge from this adversity: possible reset of global automotive supply chain, vendor consolidation and M&As, and shift from public to private transport,” another analyst commented.

While questions remain as to whether people would indeed be able to afford in large enough numbers to buy new or even second hand vehicles in times of income and livelihood risks, analysts agree that positive demand impact would be felt largely on twowheelers post lockdown.

Demand recovery

While the first quarter of the fiscal Y21 is expected to be a wash-out, with most of the automakers reporting nil domestic sales, demand recovery should happen around the festive season from September onwards, observers said.

The pace of recovery would depend on several factors such as (a) time taken to return to normalcy, (b) stimulus from the government, and (c) extent of job/income losses.

Restarting ops remains a challenge

Factories might have been allowed to start work but automobile manufacturing is a complex process spread over multiple units.

Indian Original Equipment Makers operate primarily out of nine states, of which Maharashtra, Tamil Nadu, Haryana, Karnataka and Gujarat are major states.

Within these states, major clusters with developed ecosystems are in Pune, Delhi NCR, Chennai and Bengaluru. All these major automotive clusters are listed as hotspots (Red Zone), implying gradual normalisation of production.

Import content in the Indian automotive industry should range between 15-20 percent for key OEMs.

Large part of these imports is from China (27 percent of imports), EU including the UK (23 percent), South Korea (10 percent), Japan (9 percent) and the US (7 percent).

While China is returning to normalcy in terms of production, impact on imports from EU and the US is likely to be felt in MayJune, analysts said.

While the mother plant, usually owned by large auto companies like Tata Motors or Hyundai or Bajaj Auto, these are mainly assembly joints while components are made elsewhere spread over a large number of plants many of which couldn’t have been able to start operations due to multiple factors including being located at Red Zone or for other factors like failing to get back workers.

Major clusters with developed ecosystems are in Pune, Delhi NCR, Chennai and Bengaluru. All these major automotive clusters are listed as hotspots (Red Zone), implying gradual normalisation of production.

Absence of a single component can drive the assembly of a large vehicle troublesome as companies need to look for alternative sources. Bajaj Auto, whose factories are located at Maharashtra, is finding it difficult to operate its plant located at the worst affected state in the country.

Manufacturing operations of auto OEMs were suspended on March 23, in line with Government directives of lockdown. Subsequent to the new directives issued by the Government on May 1, with regard to resumption of manufacturing, nearly all OEMs have resumed partial operations or are planning to resume within a week.

However, utilisation levels are currently low considering that OEMs have started with single shift operations (against two shifts under normal circumstances) and maintaining social distancing norms at facilities.

Companies such as Maruti, Hero Motocorp, Bajaj Auto, Escorts have at least a month’s inventory which will cushion the slow production ramp-up to a certain extent.