According to a report in ETAuto, the Indian automobile industry is likely to suffer an estimated revenue loss of around ₹ 13,000 crore to ₹ 15,000 crore due to the coronavirus outbreak. With the pandemic disrupting the domestic economy and several businesses in the country, the automakers will have to bear the estimated revenue loss if they are forced to shut down the operations for the next 10 days. Notably, a majority of the manufacturers like Maruti, Hyundai, Honda, Suzuki, TVS & Tata Motors have already opted for the temporary shutdown the operations. Some companies that are yet to announce closure are Kia Motors and BMW India. However, MG Motor India has decided to introduce disinfect & deliver program initiative for the customers wherein the vehicle will be completely sanitised to ensure minimal risk of infections.
As per the ETAuto report, the Indian auto sector earns gross revenue of around ₹ 2,000 crore each day and shutting down the production by the manufacturers for the next 10 days will result in a revenue loss of up to ₹ 15,000 per day wherein the annual business of the sector stands at ₹ 7.8 lakh crore. Additionally, the industry also contributes around 7.5 per cent to India's overall GDP, which accounts for 49 per cent of its manufacturing sector.
However, the estimated loss can be recovered, once production resumes and the manufacturers are willing to ramp up the production and increase the capacity utilisation. The domestic automobile sector is already going through a negative phase as of now with severe underutilisation of capacity due to slow demand over the last year. Now, the coronavirus pandemic has forced the automakers to stop production at their facilities and force their non-manufacturing employees to work from home.
The impact of the coronavirus is increasing by each day and we have seen the highest impact on the industry in last 24 hours wherein the leading automakers have announced the closure of their plants due to an outbreak of the coronavirus as preventive measure till March 31.
Maruti Suzuki said in a regulatory filing that, "The government policy now requires closure of production and accordingly the company has decided on production closure. The company will shut production and office operations at its facilities in Gurugram and Manesar, Haryana, with immediate effect till further notice. The research and development centre at Rohtak will also remain closed. The duration of this shutdown will depend upon government policy."
As of now, the OEMs have halted the production at their selected facilities where the state government have issued orders for the complete shutdown. But, seeing the magnitude of the impact and exponential rise in the cases of coronavirus in the last two days, some experts believe that the auto sector may be heading towards a 100 per cent shutdown.
According to the latest data from the Union Health Ministry, there has been a steep rise in coronavirus cases that jumped to 396 till Sunday.
The Society of Indian Automobile Manufacturing (SIAM) along with Automotive Components manufacturers' association of India (ACMA) have issued an advisory to Auto manufacturers to halt their plant operations temporarily. Rajan Wadhera, President, SIAM said, "With a view to the deteriorating situation arising out of COVID-19, SIAM and ACMA have both requested their Members in OEMs and Auto Component Industry to consider plant shut down for a limited period to overcome the critical period so that workers are not exposed to the virus. This is in line with SIAM's motto of 'Building the Nation, Responsibly'"
Madan Sabnavis, chief economist, Care Ratings said to ETAuto that, "Even in best possible circumstances, Indian car makers will not be able to kick start operations immediately from April 1, China took four months to restart partial production and the facilities there are still running well below capacity. He further added that the impact of the virus will be so hight that the companies will not be able to return to normal production by June quarter.
Apart from the revenue loss, the Indian auto sector is also likely to suffer major job losses due to the Coronavirus, wherein the industry has witnessed prolonged slow down for more than 20 months now. The major job risk lies for the contractual workers constituting over 55 per cent of the overall workforce.
An industry veteran mentioned, "Currently we're at a very initial stage, but there are certain regions in the country that are deeply impacted. New vehicle sales are discretionary big-ticket items, which one can easily shelve the customers are feeling uncertain about their health and income."
Carandbike reached out to FADA, wherein President Mr Ashish Harsharaj Kale said, "The Country today is facing a very tough situation and so is the auto retail industry. Dealers also face the additional issue of BS4 inventory worth ₹ 6400 Cr remaining unsold due to the impact of Covid-19 states and cities under lockdown. More than 12000 dealer outlets are shut in the lockdown states and cities and many more of our members have voluntarily shut their outlets even in areas where there is no mandatory lockdown to break the corona chain. Awaiting a relief from the Hon'ble Supreme Court for BS4 sale extension, auto dealerships are currently focusing and doing everything to break the chain of Covid-19 spread and we pray that our country overcomes the epidemic at the earliest."