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Covid-19 shock driving auto industry into rezig mode

Covid-19 shock driving auto industry into rezig mode
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Highlights

As per latest report by Deloitte, almost all the automobile manufactureres are suffering from revenue loss and zero cash flows. This is forcing them to exit unprofitable businesses and slash spending on research and development (R&D). The ongoing coronavirus pandemic will delay the progress being made in developing alternative fuel technologies.

The third phase of lockdown is sending tremors across all the industry verticals. Particularly, the domestic automobile sector suffered zero sales in April as the entire world in lockdown. The industry may undergo a prolonged U-shape recovery, observe experts while saying that almost all the auto majors are restructuring their operations and business models.

Considering the current situation, industry analysts forecast that the auto sector may witness recovery by 2022. As per the latest report by Deloitte, almost all the automobile manufacturers are suffering from revenue loss and zero cash flows. This is forcing them to exit unprofitable businesses and slash spending on research and development (R&D). The ongoing coronavirus pandemic will delay the progress being made in developing alternative fuel technologies.

Meanwhile, companies such as Hero Motocorp and Toyota Kirloskar Motor have resumed commercial operations from May 6, 200, in a modest way. Although the lockdown relaxations have kicked in for industry to operate in many areas, companies, especially with a retail front end, will see how the last mile link to the consumer becomes operational pan India.

The industry is grappling with the issues of opening a countrywide distribution network and ensuring supply chain continuity between the designated red, orange and green zones as it mulls restoring manufacturing capacity at factories.

Naveen Soni, senior V-P (sales) at Toyota Kirloskar Motor, said: "The challenge that lies ahead of us is the fact that for the auto sector to start production, it is necessary that our entire value chain starts operating. Our value chain consists not only of our suppliers but our dealers as well who are based in different parts of the country including cities that are still under severe lockdown."

Once the manufacturing starts, demand pick up, especially for big ticket items like cars will be the other important variable as what is manufactured will also have to be sold.

Although the Gurgaon administration has given permission, India's largest carmaker, Maruti Suzuki is yet to announce the commencement of its manufacturing operations at its plants.

Two-wheeler maker Hero Motocorp has announced that production will start from Wednesday. To begin with, Hero MotoCorp is commencing operations in a graded manner at three of its manufacturing plants at Gurugram and Dharuhera (both in Haryana), Haridwar (Uttarakhand) and additionally the Global Parts Centre (GPC) at Neemrana in Rajasthan.

These manufacturing plants reopen from coming Monday and production at these facilities will commence from Wednesday.

However, Hero Motorcorp said only the essential staff will come to work at all the other facilities and corporate offices, observing social distancing and all prescribed safety measures. The remaining employees across all locations in India will continue to Work from Home (WFH) until further notice.

The company's other manufacturing plants have also obtained the necessary permissions to reopen and these will commence operations after most of the supply chain partners of the company get the permissions to operate.

Toyota Kirloskar Motor will commence some preparatory operations at the plant. The company said that these preparatory operations are conducted to provide its workforce with an adequately safe environment to work in, duly prioritizing domains like spare parts supply as that is an important requirement from the markets where certain customer service activity has already started.

"Furthermore, we have developed certain crucial changes in guidelines for enhanced safe operations in all areas of work which would mean that the first few days will be spent on training our members on the new guidelines as well as ensuring safe materials and working environment. Hence, operations at our plant will resume in a phased manner, most importantly keeping in mind the needs of 'social distancing' and sanitization," the company said.

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