The new financial year started on a sour note for the beleaguered auto industry with zero sales reported in April. This was mainly because factories and dealerships were closed for business on account of the lockdown.
The bad news multiplied when the Centre announced a further two week extension of the lockdown. Companies believe that the 55 day suspension of business will cost them dear.
Our today’s wrap of the week talks more about this. But first, here is a complete look at what else made news during the week.
Honda appoints new India head
Japanese auto major Honda Motor Co on May 1 said it has appointed Atsushi Ogata as new president, chief executive officer and managing director of Honda Motorcycle & Scooter India (HMSI) with immediate effect.
Ogata replaces Minoru Kato, who after a three year stint at HMSI returns to Japan as the operating executive & chief officer life creation operation, Honda Motor Co.
Auto companies welcome FY21 with zero sales
Automotive companies have started FY21 on a luckless note, reporting zero sales in April as manufacturing facilities remained closed following full lockdown orders from the central government.
For the first time, over 100 factories of automotive companies that make scooters, motorcycles, cars, electric vehicles, trucks and buses did not produce even a single vehicle during the entire month of April.
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Order a Mercedes-Benz from home
India’s largest luxury car maker Mercedes-Benz has rolled out ‘Merc from Home’, a fully digital car buying initiative that allows customers to book online and get the vehicle delivered to their doorstep.
This first-of-its kind initiative will ease the experience of purchasing a vehicle using digital tools to facilitate the entire process including online payment of products and services. The novel coronavirus-forced lockdown has made almost all carmakers sell cars through the online medium, keeping physical interaction to the bare minimum.
Hero Splendor leads race in 2W market
The close contest between two former friends Hero and Honda saw the Indian heavyweight take the lead last year when the Splendor snatched the top spot from Activa.
The Hero Splendor clocked sales of 2.63 million units in FY20 as against 2.59 million units clocked by Honda Activa during the same year. In FY19 it was the Activa that finished first followed by the Splendor.
Auto companies rush to raise capital
Five automotive companies have raised, or plan to raise, more than Rs 3,000 crore in two weeks in an effort to replenish working capital funds as the nation prepares to see-off the 40-day lockdown on May 3.
Non-convertible debentures (NCD) and convertible preference shares (CPS) have become the preferred method for the auto industry for raising capital at a time when efforts are being made to get the closed factories humming again.
Rupee slide puts pressure on luxury carmakers
The Indian Rupee has fallen by nearly 8 percent to the US Dollar (USD) since January, severely impacting the businesses of import-dependent automotive companies.
The Indian currency hit an all-time low of Rs 77 against the USD earlier this month, a fall from Rs 71.36 recorded in the first week of January. This was triggered by poor foreign investment inflows, strengthening dollar and crumbling stock markets.
Auto companies not enthused by lockdown extension
Industry captains who manage automotive companies which are impacted by the extension of the lockdown till May 17 appear displeased over the government’s move.
The Centre has relaxed restrictions in Green, Orange and Red demarcated zones compared to the current norms. However, even if automotive companies are located outside of the Red zones and are permitted to start manufacturing a majority of 25,000-odd dealerships are based inside the Red zones and won’t be allowed to reopen.
Metropolitan cities like Mumbai, Delhi, Chennai, Hyderabad, Bengaluru and Ahmedabad which command a significant share in sales happen to be part of the 130-odd Red zones identified by the government.
Further factories of several companies such as Mahindra & Mahindra, Apollo Tyres, Bajaj Auto, Tata Motors and MG Motor have received the permission to restart manufacturing in certain plants. There are though still lots of skepticism over maintaining continuous production.
Vipin Sondhi, Managing Director & CEO, Ashok Leyland, said, “Auto companies are dependent on the ancillary sector. A smooth flow of the complete supply-chain is vital for production of vehicles. While the government has given the auto sector the permission to resume operations in a phased manner in certain geographies, with certain norms and conditions, it still remains a challenge for the industry to resume operations."
"This because, while the OEM production unit might be in the green zone, even if one ancillary unit that supplies a small part happens to be in the red zone, will make a component of the vehicle unavailable, thereby making the production process impossible," Sondhi said.
In a joint letter to Ajay Kumar Bhalla, Home Secretary, Ministry of Home Affairs, the Automotive Component Manufacturers Association (ACMA), Federation of Automobile Dealers Associations of India (FADA) and Federation of Automobile Dealers Associations of India (SIAM) wrote: "You would appreciate that the automotive value chain is highly complex, integrated and interdependent. A vehicle manufacturer cannot commence operations if any one of its suppliers is unable to undertake production. Further, production of a vehicle manufacturer would only amount to adding to inventory and thus blocking working capital in case dealers are unable to sell the vehicles. It is therefore pertinent to note that if any element in any segment does not commence operations the value chain will not be able to restart."
ACMA represents the component community while FADA presents the dealer and SIAM represents the vehicle manufacturer’s community.
But not everyone is in the same boat. Pawan Goenka, managing director, Mahindra & Mahindra believes that the two week long extension should be used by auto companies to get back into the previous routine.
A tweet from Goenka said, “I do not see this as an extension of lock down but a partial opening. Many activities now allowed in green zone and some even in red zone. Next two weeks should be used to get the rhythm back in the business cycle with partial activity, getting ready for May 18th."
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