New Delhi: Going by the RBI Governors’ estimates of witnessing the negative dip in GDP if it turns out at around one-two percent (which I think will be more), the automobile industry will see a decline of about 25 to 45 percent, which is like going back a decade, said Rajan Wadhera, President, Society of Indian Automobile Manufacturers (SIAM) as part of the ETAuto Fireside Chat conducted on Tuesday.
“This year is going to be really difficult for the auto sector to even perform at last year’s levels. 50 to 60 percent capacity utilisation is the figure looming ahead of us,” the industry veteran pointed out.
50-60% capacity utilisation is the figure looming ahead of usRajan Wadhera, President, SIAM
Almost three months of countrywide closure, with zero sales and the post-pandemic dilemma doubled by the already prevailing slowdown in the industry has resulted in the decaying health of a capital incentive sector.
Giving examples from countries like China and France, the SIAM President stated that an immediate stimulus for the industry is the need of the hour. “A reduction in GST by 10 percentage points can also soar up the demand.”
However, according to Wadhera, labour migration is not a hindrance as OEMs largely work with permanent workforce which is local. “Dealers and vendors employ temporary and migrant labour, but they will not face problems until 40 to 50 percent of capacity is utilised,” he said.
Meanwhile, the workforce can be a challenge if the industry does not see demand. “Then the question arises as to what will you do with the workforce?”
Another concern, as per Rajan Wadhera, is the supply chain which is causing a hindrance in production. “The tier-II and tier-III are the worst hit. But with this, a long term change is expected in localisation.”
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Auto industry’s R&D spend
Despite the best engineering minds in the country, the auto industry in India, rooting back to the 1950s, still has the lowest R&D spend which is less than one percent, making it dependent on the global markets.
Since the past decades, India has learnt the know-how (manufacturing) in the industry, but got the know-why (designing) from worldwide, Wadhera said.
“On the manufacturing front, not every part is made to the last drawing. Many of them have a final specification (fitment or output), but behind that, there is still a ‘black box’ being supplied by the global supplier. Indian OEMs do not have the scale to develop such a part with dwellings of Rs 60,000 in a year. So it is comparatively cheaper and competitive to import it from China or Europe,” he explained.
However, over the years several automakers have learnt through collaborations and successfully set up their own engineering centres to develop and design every single part in the country itself, he further added.
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Upcoming trends in the industry
SIAM President opined that preference for personal mobility will increase along with a growth in demand for LCVs (e-commerce) and two-wheelers (delivery purposes). Seeing green shoots in the rural market is expected, which will further impact the tractor and two-wheeler industry.
However, medium and heavy commercial vehicles remain a worry. “They mirror the economy, so their demand will not pick up until there is a significant growth in GDP.”
Wadhera further said that the next big wave is going to be autonomous and connected vehicles. “Having a niche segment of its own, there is no reason to believe that EVs will slow down,” he added.
Going by the safety protocols, we can expect 10 robos to work together but not two humans. Again, machines are made to replicate and reproduce faster than manpower, the industry veteran said.