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This week in Auto: Industry in urgent need of a bailout; companies bring down capex dramatically

Here are all the stories that made headlines during the week in the auto space

May 30, 2020 / 05:03 PM IST

India is staring at yet another year of double-digit decline in sales if the first two months of the year are an indicator. There is a pressing need for a government intervention without which demand is unlikely to come back on track anytime sooner. More on this later in the copy but here are all the stories that made headlines during the week in the auto space.

India no more the biggest market for Honda 2W

India is no more Honda’s biggest two-wheeler market. Indonesia has emerged as the leader. Challenging market conditions made two-wheeler operations of Honda India lose the top position in the world to its fellow Asian for the first time in four years.

Honda Motorcycle & Scooter India (HMSI), the country’s second-largest two-wheeler maker, clocked sales of 4.7 million units in FY20 as against sales of 4.85 million units clocked by P.T Astra Honda Motor, Indonesia’s largest two-wheeler manufacturer.

Mercedes to go-ahead with 10 launches

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Wide shutdown of key markets and expected meltdown in demand notwithstanding, India's biggest luxury carmaker Mercedes-Benz will go ahead with its planned ten launches for the year, a top company official said.

The company on May 27 launched the fifth and sixth launch of the year, C 63 AMG Coupe and the AMG GT R, priced at Rs 1.33 crore and Rs 2.48 crore (ex-showroom), respectively.

TVS Motor Company readies capex of Rs 300 crore 

Chennai-based two and three-wheeler maker TVS Motor Company has set aside Rs 300 crore capital expenditure (capex) for FY21 on the hope of a demand revival in the domestic market in the coming months.

This is the lowest capex lined up by TVS in five years and less than half compared to last year when it spent Rs 719 crore including on new product development.

Daimler to invest Rs 2,277 crore

Daimler India Commercial Vehicles (DICV) has signed a Memorandum of Understanding with the Government of Tamil Nadu, to invest Rs 2,277 crore to expand production capacity a well as for new products.

The expansion will be done at the Oragadam plant which manufacturers trucks in the range 9 to 55 tonnes. This investment will create approximately 400 jobs, DICV said in a statement.

Auto industry to see double digit decline: CRISIL

The domestic automobile industry is headed for another year of double-digit sales decline this fiscal, given the extended lockdown to contain the COVID-19 pandemic, CRISIL Research said on Thursday.

Overall sales volume would plunge to multi-year lows, with sales of both passenger and commercial vehicles reaching fiscal 2010 levels, it said.

Ceat cuts capex by Rs 250 crore

Ceat, India's fourth-largest tyre maker, has slashed its capital expenditure to Rs 500 crore, down from the previously outlined Rs 750 crore for FY21, as cash conservation gets top priority in the slowdown-hit automobile industry.

Ceat joins companies like Apollo TyresBajaj AutoTVS Motor Company and Maruti Suzuki in cutting down their capex amount aggressively for the current year. Some of these companies have also postponed commissioning of new production plants

Auto companies in other countries get a helping hand

On May 26 French president Emmanuel Macron announced an $8.8 billion aid package for the country’s struggling auto industry which has seen sales stagnation and job losses in huge numbers. Homegrown brands like PSA and Renault stand to benefit from the package.

Angela Merkel-led Germany is scouting for ways including offering direct incentive to car buyers, tax breaks and lower energy costs for manufacturers to help the auto industry tide over the crisis.

Italy is offering a government-backed credit facility of $6.9 billion to Italian-American carmaker Fiat Chrysler which is set to be the single biggest in Europe ever. Other companies in Europe and the US are also pursuing bailout packages for the auto sector.

Back home in India though the auto industry is still awaiting measures that were promised by the government leave alone a bail-out package or creation of incentive-based demand.

The scrappage policy, for instance, has been in the works for more than two years and is yet to be rolled out. Spearheaded by transport minister Nitin Gadkari the policy aims to get rid of old polluting vehicles trucks and buses on Indian roads by offering incentives to the buyer.

The government aimed at boosting adoption of electric cars by replacing all petrol/diesel/CNG driven vehicle by battery electric vehicles (EV). However there have been no new orders from the government for electric cars after the first order of 10,000 EVs placed in early 2017. In fact the first order was later scaled down to just 3,000 cars.

The Rs 20 lakh crore aid package announced by the government offered nothing specific to the auto industry though there were heightened expectations of cutting down of goods and service tax (GST) by 10 percent for a limited period until the fundamental demand kick in.

Passenger vehicle sales and production came to a naught in April, a first ever for the automotive industry, as the national lockdown was brought in force before the beginning of the final week of March.

Auto companies are unable to run their plants at desired levels due to supply constraints of parts and manpower. Weak retail demand due and restrictions at sea ports for vehicle exports have also kept production low.

Governments of several countries agreed to pay certain high percentage of the wage bill to the workers for the number of days the manufacturing plant remained shut due to the lockdown.

Italy, for instance, is paying 80 percent of the labour cost while Germany is paying 70 percent. The Spanish government is paying 35-40 percent of the labour costs. This is paid for the number of days the employee has not worked.
Swaraj Baggonkar
first published: May 30, 2020 04:46 pm

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